TaxTMI 
TaxTMI 
2019 (9) TMI 823
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....Submarines meant for Indian Navy and Shipbuilders, attracts 5% 3. The applicant furnishes some facts relevant to the stated activity: a. The applicant states that they are a Government of India Enterprise under the Ministry of Defence, seeking an advance ruling on the applicability of Sl.No. 252 of Schedule I of Notification No. 1/2017- Central tax (Rate) and No. 1/2017 issued by the Government of Karnataka, both dated 29.06.2017, for the supplies effected or to be effected by them for construction of, or use in, vessels, warships and sub marines meant for deployment in the Indian Navy. b. The applicant states that the present application is maintainable under section 97 of the KGST Act as the application is in respect of the applicability of a notification issued under the provisions of the GST Act. c. The applicant states that they are having manufacturing units at various places across India and are mainly engaged in the manufacture and supply of various defence related equipment/ machinery/ systems. The said goods are supplied to all the three forces guarding the frontiers of the country. d. The applicant states that the subject matter of the present application relates to....
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....applicant for supply of "Advance Composite Communication System" dated 15.09.2014 for a total consideration of Rs. 51,00,81,780/-. The Advance Composite Communication System is an IP based integrated communication system designed to provide quick and reliable communication over VLF, HF bands onboard Naval Ships for facilitating ship to ship, ship to shore and ship to air communications. This contract entails supply of the systems along with services inter alia of development and engineering, training. The applicant is also in charge of installation and commissioning of such systems by deputing their service engineers as per the requirements of the Buyer Party. h. The applicant submits that the various systems are to be integrally connected with each other for effective functioning of warships, Vessels and Submarines. For example, the Fire Control System and the Missile System are to stay interlinked with the radar system and the CTD system is essential for monitoring and handling all such systems. i. In the backdrop of the above factual and technically involved in supplies of various items required for use in a Warship, Vessels, and submarines for the purpose of discharging GST l....
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....ant submits that he is of the understanding that the subject supplies are covered by Sl.No.252 of Schedule I of Notification 1/2017- Central Tax (Rate) for the following reasons:- i. "Part of ships" do not have separate heading in the Tariff: a. Explanation (iii) to Notification No. 1/2017-IGST provides that the "Tariff item", "heading" and "Chapter" shall mean respectively a tariff item, subheading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975. b. Further, Explanation (iv) provides that the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this Notification. c. Section WII of the First Schedule to the Customs Tariff Act, 1975 relates to "Vehicles, Aircraft, Vessels and Associated Transport Equipment" including four chapters namely 86 (Railways), 87 (Vehicles other than Railways), 88 (Aircrafts) and 89 (Vessels) d. While other three Chapters have separated heading for parts and accessories (8607, 8708, 8714, and 88()3), Chapter 89 does not have a sep....
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....alling in other Chapters of Section XVII, this Chapter excludes all separately presented parts (other than hulls) and accessories of vessels or floating structures, even if they are clearly identifiable as such. Such parts and accessories are classified in the appropriate headings elsewhere in the Nomenclature, for example: (1) The parts and accessories specified in Note 2 to Section XVII (2) Wooden oars and paddles (heading 44.21) (3) Ropes and Cables of Textile Materials (heading 56.07) (4) Sails (heading 6306) (5) Masts, hatchways, gangways, rails and bulkheads for ships or boats and parts of hulls, having the character of metal structures of heading 7308 (6) Cables of iron or steel (heading 7312) (7) Anchors of iron or steel (heading 7316) (8) Propellers and paddle wheels (heading 8487) (9) Rudders (headings 4421, 7325, 7326, etc) and other steering or rudder equipment for ships or boats (heading 8479) k. Hence, the classification of "parts" of ships, particularly when they are cleared in the form of assemblies/ systems as in the case of supplies to Shipyards / Indian Navy by the applicant is close to impossibility. Even if so done, it would be difficult to ....
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....Guard equivalent to the Joint Secretary to the Government of India, to the effect that the said goods are intended for the said use, is produced to the proper officer. g. Further, Notification No. 12/2012-Cus also had the following entry 459 Any Chapter Capital goods and spares thereof, raw materials, parts, material handling equipment and consumables, for repairs of ocean going vessels by a ship repair unit. h. Notification No.82/84-CE exempted all capital goods, components and raw materials falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and cleared for repair of goods falling under Heading Nos 8901, 8902, 8904 and 8905 (excluding floating or submersible drilling or production platforms) and 8906, by ship repair units from whole of excise duty. i. From the above, the applicant states that it can be seen that whenever exemption is provided to goods meant for ships, etc. falling under Chapter 89, either for manufacture of ships or for repairs or for specified purposes such as under by Indian Navy, such exemption has been provided to goods falling under any Chapter of the respective Tariff (Customs or Central Excise). j. The app....
