BEFORE THE AUTHORITY FOR ADVANCE RULING - ANDHRA PRADESH
Goods and Service Tax
D.No.12-468-4, Adjacent to NH-16 Service Road, Kunchanapalli, Guntur-522501
Present
1. Sri. K. Ravi Sankar, Commissioner of State Tax (Member)
2. Sri.B. Lakshmi Narayana, IRS, Joint Commissioner of Central Tax (Member)
ORDER
(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)
1. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and APGST Act, 2017 are in parimateria and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the APGST Act.
2. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) 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, consumables, tools etc., (jointly referred to as 'inputs'in this application) required for construction of the ships / vessels are directly procured / imported by HSL. Currently, the vendors charge GST on such inputs supplied to HSL by classifying under the tariff item as applicable as per the GST rate Schedules to each of such inputs.
4. 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 prescribes the GST rate to be 5% (CGST-2.5%, SGST-2.5% and IGST -5%) for goods covered under "Any Chapter" being "Parts of goods of heading 8901, 8902, 8904, 8905, 8906, 8907". The relevant extract of Schedule-I is as below:
Schedule I - CGST-2.5%, SGST-2.5%, IGST-5%
5. Considering that the ships / vessels supplied by HSL are covered under the HSN 8906, HSL believes that the GST rate applicable on the various inputs procured by HSL for manufacturing of ships / vessels merits classification under the subject Entry No.252 of Schedule-I attracting GST @ 5%, as they form an essential part for making the ship / vessel seaworthy.
6. The Applicant submits that similar exemption was available under Customs as well as under the erstwhile Excise law for the goods meant for manufacture of vessel which is relevant to be examined. The relevant extracts of the description of such exemption entries are reproduced below for ease of reference -
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.
7. In the absence of any specific conditions or procedures laid out for Entry No.252 of Schedule I of the Notification, there appears to be ambiguity 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 equipment, material, consumables, tools etc., (as listed in Annexure 2A, 2B, 2C and 2D) purchased domestically or imported for use in manufacture of ships?
On Verification of basic information of the applicant, it is observed that the applicant is under Central jurisdiction i.e, Malkapuram Range, Visakhapatnam South Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the Central Tax authorities to offer their remarks as per Sec. 98(1) of CGST /APGST Act 2017.
In response, remarks are received from the Central jurisdictional officer concerned stating that no proceedings lying pending with the issue, for which the advance ruling sought by the applicant.
5. The applicant further submitted that:
5.1 the ship building activity involves utilization of various material, equipment, consumables, and tools which are essential to establish the sea worthiness of a ship. Therefore, all such goods shall qualify as parts and should be taxed accordingly @ 5%.
5.2 The Applicant draws attention to Explanation (iii) and (iv) of Notification No.01/2017 -Central Tax dated 28.06.2017 where it is stated that the terms "Tariff item", "subheading", "heading" and "chapter" shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975. The rules for interpretation under Customs including the Section Notes, Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of descriptions under this GST Rate Schedule. Therefore, to arrive at the appropriate classification, the respective Chapter Headings, Chapter Notes, Section Notes of the Customs Tariff, would be required to be examined.
5.3 The Applicant submits that Chapter 89 of the Customs Tariff Act, 1975 makes no provision for parts (other than hulls) or accessories of ships, boats or floating structures. The parts and accessories, even if identifiable as meant for ships, etc., are therefore classified under other Chapters under their respective headings.
