2018 (12) TMI 1153 - AAR - GST

Classification of goods - interpretation of statute - Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 in entry number 252 of the schedule 1 of the Notification No 01/2017-lntegrated Tax (Rate) - Rate of tax - specific list of inputs raw materials, parts and consumables etc., purchased or imported for use in manufacture of warship - Procedure to be followed with Vendors if rate of tax applicable is as per entry no. 252 of the Schedule I - Input tax credit. Held that - We have listed a list of items which cannot be considered as a part of a warship/ submarine. Other than that all the equipments/ tools, etc can be considered as parts of a submarine/warship, without which the same would not be complete and would not exist. These are very integral for the functioning of the submarine/ warship - except for the items listed by us above from the Annexure B and Addendums to Annexure B, all other items can be considered as parts of a ship and therefore would be eligible to concessional rate of GST as contended by the applicant. Ruling - Only those Annexure B items which are not listed above will be considered as parts of warship falling under 8906 and will be covered under entry number 252 of the schedule 1 of the Notification No 01/2017-Integrated Tax (Rate). The items/ goods which are considered as parts of warships, in the discussions above will be covered under entry number 252 of the schedule I of the Notification No. 01/2017-lntegrated Tax (Rate) and liable to GST @ 5% (2.5% each under CGST and SGST) and for the other items, the tax rate will be applicable as per the respective Scheduled Entry in which the goods fall.

Summary

Issues Involved:
1. Interpretation of the expression "Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" under entry number 252 of the Notification No 01/2017-Integrated Tax (Rate).
2. Determination of the rate of tax for specific inputs, raw materials, parts, and consumables used in the manufacture of warships.
3. Procedure to be followed with vendors if the applicable tax rate is as per entry no. 252 of Schedule I.
4. Eligibility for input tax credit if the vendor charges a higher tax rate than 5%.

Detailed Analysis:

1. Interpretation of "Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907":
The applicant sought clarification on whether the specific list of goods in Annexure B falls under the expression "Parts of goods" in entry number 252 of Schedule 1 of the Notification No 01/2017-Integrated Tax (Rate). The Authority examined the general meaning of "parts" and "spare parts" as per the Cambridge English Dictionary and Wikipedia. Essential components of a ship, such as Anchor, Bow, Hull, Mast, Rudder, Engines, etc., were considered integral parts of a ship. Additional equipment like Walkie-talkies, Binoculars, and Life Jackets, though necessary, were not considered parts of a ship. Comfort items like furniture and air-conditioners were also excluded. The Authority referenced various judgments to determine that parts are integral components without which the ship would not be complete or functional.

2. Rate of Tax for Specific Inputs, Raw Materials, Parts, and Consumables:
The Authority reviewed the items listed in Annexure B and its addendums. Items essential for the ship's functionality were considered parts and eligible for a 5% GST rate under entry number 252. Items like steel plates, welding electrodes, and other consumables were not considered parts and thus not eligible for the reduced tax rate. The Authority provided a detailed list of items that qualify as parts and those that do not.

3. Procedure with Vendors if the Tax Rate is as per Entry No. 252:
The Authority did not provide an answer to this question, stating it was outside their purview.

4. Eligibility for Input Tax Credit if Vendor Charges Higher Tax Rate:
Similarly, the Authority did not address this question, indicating it was outside their jurisdiction.

Conclusion:
The Authority concluded that only specific items listed in Annexure B, which are integral to the ship's functionality, qualify as parts under entry number 252 of Schedule 1 of the Notification No 01/2017-Integrated Tax (Rate) and are eligible for a 5% GST rate. Items not considered parts will be taxed as per their respective scheduled entry. The questions regarding the procedure with vendors and eligibility for input tax credit were deemed outside the Authority's scope.