GST rate applicable for Engine while considering as part of DG set

[Vivek anandhan]

Dear Expert

We are the manufacturer of Diesel Generating Set under HSN 85021100 and output GST rate applicable at 18%. But for our principle INPUT Item of Diesel Engine having HSN 84089010 falling GST rate at 28%. Can I insist our supplier to charge 18% for the supply of Engine under the HSN code of 85030000 because the engine specifically designed for DG set only. At present they are charging 28%. Furnished below the rates and description available in HSN data.

Description of Product HSN GST Rate

Parts suitable for solely or principally with the machines of heading 8501 or 850285030000 18%

Engine is the principle input item of Diesel Generating Set. Without Engine DG set will not run. It is principle part of DG Set. Also our supplier having separate engine division for manufacturing of Engine for DG set application, It is specifically designed for DG Set application.

Vivekanandhan

[Alkesh Jani]

Sir,

The very first difference is you are in manufacture of DG Set which can be classified based on out put as KVA, while Diesel engine is classified based on cc basis. therefore, classification seems to be proper.

Regarding rates, you can file refund claim as inverted duty structure, which is best option in your case.

Thanks

[KASTURI SETHI]

You cannot insist your supplier to charge GST @ 18% on engine which is principal input for Diesel Generating Set. Govt. has made provision for refund on the ground of Inverted Duty Structure. As per the present position of GST law, there is no other option except refund claim as advised by Sh.Alkesh Jani Ji. Classification of both products is O.K.

What I feel that you do not want to face the rigours of filing refund claim on the ground of Inverted Duty Structure every month or quarterly (whatever may be tax period) basis. What you require is not reduction in rate of tax on engine but you require exemption as it was in force In Central Excise era. I draw your attention to Para No.4 of Notification No. 8/2003-CE dated 1.3.2003 as amended up to 26.7.16. That para is reproduced below:

" 4.The exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or not, of another person, except in the following cases :-

where the specified goods, being in the nature of components or parts of any machinery or equipment or appliances, are cleared for use as original equipment in the manufacture of the said machinery or equipment or appliances by following the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 :

Provided that manufacturers, whose aggregate value of clearances of the specified goods for use as original equipment does not exceed rupees one hundred lakhs in the financial year 2002-2003 as calculated in the manner specified in paragraph 1, may submit a declaration regarding such use instead of following the procedure laid down in the said Central Excise(Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001;"

The highlighted rule, 2001 were replaced by CENTRAL EXCISE (REMOVAL OF GOODS AT CONCESSIONAL RATE OF DUTY FOR MANUFACTURE OF EXCISABLE AND OTHER GOODS) RULES, 2016 vide [Notification No. 20/2016-C.E. (N.T.), dated 1-3-2016 as amended].

Now in GST there is no such rules. Since tax is being paid on final product by you, you should talk of exemption (on the pattern of above rules) on engine to be used as original equipment in the manufacture of DG Set as it was available in pre-GST era via Notification No.20/16-CE(NT) dated 1.3.16 amending Notification No.34/2001-CE(NT) dated 21.6.2001.

You will have to suggest to GST Council as such provision/facility has been missed while implementing GST. This will also save unnecessary paper work and time involved in getting refund on the basis of Inverted Duty Structure.

If you want relief, you will have to labour hard through Trade and Industry Association.

I hope you have followed what I want to say.

[YAGAY andSUN]

In our view as a customer you cannot determine classification of goods for your supplier. It the suppliers' jurisdiction to classify their goods and services in the appropriate HSN/SAC after giving due consideration to GIR and the explanatory notes to services etc.

AI Summary

Manufacturer Queries GST Rate Discrepancy for Diesel Engines Used in DG Sets; Refund Filing Advised for Inverted Duty Structure A manufacturer of Diesel Generating Sets (DG sets) inquires about the applicable GST rate for diesel engines, a principal input item. The DG sets are taxed at 18% under HSN 85021100, while the engines are taxed at 28% under HSN 84089010. The manufacturer questions whether they can insist on an 18% GST rate for engines under HSN 85030000, given their specific design for DG sets. Experts advise that the manufacturer cannot demand a rate change from the supplier and suggest filing for a refund under the Inverted Duty Structure. They also mention the absence of pre-GST era exemptions and recommend advocating for policy changes through trade associations.