5.4 The Applicant submits that Entry No.252 of Schedule-I of the Notification covers Parts of ships, classified under Any Chapter. Therefore, irrespective of the Chapter / Tariff entry under which such goods are classified, it can be said that all such goods would attract 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 -
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 machinery qualifies as capital goods in terms of Rule 57Q of Central Excise Rules, 1944, held that those items which are used in the manufacture of the final product and without which the final product cannot be conceived shall be termed as 'components'. The relevant extract of the judgement is as follows:-
"12. 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 itself 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 which, final product cannot be conceived of. 13. The meaning of the expression 'component' in common parlance is that 'component part of an article is an internal part necessary to the constitution of the whole article and without it, the article will not be completed"
5.6 The Applicant also relies on Order of the Larger Bench of Tribunal in case of Jindal Strips Ltd Vs. Collector of Customs, Bombay [1997 (5) TMI - 152 - CEGAT, New Delhi] wherein majority of the Bench while examining the applicability of customs exemption, held that the term 'Component' shall have the same meaning as understood in common parlance, i.e., 'one of the parts or elements of which anything is made up or into which it may be resolved or a constituent'. Further, the Bench while examining the word 'spare' also held that the word 'component' cannot be understood in a restricted manner and that while the term 'component' indicates the nature of the article, the term 'spare' indicates the use to which the article is put. The bench also held that the word 'component' without any qualifying or restrictive words must comprehend components used for initial manufacture or for replacement. The relevant extract of the judgement is as follows:-
"12. "Part" is defined in Black's Law Dictionary Sixth Edition at page 1117 as under:-"An integral portion, something essential belonging to a larger whole; that which together with another orothers 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 theparts or elements of which anything is made up or into which it may be resolved or a constituent. Themeaning in common parlance has to be looked into since the notification itself does not contain any definitionof the expression.
19. It has been urged on behalf of the department that since the subject Notifications refer to "RefractoryBricks 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 understood in such a restricted manner. "Component" indicates that it must be an integral part. "Spare" is a component used for replacement. In other words, the word "component" indicates the nature of the article and not the use of the article while the word "spare" indicates the use to which the article is put and not the natureof the article. The nature of the spare is that it is a component and its use is as replacement. "Component" means an essential or integral part of the whole. Its use is in different contexts, in the initial manufacture oras spare. As already indicated, "component" is the genus and spare is a species. The word "component" without any qualifying or restrictive words must be allowed free play and must comprehend components used for initial manufacture or for replacement."
[Emphasis supplies]
In view of the above judgements, the applicant submitted that any input which is either used in the initial manufacture or as a replacement of a part / component will qualify as a 'part' (as per S. No.252 of the Notification) and will attract GST @ 5%.
5.7 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 with furniture and equipments, Laundry facilities along with washing accommodation, Galley's for preparation of food, Cold storage rooms with equipments, Medical rooms. Thus, it is mandatory for the Ships to have such equipment for usage of the officers and the crew of the ship and only when such equipment is fitted into the ship that the ship can be considered to be seaworthy. Thus, HSL believes that such essential equipment would qualify as parts of ship and attract GST @ 5%.
5.8 The Applicant further submits that the various inputs referred In the Annexure2A, 2B, 2C and 2D are procured to manufacture the ships / vessels. Such inputs are to comply with the specific governing Statutes namely Rules & Regulations of Indian Register of Shipping, Merchant Shipping Act 1958, Merchant Shipping (Fire Appliances) Rules 1989, 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:-
* Main Engines - Internal combustion engines, control panels and systems used to turn the propellers and sail the ship through water,
* Diesel Generators - Diesel engines as prime movers with control panels and switch boards to provide power supply to ship/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.
* And other equipment's mandatory/necessary for proper functioning of the vessel such as Pumps, Integrated Platform Management System, Steering Gear System, Switchboards, Accommodation furniture, Galley furniture, Gym Furniture, Laundry furniture, Ce and Cold Room equipment, HVAC system, Refrigeration system, Firefighting equipment, Steel Doors, Thrusters, Heli-deck safety nets, Life rafts, Anchors, Navigation lights control panel, Ladders, Lifebuoys, etc.
5.12 The Applicant submits that the Annexure 2B lists various Material such as DMA 249A special grade Steel Bars & Steel Plates are Indigenously produced and exclusively used for Strategic Defence Ships (Indian Navy) to get the desired vield, strength and toughness of the ship and to protect at Sea Bulb Bars, steel plates, cables, pipes, insulation material, guard-rails, scramble nets, smoke curtains, Awning cloth, storage racks etc., which are required as per the Bulld specifications of the ship and whereas certain material are mandatorily required as per Naval Standards & Classification Society Rules.
