2019 (3) TMI 1013 - AAAR - GST

Classification of goods - rate of GST - import of various goods/spares, which are supplied on ships and these equipment form an essential part of the ship, and makes the ship sea worthy - whether classifiable as Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 under entry 252 of Schedule 1 of CGST N/N. 01/2017-Central Tax (Rate) dated 28th June, 2017 (Amended from time to time)? - GST @ 5% or IGST-5% as specified in entry 252 of schedule 1 of N/N. 01/2017-lntegrated Tax 28-06-2017? Held that - The appellant is engaged in the business of sale and distribution of Marine Distress Signals, EPIRB, SART, marine chemicals navigation and communication and also providing lifesaving equipment related to the marine industries. The appellant imports various goods and spares which are supplied to ships. It is seen from the grounds of appeal that NAVTEX, SART and Two Way RT Walkie Talkie, AIS and Voyage Data Recorder along with other equipment constitute the list of equipment comprising GMDSS (Global Maritime Distress Safety System). GMDSS is an international system which uses terrestrial and satellite technology and ship board radio system to ensure rapid alerting of shore based rescue and communication operations in the event of an emergency - SART, NAVTEX are essential components of the GMDSS and as per SOLAS Convention of IMO, ships are required to carry the above equipment. SART -A search and rescue transponder is a self-contained, waterproof transponder intended for emergency use at sea. These devices may be either a radar-SART, or a GPS-based AIS-SART. The radar-SART is used to locate a survival craft or distressed vessel by creating a series of dots on a rescuing ship s radar display. It is used to ease the search of a ship in distress. The National Maritime Search and Rescue Manual (for the Indian Coast Guard) makes SART mandatory for all ships. It is also an essential part of the GMDSS - EPIRB on SART are a part of the positioning and localization system and NAVTEX is a part of maritime and safety information. The Two Way RT does not find the place in the GMDSS. It is used for internal communication for the staff of the ship. A walkie-talkie has general application and cannot said to be specific to the functioning of the ship - thus, the walkie-talkie would not form part of the ship and would not be covered by Sr. No.252 of Notification No. 1 of 2017.

Summary

Issues Involved:
1. Classification of goods supplied by the appellant as essential parts of ships.
2. Eligibility for concessional GST rate of 5% under Sr. No. 252 of Notification No. 1/2017-Central Tax (Rate).

Issue-wise Detailed Analysis:

1. Classification of Goods Supplied by the Appellant as Essential Parts of Ships:

Background:
The appellant, engaged in the sale and distribution of marine equipment, contended that certain goods supplied by them should be classified as essential parts of ships and thus eligible for a concessional GST rate of 5%. The Advance Ruling Authority (ARA) had previously classified some items as essential parts but excluded others, leading to the appeal.

Appellant's Argument:
The appellant argued that the specified goods, including Automatic Identification System (AIS), Satellite Communication (SAT-C/FBB), NAVTEX, Voyage Data Recorder (VDR), Fish Finder (FCV), SONAR, and Search and Rescue Transponder (SART), are essential for the ship's seaworthiness and should be classified under entry 252 of Notification No. 1/2017-Central Tax (Rate).

ARA's Initial Ruling:
The ARA classified certain items as essential parts of the ship eligible for a 5% GST rate but excluded others, considering them additional equipment.

Appellate Authority's Analysis:
- NAVTEX, SART, and Two Way RT Walkie Talkie: These items are part of the Global Maritime Distress and Safety System (GMDSS), an internationally agreed-upon safety system mandated by the International Maritime Organization (IMO) under the SOLAS Convention. Since GMDSS equipment is essential for maritime safety, NAVTEX and SART are considered essential parts of the ship.
- Automatic Identification System (AIS): AIS is a mandatory system for ships over 300 gross tonnage, used for tracking and monitoring vessel movements. It is an integral part of the ship's navigation and safety system.
- Voyage Data Recorder (VDR): While VDR is important for recording data and aiding in accident investigations, it is not part of the GMDSS and thus not classified as an essential part of the ship.
- Fish Finder (FCV) and SONAR: These items are specific to fishing vessels and are not integral to the functioning of all ships. They assist in locating fish but are not essential for the ship's overall operation.
- Two Way RT Walkie Talkie: Used for internal communication, it has general applications and is not specific to the ship's functioning.

2. Eligibility for Concessional GST Rate of 5%:

Appellant's Argument:
The appellant argued that the specified goods should be taxed at the concessional rate of 5% as they are essential parts of the ship, necessary for compliance with international maritime safety standards.

Appellate Authority's Analysis:
- Essential Parts Eligible for 5% GST: The authority agreed that AIS and SART, being critical components of GMDSS, should be classified under entry 252 and eligible for a 5% GST rate.
- Non-Essential Parts: VDR, Fish Finder, SONAR, and Two Way RT Walkie Talkie do not qualify as essential parts and are therefore not eligible for the concessional GST rate.

Order:
The appellate authority modified the ARA's ruling, holding that AIS and SART are covered by Sr. No. 252 of Notification No. 1/2017-Central Tax (Rate) and eligible for a 5% GST rate. The ruling that VDR, Fish Finder, SONAR, and Two Way RT Walkie Talkie are not covered by Sr. No. 252 and thus not eligible for the concessional rate was upheld.