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.... or adds to the beauty, elegance or comfort for the use of the motor vehicle or a supplementary or secondary to the main or primary importance. Whether an article or part is an accessory cannot be decided with reference to its necessity to its effective use of the vehicle as a whole. General adaptability may be relevant but not by itself conclusive. . ." ii. Pragati Silicones Private Limited v. CCE, Delhi [2001 (131) ELT 704 Tri, Delhi] = 2001 (4) TMI 125 - CEGAT, COURT NO. II, NEW DELHI - The Tribunal was considering the dispute whether 'plastic name plates' are parts of motor vehicles. The Tribunal had referred to Sarkar's Words, Phrases of Excise & Customs - Second Edition' - "part is an element of a sub-assembly, not normally useful by itself and not amenable to further disassembly for maintenance purpose" In common parlance parts are used in the manufacture of the final product and without which the final product cannot be conceived of and came to the conclusion that a motor vehicle is complete even without the 'plastic name plate' and hence negated the claim that the name plates are parts of vehicles. The Hon'ble Supreme Court overruled the decision of the Tribunal and hel....
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....are supplied, either as individual parts / components or as system/ assemblies so long as they are meant for use in Warships (or other type of vessels falling under Heading 8901 etc.) b. The applicant also submitted that when the GST Notification is compared with the corresponding Customs / Central Excise Notifications mentioned earlier, it can be noticed that the GST Notification in general terms refers to 'parts of goods falling under 8901, 8902, 8904, 8905, 8906, 8907'. c. He submitted that whereas, the Customs / Central Excise Notifications (12/2012-Cus, 50/2017-Cus and 12/2012-CE) exempted 'raw materials and parts, for use in the manufacture of goods falling under 8901, 8902, 8904, 8905, 8906, 8907'. The expression 'for use in the manufacture of goods' is conspicuously absent from the GST Notification(s). d. Further, the applicant submits that, the Customs Notifications mentioned above also exempt Capital Goods and spares thereof, raw materials, parts, material handling equipment and consumables, for repairs of ocean going vessels (including warships) by a ship repair unit. Similar exemption from Central Excise duty was provided vide Notification No. 82/84-CE. e. Notif....
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....atter of this application relates to supplies against purchase orders received from various ship buildering industries, namely Mazagon Docks Ltd, Garden Reach Shipbuilders and Engineers, Hindustan Shipyard Limited, L & T and directly to Indian Navy. In this regard the applicant has submitted a copy of a contract entered between the applicant and JS & AM(MS), Ministry of Defence, in the name of the President of India and a purchase order from Hindustan Shipyard Limited. The application is examined with reference to this contract and the purchase order. The Applicant submitted that they are involved in supply of various systems & sub-systems and onboard spares for use in the warships, vessels and submarines meant for Indian Navy. Each system by itself is not a separate product, but comprises of various parts/assemblies. Further apart from supply of the systems, they also provide services of installation, commissioning, Training including rehosting of test programmes. 5.5 The Applicant submitted that they require to determine the classification of their supply to determine the appropriate rate of applicable GST. They further submit, quoting the definitions of "Composite Supply" defin....
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....th the principal supply being the supply of Fire Control Systems. It also includes the service to be provided during the warranty period. In the instant case the Applicant supplies the goods such as Fire Control Systems, Radar Systems etc., and also provides the services of the installation, commissioning, Training etc.. The equipments/ systems supplied by the applicant are custom made for warships and hence the applicant alone is qualified to install and commission them and also to train the recipients. Therefore the two supplies that of supply of goods and supply of related services, are taxable as well as naturally bundled and hence qualify as a Composite Supply. The principal supply is undoubtedly that of goods i.e. the systems. 5.10 Further Section 8 of CGST Act 2017 deals with the tax liability in case of a composite supply and states as under: 8. Tax liability on composite and mixed supplies: The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b). . . . . . . In v....
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....ariff Heading 89.06 covers Other Vessels, including warships and lifeboats other than rowing boats. The warships are specifically covered under Tariff Heading 8906 1000. Further "Parts of goods of heading 8901, 8902, 8904, 8905, 8906 and 8907" falling under any chapter are subject to 5% of IGST (2.5% of CGST and 2.5% of SGST) in terms of serial number 252 of Schedule I of Notification No. 01/2017-Integrated Tax (Rate) & Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017. Therefore the applicant contends that their supply i.e. the goods qualify to be parts of ships and vessels and hence are taxable at 5% IGST. 5.15 Chapter 89 falls under Section XVII of the Customs Tariff and hence the relevant Section Notes are applicable to the instant case. Section Note 3 to Section XVII of Customs Tariff stipulates that "References in Chapters 86 to 88 to "parts" or "accessories" do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of th....