5.13 The Applicant submits that the Annexure 2C lists variousconsumables 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.
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 with furniture and equipments, Laundry facilities along with washing accommodation, Galley's for preparation of food, Cold storage rooms with equipments, Medical rooms. Thus, it is mandatory for the Ships to have such equipment for usage of the officers and the crew of the ship and only when such equipment is fitted into the ship that the ship can be considered to be seaworthy. Thus, HSL believes that such essential equipment would qualify as parts of ship and attract GST @ 5%.
5.16 In this regard, the Applicant places reliance on the CustomsCircular No.01/2005 dated 11.01.2005 where the Board has issued clarifications with respect to various issues as discussed during the Tariff Conferences of the Chief Commissioners of Customs. One such issue discussed was with respect to admissibility of exemption under S.No.356 of Notification No.21/2002-Cus., having description "Raw material and parts, for use in manufacture of goods falling under heading nos. 89.01, 89.02, 89.04, 89.05 (except 8905.20) or 89.06, in accordance with the provisions of section 65 of the Customs Act, 1962 for items, namely, inflatable Life Raftand Life Jackets supplied along with the vessel. It was clarified that, although the said rafts and jackets are not directly raw material and parts used in the manufacture of ships, nevertheless these items are statutorily required on-board and therefore supplied by the shipbuilder, the benefit of exemption would be available on import of such items considering these as essential parts for manufacture of ships.
5.17 The Applicant also relies on the judgment of Hon'ble CESTAT of Chennai in the case of Goodwill Engineering Works Vs. Comm. of Customs, Trichy [2009 (12) TMI 351 - CESTAT, Chennai],where it was held that the benefit of exemption from payment of customs duties under Notification No.23/98-Cus dated 02.06.1998 is available on import of various items, such as Differential Global Positioning System, Electronic Theodolite, Radio Telephone equipment, Echo Sounder, Water and grab samplers and Radio tide gauge, as these are parts of boats and survey launches, and are required for the functioning of vessels classified under the CTH 89.06. The relevant extract of the judgement is as follows:-
"2. We have heard both sides. Function of each of the items in dispute is set out herein below :-
(1) DGPS - This is a satellite based 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 the Dredging Corporation of India, a Govt. of India undertaking for hydrographic survey in the harbour and along the coast. From the functions of the items as set out above, it is clear that they are parts of boats and launches as they are required for the function of the survey vessel falling under CTH 89.06. As per Sl. Nos. 2 to 9 of the Table to Notification No. 23/98, raw materials and parts falling under any chapter, for use in the manufacture of goods falling under Heading 89.01, 89.02, 89.04, 89.05 (except 8905.20) or 89.06, in accordance with the provisions of Section 65 of the Customs Act, 1962 are exempt from payment of duty. Since the items in dispute are parts for use and actually used in the manufacture of launches falling under Heading 89.06, and they are manufactured in accordance with the provisions of Section 65 of the Act, the benefit of the notification is admissible to all six of the disputed items. We, therefore, set aside the denial of the benefit of exemption to DGPS, Electronic Theodolite, and Radio Telephone Equipment and uphold the extension of benefit to Echo Sounder, Water and Grab Samplers and Radio Tide Gauge. "
[Emphasis supplied]
5.18 The similar to the goods which were the subject matter in the above relied upon judgment which are held to be required for functioning of the vessel, it is humbly submitted that the goods (as listed in Annexure 2A, 2B, 2C and 2D) in the present case are also essential as per various governing Statutes namely Rules & Regulations of Indian Register of Shipping, Merchant Shipping Act 1958, Merchant Shipping (Fire Appliances) Rules 1989, Merchant Shipping (Crew Accommodation) Rules 1960, Merchant Shipping (Life Saving Appliances) Rules 1991, Regulations of Safety of Life at Sea (SOLAS) 1974, etc., and the Naval Standards & Guidelines for the functioning of the vessel, without which necessary approvals and certifications would not be provided by the relevant regulatory authorities to enable the vessel to fit for sailing. Though such goods may have the potential for being used otherwise than for fitment to the ship, in the instant case, as such goods are fitted into the ship and are essential for the functioning of ship, we believe such goods merit classification as parts and attract GST @ 5%.
