TaxTMI 
TaxTMI 
2022 (2) TMI 651
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....") against the Advance Ruling No. AAR No.11/AP/GST/2021 dated 10.02.2021 issued by the Authority for Advance Ruling, Andhra Pradesh. 1. Background of the Case: 1.1 The appellant, M/s Bharat Dynamics Limited (BDL), a Government of India Enterprise under the Ministry of Defence is a manufacturing base for guided missiles and allied Defence equipment. 1.2 The clarification sought by the appellant relates to supplies to be effected against a supply Order No. XXXXX from the Government of India, Ministry of Defence (MOD), AAKANKSHA, New Delhi, India for supply of Submarine Fired Decoy System (hereinafter referred to as 'SFDS') along with associated services. The aforesaid supply shall be executed at the applicant's unit in Andhra Pradesh with principal place of business at Autonagar, Gajuwaka, Visakhapatnam, Andhra Pradesh. 1.3 The SFDS in question is a component proposed to be fitted to the submarines operated by the Indian Navy for protection/safety of the submarines against incoming torpedoes/missiles. The Appellant had filed an application for Advance Ruling before the Authority for Advance Ruling on the following questions: Whether the Submarine Fire....
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....ing SFDS a very important part of submarines. Submarine Fired Decoy System (SFDS) is an integral part of Advanced Torpedo Defense System (ATDS) suit, which is effective against modern and vintage torpedo fired against a ship or submarine. Submarines are warships that can travel both above and below the surface of the sea. Apart from surveillance, these are usually built and used for warfare and armed with torpedoes or guided missiles. A submarine is equipped with a torpedo launching system as well as a decoy system. As mentioned in the above paras, certain essential components are required in a warship to protect the warship and the defence forces. Therefore, in case of warships, systems/ parts required for protecting the warship are an essential and requisite system of warship. The appellant submits that one such part is the decoy system (SFDS) which is to be integrally incorporated in the submarines i.e., warships for effective functioning of the submarine. SFDS launches decoys as an anti-torpedo countermeasure system for submarines, designed to counter the attacks of acoustic homing torpedoes, active/ passive, lightweight and heavyweight, wire and non- wire- guided, ....
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.... 'parts of goods'. Therefore, reliance needs to be placed on the case laws under the erstwhile regime and dictionary meanings to understand the true purport of the term 'parts of goods'. The dictionary meanings of the term 'parts' are as below: "Cambridge Dictionary: a separate piece of something or a piece that combines with other pieces to form the whole of something; one of the pieces that together form a machine or some type of equipment." Basis the above general dictionary meanings, it can be inferred that anything can be considered as a part of other if it forms an essential component or assists in performing a functionality of the main product. Chapter 89 does not have a separate heading for parts and accessories. The headings in the chapter, from 8901 to 8908, do not include sub-heading/items for 'parts and accessories'. In the absence of separate heading of classification for parts of ships, the expression 'any chapter' in Column 2 of the Schedule assumes significance. The appellant submits that the column 2 of the Schedules in the CGST Rate Notification refers to "Chapter/Heading/Sub-heading/Tariff item". Wherea....
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....the term 'part' of a goods. In G.S. Auto International Limited v. Collector of Central Excise, Chandigarh, 2003- TIOL-92-SC-CX, the Supreme Court observed as below: "For the purposes of classification under chapter Heading 87.08, the test to be applied is whether the goods are suitable for use solely or primarily with articles of chapter heading Nos. 87.01 to 87.05 if the answer is in the affirmative, the goods be classifiable under chapter heading 87.08 but if the answer is in the negative, they would have to be classified under chapter heading no. /3.18. Having regard to the finding that the goods in question cannot but be regarded as parts of automobiles, it has to be held that they are suitable for use primarily with articles of chapter heading nos 87.01 to 87.05. it follows that the goods in question cannot be treated as falling under chapter heading no. 73.18 and that they can properly be classified under chapter heading no. 87.08 of the Central Excise Tariff Act, 1985." 2.8 Having observed thus, the Supreme Court held the parts in question to be classifiable as parts of automobile. According to the Supreme Court, the test to be applied whether the goods a....
