TaxTMI 
TaxTMI 
2024 (7) TMI 156
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....ely) by M/s. Hindustan Shipyard Limited (hereinafter referred to as applicant), registered under the AP Goods & Services Tax Act, 2017. 3. Brief Facts of the case: 1. M/s. Hindustan Shipyard Limited, (Hereinafter referred to as "applicant") is a Government of India Undertaking located at Vishakhapatnam, Andhra Pradesh. M/s. HSL is the Ship building organization catering to the needs of shipbuilding, ship repairs, submarine construction and refit of offshore and on shore structures. The Applicant is registered under GST Act with registration number: 37AAACH4275P1Z2, in the Malkapuram range, Visakhapatnam South Division allotted to Central Jurisdiction. 2. The Applicant a manufacture of ships and vessels as per the specifications / requirements provided by its customers which are covered under the HSN 8906 - Other vessels, including warships and lifeboats other than rowing boats. Such HSN is covered under Entry No. 250 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 and Entry No. 250 of Schedule-I of Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017 (referred to as 'Notification'). 3. All the inputs including equipment, material....
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....mbiguity as to what will be covered within the expression "parts of goods of heading 8901, 8902, 8904, 8905, 8906, 8907". Therefore, there lays a conundrum on whether all inputs including material, equipment, consumables and tools will attract GST @ 5%. 8. Applicant reiterates that various goods, i.e., material, equipment, consumables, tools etc., procured are of critical nature, without which the ship would not be permitted to sail and therefore such material or equipment or consumables etc., merits classification as "Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" and should be chargeable to GST at the rate of 5%, since such individual Inputs are supplied as a part of the ship or vessel, to ensure that the ship is sea worthy. 4. Questions raised before the authority: The applicant sought advance ruling on the following: • Whether the expression "parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" in Entry No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 and Entry No. 252 of Schedule-I of Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017, will include all the inputs including equipme....
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.... GST @ 5%, as long as such goods can be said to qualify as Parts of the Ship / Vessel. The term Part is not defined under the GST law and Notifications. Thus, reference is made to the definitions in various dictionaries - Reference Meaning Oxford Dictionary Part: a piece of a machine or structure Cambridge Dictionary Part: a separate piece of something, or a piece that combines with other pieces to form the whole of something Merriam Webster Part: a constituent member of a machine or other apparatus From a general understanding of the word "parts of a ship", it could be said that all such goods which are meant for fitment into a ship, as such (i.e., in its same form) or as part of certain equipment in the ship, would qualify as parts. Therefore, as long as such criteria is met, the equipment, material, consumables, tools etc., which are fitted into the ship should qualify as parts. 5.5 The Applicant relies on the judgement of Hon'ble Supreme Court in the case of M/s Saraswati Sugar Mills Vs CCE, Delhi - III [2011 (8) TMI 4 - Supreme Court] wherein the Hon'ble Supreme Court while determining on whether items used for fabricating structures to support....
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....hich together with another or others makes up a whole ........ a portion, share or purpart". In Chambers 20th Century Dictionary the meaning given for "component" is as under :- "one of the parts or elements of which anything is made up, or into which it may be resolved". In Oxford Dictionary the meaning of "component" is :- "Contributing the composition of whole" In Webster's Dictionary the meaning given is "A part; a constituent, an ingredient." In our view, the common parlance meaning of the expression "component" is also the same, that is, one of the parts or elements of which anything is made up or into which it may be resolved or a constituent. The meaning in common parlance has to be looked into since the notification itself does not contain any definition of the expression. 19. It has been urged on behalf of the department that since the subject Notifications refer to "Refractory Bricks for use as component parts of.....", that is an indication that the Bricks must be intended for use in the manufacture of furnace and not for use as spares. We have indicated that the word "component" cannot be understoo....
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....9, Merchant Shipping (Crew Accommodation) Rules 1960, Merchant Shipping (Life Saving Appliances) Rules 1991, Regulations of Safety of Life at Sea (SOLAS) 1974, etc. 5.9 Currently, HSL is in the process of manufacturing a ship for Indian Navy and is also required to meet the specific requirements of the Indian Navy for manufacture of the ship as referred in the column (7) of the Annexure 2A, 28, 2C and 2D in addition to compliance with the above-mentioned Rules and Regulations. Thus, all the goods referred in Annexure 2A, 2B, 2C and 2D being meant for fitment and usage in ship qualify as "parts". 5.10 For each such Input in Annexure 2A, 2B, 2C and 2D, the Applicant has provided the description of the material, its usage in the ship, its requirement in the ship and the requirement as per any of the Rules, Regulations or Guidelines, as applicable. 5.11 The Applicant submits that the Annexure 2A lists various Equipment and machinery which are either fitted into the Ship or are essential parts of the equipment which are used in manufacturing the Ship, without which the ship could not be said to be complete and seaworthy, Such Annexures 2A includes various goods namely: ....