5.19 The general understanding of the phrase 'Parts of goods' and the discussions made in the above Paras 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 attract GST @ 5%.
6. Personal Hearing:
Sri VVR Ravindra , GM (finance) along with Mohammed Kagalwala, Chartered Accountant has attended for personal hearing on 04.03.2024 and requested for adjournment to submit clarification certificate and other documents. Further Sri VVR Ravindra , GM (finance),Sri S.Thiramalai, Advocate and sri B Jagadeesh Kumar, Manger (Finance) duly authorized representatives of the applicant appeared for personal hearing held on 02.04.2024 and reiterated the facts narrated in their application and also submitted additional grounds along with copies of the list of documents such as factory acceptance certificate, joint inspection reports and Certificate issued by Warship Overseeing Team and IRCLASS System and Solutions.
7. The Additional Submissions made by the Applicant are extracted here under as follows :
1. Recipient of supplies can file Application for Advance Ruling
1.1. In this regard, the Company relies on the judgment by the Hon'ble High Court of Calcutta in the case of Anmol Industries Limited &Anr. Vs. The West Bengal Authority for Advance Ruling, Goods and Services Tax &Ors. [2023 (5) TMI 288 - CALCUTTA HIGH COURT],where the Hon'ble High Court held that the term "applicant" defined in Section 95(c) of the CGST Act means any person registered or desirous of obtaining registration under the Act. That, the term "applicant" has been defined in the widest possible manner to include any person registered or desirous of obtaining a registration under the Act. Thus, considering that the appellants are registered under the provisions of the Act, they are eligible to file an application with the Authority for Advance Ruling.
2. Goods in present application are essential for manufacturing of vessel and qualify as "parts"
2.1. The Applicant submits that the Authority of Advance Ruling, Maharashtra in Mazagon Dock Shipbuilders Ltd[2018 (12) TMI 1153 - Authority for Advance Ruling, Maharashtra] has accepted that the "user" test is relevant for the purpose of ruling on the classification under Entry No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 as "Parts of goods of heading 8901, 8901, 8904, 8905, 8906, 8907".
2.2. However, it is significant to note that no evidence was placed on record in the said case either by way of "factory acceptance trial" or third-party evidence such 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 651Appellate 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 irrevocable proof / evidence that it is an essential part of the said submarine.
2.4. The Applicant submits the following to establish the essentiality of the items sought to be procured by the Applicant and used as "parts of ship" -
(i) The critical aspect of the present case of the Applicant (manufacturer and supplier of ship) and the use of the items in the Annexures to the Application is that the ship building process is spread over 36 to 48 months and during such period there will be multiple inspections that will be carried out to ensure the use of materials as per the bill of materials (BOM) agreed with the Indian Navy.
(ii) That, if during any on these aforesaid periodic inspections while the ship building is in progress, it is found that any of the materials, components, machinery, equipment have not been used as prescribed specification, then the entire activity would come to a stand-still and could resume only after rectification. Thus, this substantiates the essentiality of the various items listed in the Annexures of the present Application and their use in the ships to be built by the Applicant.
2.5. The relevant extract of an Agreement entered into between the Ministry of Defence and the Applicant for manufacture of Fleet Support Ships is reproduced below, for reference of the above-mentioned requirements:-
"ARTICLE 8 INSPECTION AND OVERSEEING
8.1 Overseeing
8.1.1 The Vessels, machinery, systems and equipment during construction will be inspected by the BUYER's representative. During trials to be conducted on board the vessels or in the shipyard, WOT will represent BUYER either on its own or with the assistance of any other BUYER nominated trial/inspection agency(s). This supervision will be in addition to survey by the Classification Society. ....
