2020 (2) TMI 555 - AAR - GST

Classification of goods - transformers supplied to Indian Railways - to be be classified as Parts of railway or tramway locomotives or rolling stock under HSN 8607 or the transformers shall be categorized under HSN 8504? - HELD THAT - The classification of goods under Chapter Heading 8607 does not include Electrical transformer . It only refers to parts of railway such as bogies, bissel-bogies, axels, wheels, brakes, hooks and parts thereof, in a general way; whereas, Chapter Heading 8504 clearly includes Electrical transformers, static converters (for example, rectifiers) and inductors . Note 2 (f) to Section XVII mentions that the expressions parts and parts and accessories do not apply to electrical machinery or equipment (Chapter 85), whether or not they are identifiable as goods of this Section - Thus from a reading of Note 2 (f) to Section XVII of the GST Tariff and Note 2 to Chapter 86 of the GST Tariff, the applicant s product, transformers are classifiable under HSN 8504. Circular No. 30/4/2018-GST on January 25, 2018 by the Government of India, Ministry of Finance, Department of Revenue (Tax and Research Unit), New Delhi has issued clarification on classification of supplies made to the Indian Railways classifiable under any chapter, other than Chapter 86 - Therefore, it is very clear that, any product other than those covered under Chapter 86, supplied to the railways would not qualify for the HSN 8607 and are not to be considered as a parts of railway coaches, even if supplied to the railways. Entry 8607 is very restrictive entry for the purposes of consideration of goods to be classifiable as parts of railway bogies to avail the benefit of reduced rate of taxes. Transformers, though used in Railway coaches, cannot be called as parts of railway bogies under Chapter Headings 8607 of the Tariff, due to the specific HSN available for transformer and therefore, the Entry no.241 of Schedule 1 of Notification No. 1/2017 C.T. (Rate) dt. 28.06.2017 does not applies to subject Transformers - Transformers, manufactured and supplied for use in railway, locomotives are classifiable under HSN 8504 and not under HSN 8607. Hence, rate of tax thereon is applicable as per the Sr. no. 375 of Schedule III of the Notification 1/2017 C.T. (Rate) dt. 28.06.2017 @ 18% under GST ACT w.e.f 01.7.2017.

Summary

Issues Involved:
1. Classification of Transformers supplied to Indian Railways.
2. Applicable GST rate for Transformers supplied to Indian Railways.

Detailed Analysis:

1. Classification of Transformers supplied to Indian Railways:

The applicant, a manufacturer of Transformers, Magnetic Components, and Panels, sought an advance ruling on whether the transformers supplied to Indian Railways should be classified under HSN 8607 ("Parts of railway or tramway locomotives or rolling stock") and subjected to GST at 5%, or under HSN 8504 ("Electrical Transformers, Static Convertors, and Inductors") and subjected to GST at 18%.

The applicant argued that the transformers are specifically designed for and integral to the electrical systems of railway coaches, making them a critical part of the railway's electrical circuit. They cited various manuals and reports from Indian Railways that highlight the importance of transformers in the functioning of railway coaches.

The jurisdictional officer contended that the transformers fall under HSN 8504, which is specific to electrical transformers, and thus should be taxed at 18%. They argued that HSN 8607 is a general classification for parts of railway or tramway locomotives and does not specifically include electrical transformers.

The Authority for Advance Ruling (AAR) examined the Customs Tariff Act and the relevant GST notifications. They noted that HSN 8504 explicitly covers electrical transformers, while HSN 8607 pertains to parts of railway rolling stock such as bogies, axles, and wheels, but does not explicitly mention electrical transformers.

2. Applicable GST rate for Transformers supplied to Indian Railways:

The AAR referred to Circular No. 30/4/2018-GST, which clarifies that only goods classified under Chapter 86 attract a 5% GST rate when supplied to railways. Goods falling under other chapters, even if supplied to railways, attract the general applicable GST rates.

The AAR concluded that the transformers, although used in railway coaches, do not fall under HSN 8607 due to the specific classification available for transformers under HSN 8504. Therefore, the transformers should be classified under HSN 8504 and subjected to GST at 18%.

Conclusion:

The AAR ruled that the transformers supplied to Indian Railways by the applicant are classified under HSN 8504 and are subject to GST at 18%, as per Sr. No. 375 of Schedule III of Notification 1/2017 Central Tax (Rate) dated 28.06.2017. The transformers do not qualify for the reduced GST rate of 5% under HSN 8607.