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....thout which the ship cannot be said to be completely fit for sailing. 5.14 The Applicant submits that the Annexure 2D lists various Tools and other equipment includes: * Illumination systems required for lighting purpose on ships, * Administrative and OPS LAN used for internal and restricted communication, * Flight Deck, Visual Landing Decks and LED Horizon system are used for landing helicopter onboard ships and this system controls and monitor aviation weather, ship movement and wind limitations for safe landing of helicopter which are either fitted into the vessel or are essentially required on board for carrying out repairs and maintenance of the ship while at sea. 5.15 The Applicant submits that the Merchant Shipping (Crew Accommodation) Rules, 1960 prescribes various requirements and amenities which are mandatorily required to be made available in a ship for the crew, to make such ship seaworthy. Such rules prescribe the various requirements in relation to Heating, Lighting, Air conditioning & ventilation facilities, availability of sleeping rooms with Beds and other Furniture and fixtures, availability of Mess room, recreation spaces along wi....
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....sed radio navigation system used to obtain the accurate position of the launch at any given time. The position taken by this equipment corresponds to the depth reading taken by the Echo Sounder indicating the depth at a specific point. (2) Electronic Theodolite - since the survey launch carries out survey operation in the harbour and coastal water, shoreline is also required to be superimposed on the chart. Theodolite is fitted on a tripod and used on board the vessel for the purpose of superimposition of the shoreline. (3) Radio Telephone Equipment is used for communication between two vessels or between the vessel and the board. (4) Echo Sounder is an instrument which measures the depth of water at any given instant using ultrasonic wave. (5) Water and Grab Samplers are used for taking samples of water and sediments on the sea-bed for analysis and for basically correcting the echo-sounder. (6) Radio Tide Gauge instantaneously provides tide height corresponding with the depth measured so that the depth can be corrected to the mean sea level. The vessel on which the above equipment is placed and used is a survey launch owned by ....
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....ras by referring to judicial pronouncements, it can be understood that, all such goods which are meant for fitment into a ship or as part of certain equipment or system in the ship, can be said to qualify as 'Parts of ship'. Such equipment, material, consumable, tools etc., are essential to be fitted onto the ship for the ship to function in the required, designated, proper and effective manner. 5.20 Though the above referred Customs Circular and judgments are with respect to exemption Notifications under the Customs law and erstwhile Excise law, the principle based on which the exemption is held eligible, can be said to be squarely applicable to the instant facts in the case of HSL. The intention of the Board at the relevant time of issuance of the Circular, is evident that the benefit of exemption should be extended to all such goods as long as they are essential for completing the manufacture of vessel. Thus, HSL believes that the subject inputs (as listed in Annexure 2A, 2B, 2C and 2D) procured either domestically or imported by HSL and used in manufacture of vessel, which are also statutorily required to be so fitted into the ship, will qualify as parts and thereby would at....
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....h as "external test agencies" or "Warship Production Superintendent of Navy" to prove the essentiality of the items claimed as "parts of ship". 2.3. In the case of Bharat Dynamics Ltd [2022 (2) TMI 651 Appellate Authority for Advance Ruling - Andhra Pradesh], the assessee had placed evidence with respect to usage of the part from the "Factory Acceptance Trials" to establish the essentiality of the items in question in that case i.e., "Submarine Fired Decoy System" and in that context the Appellate Authority of Advance Ruling had referred to Rulings in other States classifying "Lubrication and Screw pumps", "Batteries supplied directly and exclusively" and also relied upon the certificate of the Naval authorities to decide on the aspect of essentiality for purpose of classification of the Submarine Fired Decoy System as "parts" under the Entry No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017. The Appellate Authority of Advance Ruling relying on the write-up on the usage of such Submarine Fired Decoy System, held that such system is a defence mechanism without which the very existence of submarine is at stake, and therefore this is in itself....
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....y and that in case there is any deviation in qualitative or quantitative specifications, rectification would need to be carried out by the Application as per the Buyer's decision and requirement. Thus, the applicant is required to strictly follow the specifications as per the Agreement for manufacture of Ships and use of any items other than as per the specification would fail the Quality requirement and thereby not make the ship sea-worthy. Hence, it is submitted that all the items listed in the Annexure to this applicant are mandatorily required and thus qualify as "parts of ship". 2.7. In support of our above submissions, the Applicant hereby submits an Essentially Certificate issued by the IR Class Systems and Solutions Pvt Ltd (promoted by Indian Register of Shipping) which certifies that the material listed in the annexure to the present application are essential for construction of the vessel to meet the shipbuilding functional requirements and also to meet the operational efficiency of the vessel. 2.8. The Applicant hereby also submits a Certificate issued by Warship Production Superintendent of Warship Overseeing Team of the Indian Navy certifying that the material l....