8.2 Inspection
8.2.3 In the cases of conflict in the qualitative or quantitative requirements of inspection of equipment or deviations from the requirements of the SPECIFICATION, the matter would be referred to the BUYER for final decision, which will be binding on the SELLER.."
2.6. From the above clauses it is evident that the entire manufacturing activity is subject to inspection by various trial and inspection agencies such as Warship Overseeing Team of the Indian Navy and the Classification Society 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 IRClass 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 essentialfor 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 listed in the annexure to the present application are as per the specific requirement of Indian Navy for construction of the Fleet Support Ships to be manufactured and supplied by the Applicant to the India Navy. It is also certified that such items are essential to ensure the seaworthiness of the ships and providing the technical features to meet the functional requirement of the Naval Vessels.
2.9. Therefore, in view of the above submissions, the Applicant submits that all the items in the Annexures to the Application are essential items, as certified by the test and production agencies and therefore will qualify as "Parts of goods of heading 8901, 8901, 8904, 8905, 8906, 8907" under the Entry No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.
In addition to that the applicant has submitted the following documents for consideration:
Further, the applicant submitted the Certificate issued by Warship Overseeing Team C/o Fleet Mail Office, Visakhapatnam -530014, Vide reference no. WOT/FSS/SP Dt:28.03.2024 for Goods procured by M/s Hindustan Shipyard Limited (HSL) for use in warships and a letter certified by the IRCLASS System and Solutions vide reference no: IS/TPI/MISC./IND-01/24/240668 dt:15.03.2024.
8. DISCUSSIONS AND FINDINGS:
We have carefully gone through the submissions made by the applicant in the advance ruling application, the additional submissions made during the personal hearing and judgements made by the Hon'ble Courts in the same issue .
From the submissions made at the time of filing the application, it is seen that the applicant M/s. Hindustan Shipyard Limited, is Government of India Undertaking located at Vishakhapatnam, Andhra Pradesh registered under GST Act with registration number:37AAACH4275P1Z2. It is the nation's First ISO-9001 Ship building organization catering to the needs of shipbuilding, ship repairs, submarine construction and refit 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-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 equipment, material, consumables, tools etc., (as listed in Annexure 2A, 2B, 2C and 2D) purchased domestically or imported for use in manufacture of ships?"
The question raised as above appeared to fall within the u/s 97 (2) (a) of the Central Goods& Services Tax Act, 2017. Hence the application admitted.
Now it is relevant to mention the Provisions of the GST Act'2017, .First and foremost it is seen that Entry no. 250 represents "Other vessels, including warships and lifeboats other than rowing boats". Against this entry of the Schedule 1 in rate notification under the heading 8906 the rate GST prescribed is 5%.
Entry no.252 of Schedule 1 in rate notification represents "Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907. Against this entry of the Schedule 1 in rate notification under the heading 8906 the rate of GST prescribed is 5%. "
We found that the issue that is raised before us by the applicant is whether the inputs mentioned in Annexure 2A,2A (i), 2A (ii), 2B,2B (i), 2C, 2Dand 2D (i) of the application, which are used for constructing the warships and submarines are forming parts of such warships/ submarines and therefore chargeable to reduced tax @ 5% under Sr.No.252 of Notification No.1/2017 Central Tax (Rate) dated 28.06.2017.
The applicant has submitted list of various inputs in the annexures .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.
The main issue before us ie. to find out whether the goods/ spares used by the applicant are parts of a warships/submarines. First of all we need to examine as to what are "parts". We find that the word "Part/Parts" has not been defined in GST nor was it defined in Central Excise earlier. In view of this first we are required to understand the general meaning of the word 'Part/Parts' which is of relevance to us in the present case.
--- As per Cambridge English Dictionary:
Part as a noun - 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.
