2019 (6) TMI 1107 - AAR - GST

Classification of goods - Main Propulsion engine for ships - Marine Gear box - marine generator - Marine engine for other applications like pumps - applicability of entry at Sr. no. 252 of Notification No. 1/2017- Central Tax (Rate) dated 28/06/2017 - rate of tax - whether the goods/parts used by the applicant are parts of a ship/boat/vessels? HELD THAT - Diesel engines are known as compression ignition internal combustion piston engines, are classified under Heading 8408 and are mainly differentiated as Marine Propulsion Engines, Engines of a kind used for the propulsion of vehicles of Chapter 87 and the third as Other Engines. They can further be classified on the basis of operations viz . 2-stroke, 4-stroke, single acting, double acting and finally, on the basis of Cylinder arrangement namely, horizontal, vertical, radial, etc. DMEs are those engines which are used in marine vehicles namely boats , ships , submarines, etc. Both 2-stroke as well as 4-stroke engines are used in the marine industry. The engines used for the main propulsion or turning the propellers of the normal ships are usually slow speed 2-stroke engines while those used for providing auxiliary power are usually 4-stroke high speed diesel engines. The engine itself is made up of several components such as the crankshaft, bedplate , pistons , liner , etc. A very specific description and mention of such engines is made under Heading 8408 of the GST Tariff and in view of the same it is very clear that Marine Engine is classifiable under heading 8408 of the GST Tariff. Under Sr. No. 115 of Schedule IV of Notification No. 1/2017 - Central Tax (Rate) dated 28th June 2017, the tax rate for Marine Engine is 14% each of CGST and SGST. Gear Boxes - HELD THAT - In view of the fact that a very specific description and mention of such gear boxes is made under Heading 8483 of the GST Tariff, we find that Gear Boxes are classifiable under Heading 8483 of the GST Tariff. These are marine gear boxes which are used in the Marine industry for driving Marine Propulsion engines, driving Electrical propulsion and driving different types of pumps used in the manufacturing of Ships/Boats/Vessels. Under Sr. No. 135 of Schedule IV of Notification No. 1/2017 - Central Tax (Rate) dated 28th June 2017, the tax rate for Gear Boxes is 14% each of CGST and SGST. Marine Generator - HELD THAT - The marine generator are generating sets with compression-ignition internal combustion piston engines. They are a combination of an electric generator and any prime mover other than an electric motor and working with the engine. Therefore, Marine Generator is used as part of the marine engine which is further used for manufacturing of ships/boats/vessels. It is an essential part of ship and is used when the main engine fails to work on the ships. They generate the electricity to move the engine and supply of electric power for other purposes on the ships. We find that if it is supply individually then as per Notification 1/2017, date 28.6.2017, it falls under entry no. 373 of Schedule III for the tax rate of 18% under CGST ACT. The items like Marine Engines, Marine Gearbox and Marine Generators which are covered under different HSN code are fitted on the boats/ ships vessels, by the manufacturing companies. They clearly fall under the expression essential parts of a ship or vessel and a ship cannot be imagined to be in existence without these parts - 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. Marine engines, Marine gear boxes and Marine generator supplied by the applicant to dealers of shipyard manufacturers are used as Parts of vessels falling under 8901,8902,8904,8905,8906 and 8907. So the specific entry Sr. No. 252 of Schedule I of Notification No. 1/2017 - CT (Rate) dated 28 th June 2017 is clearly applicable to the same goods.

Summary

Issues Involved:
1. Classification of Marine Propulsion Engines, Marine Gear Boxes, and Marine Generators.
2. Applicability of 5% GST rate on these items when used in ship manufacturing under Chapter 89.
3. Invoicing at 5% GST for these items when supplied to shipyards.
4. Procurement of Marine Engines from Ashok Leyland at 5% GST for manufacturing Marine Generators.
5. Procurement of engines from Ashok Leyland at 5% GST for main propulsion in ships.

Issue-wise Detailed Analysis:

1. Classification of Marine Propulsion Engines, Marine Gear Boxes, and Marine Generators:
The applicant, an authorized dealer for Ashok Leyland, sought clarification on the classification of Marine Propulsion Engines (HSN code 8408 1093), Marine Gear Boxes (heading 8483), Marine Generators (8502 1100), and Marine Engines for other applications like pumps (sub-heading 8408 10). The judgment confirmed that these items are considered parts of goods under Chapter 89, which pertains to ships and floating structures. The definitions and classifications in the GST Tariff were examined, confirming that Marine Propulsion Engines, Marine Gear Boxes, and Marine Generators are integral parts of ships/boats/vessels, thus falling under the specified headings.

2. Applicability of 5% GST Rate:
The applicant argued that these items, when used in manufacturing boats/ships under headings 8901, 8902, 8904, 8905, 8906, and 8907, should be charged at 5% GST, despite higher rates in their respective chapters. The judgment affirmed this, stating that the items supplied by the applicant for use in ships/boats/vessels under the specified headings qualify for the concessional 5% GST rate as per Notification No. 1/2017 - Central Tax (Rate) dated 28th June 2017. The essential nature of these items to the functioning of ships was emphasized.

3. Invoicing at 5% GST:
The applicant sought confirmation that invoices made by dealers to shipyards should reflect a 5% GST rate for these items. The judgment confirmed this, stating that invoices should indeed be made under the respective product chapters but with a 5% GST rate, provided the items are used in manufacturing ships/boats/vessels under the specified headings.

4. Procurement of Marine Engines from Ashok Leyland at 5% GST:
The applicant inquired whether they could procure Marine Engines from Ashok Leyland at a 5% GST rate for manufacturing Marine Generators, using a letter of undertaking and other documentation. The judgment did not provide an answer to this question, as it pertains to transactions involving Ashok Leyland, which is beyond the scope of the authority.

5. Procurement of Engines for Main Propulsion:
Similarly, the applicant asked if they could procure engines from Ashok Leyland at a 5% GST rate for main propulsion in ships, using a letter of undertaking and other documentation. The judgment did not answer this question, as it also pertains to transactions involving Ashok Leyland, which is beyond the scope of the authority.

Conclusion:
The judgment confirmed that Marine Propulsion Engines, Marine Gear Boxes, and Marine Generators, when used as parts of ships/boats/vessels under the specified headings, qualify for a 5% GST rate. Invoices should reflect this rate. Questions regarding procurement from Ashok Leyland were not addressed, as they fall outside the authority's purview.