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....izes, which is the relevant market, recognizes the SFDS as a system necessary for anti-torpedo attacks. The market identity of the SFDS as a system connected to a submarine for anti-torpedo measures supports the argument of the appellant that SFDS qualifies as part of a submarine. Basis the above, the appellant submits that the SFDS system qualifies as 'parts of submarine' and therefore, the proposed supply ought to attract a tax rate of 5%. 2.13 The appellant places reliance on the case of Mehra Brothers v. Joint Commercial Officer 1990 (11) TMI 144. The Apex court in this case, held that a part or accessory need not necessarily mean an item which is essential for the effective use of a vehicle but also would include any item which adds to the comfort or enjoyment of the vehicle. Further, the appellant submits that each of the systems are essential for the overall functioning of the warships and submarines and therefore the expression "parts" in the subject entry of the Notification(s) should be construed to include all such systems / assemblies. 2.14 The appellant submitted that in view of the judicial pronouncements, which though have been rendered in the contex....
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....e recent developments as below: Inspection note for supply of submarine fired decoy systems (SFDS) 3.1. The appellant submitted that, the Factory Acceptance Trial (FAT) for SFDS has been conducted in November 2021 and an Inspection Note and the Certificate of Acceptance has been issued by the Ministry of Defence to be supplied under the subject order. The inspection note was issued by appropriate authority designated by Ministry of Defence. 3.2. With regard to requirement of the test, the appellant submitted that the Factory Acceptance Trials (FAT) of the product was conducted at the supplier's premises in order to check their compliance with the specifications. The purpose of FAT is to ensure that all equipment to be delivered is fully functional and all faults have been eliminated prior to dispatch and installation. Based on the FAT report, the Inspection Note will be submitted by the Inspection Agency to the appellant for onward dispatch of material to the consignee (Ministry of Defence). 3.3. Therefore, the appellant further submitted that the SFDS is an integral part of the warships and the FAT is carried out to ensure that it complies with all the necessary te....
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.... supplied exclusively and directly to the Indian Navy for use in the manufacture of submarines to be classified under SI.No.252 of the Notification no. 1/2017- CT (Rate). 5. Man Energy Solutions India Private Limited 2021 (8) TMI 49 (AAAR- Maharashtra) Two stroke & Four stroke Marine diesel engines and parts thereof Marine engines to be considered as parts of the ships/vessels without which the ship/vessel cannot Sail. Marine diesel engines to be classified under sl.no.252 of the Notification no.1/2017- CT (Rate), when supplied to ship building companies or Indian Navy for use in manufacture of ships , vessels, boats etc. 6. South Indian Federation of Fishermen Societies (2021 (7) TM1 533 (AAAR -- Kerala) Marine Engines & its parts thereof The marine engine and its spare parts supplied for use in vessels shall attract GST at the rate of 5% as per entry at SL.No.252 of schedule I of Notification No.1/2017 Central Tax (Rate). In view of the grounds of appeal and the additional submissions, the appellant reiterated that the submarine Fired Decoy System supplied by the appellant to the Ministry of Defence is classifiable as parts of submarine falling under he....
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....ons on 04.08.2021 with reference to the clarification sought by this authority at the time of Virtual Hearing regarding the scope of the contract and the functionality of the SFDS system: 3.5.1. The SFDS system is permanently fitted on the designated space of the submarine for fitment of the system. The said system is having life equivalent to the submarine and overhauled/maintained periodically. Earlier supplied similar systems to the Indian Navy are being maintained at monthly routine check-up and overhauling. 3.5.2. The SFDS consists of following sub-systems: a) Launching system: Mounted externally on the pressure hull of the submarine and below the submarine superstructure. b) Control Panel: A man machine interface fitted in CIC room of submarine which controls the launching of the Decoys and Jammers. c) Jammers/Decoys: Fired from the launching system and not recoverable, i.e., expendable/consumable. 3.5.3. Clarification with regards to supply order No. XXXXX: The order is for supply of the SFDS System (including the launching system and control panel, interface and loading platform etc.), while Jammers and Decoys are not part of the suppl....
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.... decoy system. Therefore, it can rightly be concluded that the said Submarines are 'Warships' which are classifiable under CTH 8906, The Appellant further submitted that, there is a designated space allocated in the submarine for the fitment of the SFDS system and it is permanently fitted in that space. The said system has life equivalent to the submarine and overhauled/maintained periodically. Moreover, the SFDS system in question is tailor made/customized for use in the submarines by the Indian Navy. Apart from their usage in a submarine for countering torpedoes, it does not have any independent use for it to be sold in the market. Thus it deserves to be classifiable as 'part' of a submarine. Even the defence market recognizes the SFDS as a system necessary for anti-torpedo attacks. The market identity of the SFDS as a system connected to a submarine for anti-torpedo measures qualifies the argument that it is 'part of submarine' in commercial parlance too. From the above and as per the detailed write up on the usage of SFDS in the Appeal (vide paras 10 to 17), it appears that, SFDS is a defense Mechanism and without which the very existence of ....