----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:-
Thus in view of the above meanings/definitions of part/parts/Spare Part, as to what are the parts of Goods of CTH 8901,8902,8906 and 8907 and whether the subject goods/spares as mentioned by the applicant listed in Annexures2A, 2A (i), 2A (ii), 2B,2B (i), 2C, 2D and 2D (i) of this ARA application can be taken to be covered within the meaning of Parts for Sr. No. 252 of notification no.01/2017 Central Tax (Rate) Dated:28.06.2017
We find that items like Engines, gearbox, Propeller, Diesel generators, shift generator, Engine driven pumps, shaft generator, etc. are very essential parts of a ship or vsessel and are quite clearly parts of a vessel/ship and a ship cannot be imagined to be in existence without these parts.
However, in addition to the above there are some additional equipments that are required to be made available on a ship as a measure of statutory compliances under various marine acts such as Merchant Shipping Act or Additional Safety measures such as Walkie-talkie, Binoculars, Life Jackets, Lifeboats, etc. Though these are also to be compulsorily made available on a vessel and ship but cannot be taken to be parts of a ship as per general understanding but are rather additional equipments on a ship.
In addition to the above there are other items like furniture, fans, air-conditioners, television, Heaters, Laundry facilities, recreational items etc which are for comfort of officers and crew of the ship but do not come under essential parts or equipments of a vessel/ship.
We find that the items that are discussed as essential parts of a ship/vessel are such essential components of a vessel/ship without which the ship would not be complete and would not exist. These are very integral for the functioning of the ship and can also be separated from the ship for repair/ replacement. When we refer to the definition of the word 'part as discussed in detail above, we find that 'part' is a separate piece of something or a piece that combines with other pieces to form the whole of something.
Similarly the second definition of part also defines 'part' as one of the pieces that together form a machine or some type of equipment.
While interpreting the issues like the one at hand, we may refer to certain judgments which throw light on the disputed issue.
In case of Saraswati Sugar Mills Vs Commissioner of Central Excise Civil 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 pariance, components are items or parts which are used in the manufacture of the final product and withoutcourt, 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 of paper and would thus fall within the term " component parts" used in the Notification in so far as manufacture of paper in rolls is concerned. Paper core, however, cannot be said to be used in the manufacture of paper in sheets as component part.
In case of Jindal Strips Vs Collector of Customs, Equivalent citations: 1997 ECR 98 Tri Delhi, 1997 (94) ELT 234 Tri Del. the Two Member Bench of the Tribunal referred the appeal before the larger bench on the following questions:-
(t) Whether the phrase "component parts" occurring in Notification 77/90 would cover "spare parts" for the purpose of granting of benefit thereunder?
The larger Bench of the Tribunal having regards to dictionary meaning of "part", and "Component" observed that in 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.
In light of the above discussions, considering the meaning of an expression (Part) as given in the dictionary and also the ratio as adopted by the Hon'ble Courts as mentioned above besides common parlance test, we now take up each and every input claimed by the applicant to be parts of a warship/submarine [as listed in Annexures 2A, 2A (i), 2A (ii), 2B,2B (i), 2C, 2D and 2D (i) of this submissions] and discuss and find out whether each of the subject goods/ spares can be considered as parts of warship/submarine.
The classification of goods under Sr. No. 252 depends solely on the nature of use to which the goods are put to. We first take up the 141 items mentioned in Annexure 2A , Equipment List. 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:-
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 signal lights, Weather surveillance and threat alert, Signalling Projects, Main board systems, Acoustic warning device meant for use "On Board Ships' of the India Navy, under agreement. But on carefull examination with reference to the definition, it is found that the items mentioned in annexure 2A (i) list on ' Boards on Spares" would not be considered as integral or essential parts warship.
We further take up the 89 items mentioned in Annexure 2A (ii) , list of B & D Spares such as, oil purifiers, emergency generators, switch boards, cargo lift, aircraft handing system, etc.,.These are not considered as the essential part of a warship/submarine without which the ship would not be complete and would not be able to function.
