2019 (3) TMI 434 - AAAR - GST

Classification of goods - marine paints supplied by the Appellant - whether the goods are to be considered to be part of ship and accordingly, be then classified under S. No. 252 of the Schedule I of the Notification No. 1/2017? - rate of tax - N/N. 1/2017-Central Tax (Rate) dated 28.06.2017 - Held that - Notification No.1/2017 dt.28.06.2017 prescribes the applicable rate of CGST. The paints supplied by the appellant are classifiable under Chapter heading 3208 and 3209 which are covered under Schedule IV of the said Notification and liable to GST @ 28%. However, under the same rate notification, Schedule-I which covers goods taxable @ 2.5% CGST has entry No.252 which covers parts (classifiable under any chapter) of goods, falling under heading 8901,8902,8904, 8905,8906 and 8907. In common parlance, paints generally means any liquid which is commonly applied to a number of surfaces and is used to provide texture to an object as well as protect the surfaces. The paint supplied by the appellant is anti fouling paint which is generally applied to hulls of ships. In order to address the contention of the appellant, it is to be seen as what is understood by the meaning of the term parts - What we understand from the term part is that it should be identified as something integral and mandatory to the completion of the whole article and without which the article will not be complete. By the application of the above, it cannot be said that marine paint is part of the ship. An essential part of ship or something without which ship could not be completed and would not exist. It presumes that the article as such must, in its condition and functioning, be so essential that the whole cannot function without it. We agree with the observation of the AAR that marine paints are in no way an integral piece of a ship which would in any way form the whole ship. The main contention of the appellant is that as per the provisions of the Merchant Shipping Act, paints are mandatorily required on all ships and therefore they should be considered as part of ships. This may be mandatory requirement for the sail worthiness of the ship but that does not indicate that they are parts of the ship. The mandatory requirement under some other law cannot be an adequate ground for classifying a product as part . Thus, the impugned product would not be a part of ship - AAR decision upheld.

Summary

Issues Involved:
1. Classification of marine paints under GST.
2. Applicability of Entry No. 252 of Schedule I of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017.
3. Interpretation of the term "part" under GST law.
4. Compliance with the Merchant Shipping Act, 1958.
5. Violation of principles of natural justice.

Detailed Analysis:

1. Classification of Marine Paints under GST:
The Appellant, a manufacturer of marine paints, argued that their product should be classified under Entry No. 252 of Schedule I of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, which covers parts of goods falling under headings 8901, 8902, 8904, 8905, 8906, and 8907. They contended that marine paints are specifically designed for ships and have unique features such as protection from corrosion, blocking marine organisms, and reducing fuel consumption.

2. Applicability of Entry No. 252 of Schedule I:
The Appellant sought to classify marine paints under this entry, arguing that since marine paints are essential for ships, they should be considered parts of ships. They cited various legal precedents and definitions to support their claim that marine paints are integral to the ship's functionality and should be taxed at a lower rate of 2.5% CGST.

3. Interpretation of the Term "Part":
The term "part" was analyzed using definitions from Black’s Law Dictionary and the Cambridge English Dictionary, which describe a part as an integral portion of a larger whole. The Appellate Authority concluded that marine paints, while beneficial, are not integral parts of ships. They are not essential for the ship's existence or functionality, unlike components such as a stern or propeller. Paints enhance the ship's durability but are not indispensable.

4. Compliance with the Merchant Shipping Act, 1958:
The Appellant argued that under the Merchant Shipping Act, 1958, marine paints are mandatory for ships to comply with anti-fouling regulations. However, the Authority held that mandatory compliance under another law does not classify marine paints as parts of ships under GST. The requirement for anti-fouling systems does not change the nature of marine paints from consumables to parts.

5. Violation of Principles of Natural Justice:
The Appellant claimed that the Advance Ruling Authority (ARA) violated principles of natural justice by not allowing them to address case laws referred to by the ARA. The Appellate Authority did not find this argument sufficient to overturn the ARA’s decision, as the primary issue was the classification of marine paints, which was thoroughly examined.

Conclusion:
The Appellate Authority upheld the ARA’s ruling that marine paints are not parts of ships and should not be classified under Entry No. 252 of Schedule I of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017. Marine paints remain classified under Chapter headings 3208 and 3209, attracting a GST rate of 28%. The Authority emphasized that marine paints, while beneficial for ships, do not meet the criteria to be considered integral parts of ships.