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....it of offshore and on shore structures. The Applicant is a manufacture of ships and vessels as per the specifications / requirements provided by its customers which are covered under the HSN 8906 - Other vessels, including warships and lifeboats other than rowing boats. Such HSN is covered under Entry No. 250 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 and Entry No. 250 of Schedule-I of Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017 (referred to as 'Notification'). We found that the applicant is a Defence public sector undertaking shipbuilding & Repairs Limited Company under the Ministry of Defence, which is involved in manufacture of warships and submarines as per the specifications/ requirements provided by Indian Navy. All the inputs including raw materials, parts, consumables etc. required for constructing the warships and submarines are directly procured / imported by the applicant (List of the Inputs are mentioned. The applicant had sought the advance ruling, as to "Whether the expression "parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" in Entry No. 252 of Schedule-I of Notification No. 01/2017-C....
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....le of something ----One of the pieces that together form a machine or some type of equipment. -----Further, we also find the definition of 'Spare Part as per Wikipedia A spare part, spare, service part, repair part or replacement part is an interchangeable part that is kept in an inventory and used for the repair or replacement of failed units. Spare parts are an important feature of Logistics Engineering and Supply Chain Management. Now it is relevant to mentioned the exemptions given by the Customs and Excise authorities and the same are extracted here under: Customs Exemption [Entry No. 469 of Notification No. 12/2012-Customs dated 17.03.2012]: Raw materials and parts, for use in the manufacture of goods falling under heading 8901, 8902, 8904, 8905 (except sub-heading 8905 20) or 8906, in accordance with the provisions of Section 65 of the Customs Act, 1962. Excise Exemption [Entry No. 306C of Notification No. 12/2012-Central Excise dated 17.03.2012]: Raw materials and parts, for use in the manufacture of goods falling under heading / tariff item 8901, 8902, 8904, 8905 (except sub-heading 8905 20) or 8906. Thus i....
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....l Appeal No. 5295 of 2003 decided on 2nd Aug 2011 Hon. Supreme Court of India observed: In order to determine whether a particular article is a component part of another article, the correct test would be to look both at the article which is said to be component part and the completed article and then come to a conclusion whether the first article is a component part of the whole or not. One must first look at the article ilself and consider what its uses are and whether its only use or its primary or ordinary use is as the component part of another article. There cannot possibly be any serious dispute that in common parlance, components are items or parts which are used in the manufacture of the final product and without court, in Star Paper Mills (supra) has made a settled distinction while considering whether paper Fare "components' in the manufacture of paper rolls and manufacture of paper sheets. It is stated that paper cores' are component parts in so far as manufacture of roll is concerned, but it is not component part in the manufacture of sheets. It is useful to quote the observations made by this Court: "Paper core would also be constituent part ....
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....hip/vessel, * Gear-box unit - Series of gear train enclosed in a lubricated enclosure which is used to vary the RPM of propeller shaft as desired, * Shaft-line - Includes Shafts, Plummer blocks etc. which acts as link to convert power generated by main engine to propeller towards generation of required thrust for vessel's movement. * Propellers - An equipment with a rotating hub and radiating blades that are set at a pitch to form a helical spiral which, when rotated, exerts linear thrust upon working fluid such as water. On carefull examination of the items mentioned in annexure 2A, we find that except the equipment's mentioned in Sl. Nos. 25, 28, 60, 72, 73, 90, 97, 111, 117, 118, 119,123,( annexure 2A (i) 124 annexure 2A (ii), all other equipment's can be considered to be an essential part of a warship/submarine without which the ship would not be complete and would not be able to function. Now we take up the 138 items mentioned in Annexure 2A (i) , list on "Boards spares" The list contains Piping, Outfit, Engineering, Electricals etc. In the instant case, the applicant claims that they are supplying the systems such as Navigational and signa....
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....rine without which the ship would not be complete and would not be able to function. The applicant are not very clear because the goods therein are mentioned as "General items" Hence, these items would not be eligible to concessional rate of tax. The Applicant submits that the Annexure 2C lists various consumables such as Antifouling marine chemical solvent paints are exclusively used across the ship for protection and to avoid corrosion of ship hull and fouling underwater paints, welding electrodes, steel Bars, special Oils & Lubes are specifically to ships only used for flushing of piping systems and also for equipment preservation, lubes, fasteners, etc., which are essentially used and in the manufacturing of the ship without which the ship cannot be said to be completely fit for sailing. Annexure 2C containing 7 entries pertains the list of Consumables, therein cannot be considered as parts of a warship/submarine. They are essentially in the form of Consumables and for reasons mentioned above cannot be considered as parts of a ship. The Applicant submitted that the Annexure 2D lists various Tools and other equipment includes: * Illumination systems required fo....