The Applicant submitted that the Annexure 2B lists various Material such as DMA 249A special grade Steel Bars & Steel Plates are Indigenously produced and exclusively used for Strategic Defence Ships (Indian Navy) to get the desired vield, strength and toughness of the ship and to protect at Sea Bulb Bars, steel plates, cables, pipes, insulation material, guard-rails, scramble nets, smoke curtains, Awning cloth, storage racks etc., which are required as per the Bulld specifications of the ship and whereas certain material are mandatorily required as per Naval Standards & Classification Society Rules.
Now we examine the items mentioned by the applicant in Annexure 2B which are 20 in number. We found that these are metals used for constructing a warship/submarine and are consumed in the process of construction. The said metals cannot be removed as such for repairs etc., and will therefore be considered as consumables and therefore cannot be considered as parts of a warship/submarine. It is relevant to mention the definition of consumables. As per colins dictionary, "Consumable are goods or items meant to be consumed and in common paroles those are liable to be used up are depleted. Hence the above items cannot be consider as parts and are chargeable at the respect rates.
Further we take Annexure -2B (i), The list contain such as CNAL Items ,NBC Items, Portable Engine Driven , TPH Protable MD Submersible Pump, Emergency Life Support Apparatus (ELSA), Fire Fighting System, Damage Control items, battery, Rechargeable battery pack, Cables, First aid kit, General Items, etc,.These are not considered as the essential part of a warship/submarine 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.
Annexure2C 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:-
* Flight Deck, Visual Landing Decks and LED Horizon system are used for landing helicopter on board 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.
On verification of the same the list containing 16 items in Annexure -2D mainly consisting of tools. Now it is relevant to mention the definition of tools. "Any devise, instrument or machine for the performance of an operation, example, a hammer, saw, drill press, planneror screwdriver to equip a factory or industry or a product by designing, making and integrating parts and instrument so as achieve the output of the product on a volume basis at the minimum cast.
Hence, these tools 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, as they are not essential or integral part of the ship on which the exitance
Annexure -2D (i) The list H.O Inventory containing of 566 Items cannot be considered part of warship. These are not considered as the essential part of a warship/submarine without which the ship would not be complete and would not be able to function.
It is pertinent to mention here that serial number 252 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 is applicable only to goods which qualify to be parts of goods of headings 8901, 8902, 8904, 8905, 8906 and 8907. This implies that any goods in the nature of consumables, tools and other materials, which do not answer the specific requirement of being parts of warships, would not fall under the said serial number 252 of Schedule 1 of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.
RULING
(Under Section 98 of Central Goods and Services Tax Act, 2017 and
the Andhra Pradesh Goods and Services Tax Act, 2017)
Question: 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-Central Tax (Rate) dated 28.06.2017,will include all the inputs including equipment, material, consumables, tools etc., (as listed in Annexure 2A, 2B, 2C and 2D) purchased domestically or imported for use in manufacture of ships?
Answer: It is clear the goods which answer the specific requirements of being part for the classified headings 8901, 8902, 8904, 8905, 8906, and 8907 will be chargeable @5%( SGST 2.5% and CGST 2.5%) rate of GST as per SI.No.252 of Schedule-I of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017.
In this instant case, subject to the information furnished and as per the contractual agreements made by the applicant the following attract GST @ 5% (SGST 2.5% and CGST 2.5%).
In annexure 2A, we found that except the equipment's mentioned in SI. Nos. 25, 28, 60, 72, 73, 90, 97,111,117,118,119,123, ( Ref annexure 2A (i) ),124 (Ref annexure 2A (ii)), all other equipment's are to considered as an essential part of a warship/submarine without which the ship would not be complete and would not be able to function and accordingly chargeable under SI.No.252 of Schedule-I of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017.
All other annexure items i.e, 2A (i), 2A (ii), 2B,2B (i), 2C, 2D and 2D (i) are chargeable at the respective rates under respective schedules, but not come under SI.No.252 of Schedule-I of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017.
Note: Under Section 100 of the APGST Act 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under Section 99 of APGST Act, 2017, with in a period of 30 days from the date of service of this order.