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2021 (8) TMI 49 - AAR - GSTClassification of goods - rate of GST on the supply of goods by the applicant - marine diesel engine, and parts thereof, supplied by the Applicant exclusively to ship building companies / shipyards or Indian Navy for use and application in ships, vessels, boats, floating structures etc. - classified under Sr. No. 252 of N/N. 1/2017-Central Tax (Rate), dated 28-6-2017? HELD THAT - Applicant designs and manufactures two-stroke and four-stroke engines, and are engaged in trading of goods and also manufacture supply parts of engines. Supply of diesel engines and parts thereof are of two types i.e. assembly and manufacture of diesel engines by using various imported or locally procured parts and trading of imported diesel engines - Diesel engines are known as compression ignition internal combustion piston engines. Diesel Engines are classified under CTH 8408 and are mainly differentiated as Marine Propulsion Engines, Engines of a kind used for the propulsion of vehicles of Chapter 87 and as Other Engines. Whether the said MDEs and parts thereof used on a ship/tugs/fishing vessels, etc are forming parts of the said ship/tugs/fishing vessels, etc and therefore chargeable to reduced tax @ 5% under Sr.No.252 of Notification No.1/2017 Central Tax (Rate) dated 28.06.2017? - HELD THAT - MDEs are the very essential parts of a ship or vessel and are quite clearly parts of a vessel/ship. A ship or a vessel cannot be imagined to be in existence without MDEs because they are essential for the main propulsion or turning the propellers of the normal ships and also for providing auxiliary power. A ship/vessel, etc. cannot sail without the marine diesel engines. There may be additional equipments required on a ship like Walkie-talkie, Binoculars, Life Jackets, Lifeboats, furniture, fans, air-conditioners, etc. but such goods cannot be taken to be parts of a ship as per general understanding but are rather additional equipment on a ship and a ship can sail without these additions - MDEs 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. In the present case applicant supplies subject goods and has listed many items in the Exhibit D submitted by them, and stated that the same are parts of MDEs supplied by them to the shipyards manufacturing ships and vessels. Applicant has not spelt out in detail as to how each and every item mentioned in Exhibit ₹ 13' are to be considered as parts of Marine Diesel Engines - MDEs and parts thereof are essential requirements in manufacture of ship, vessels, boats, floating structures etc. Such MDEs and part thereof are classified under heading 8408 and 8409, respectively, of GST Tariff and are parts of ships, boat, floating structures. Since subject goods are meant for ship manufacture and supplied for purpose of use or application in manufacture of goods that are classifiable under Tariff headings 8901, 8902, 8904, 8905, 8906, 8907, the said goods can be considered as parts of ships, boat, vessels etc. Entry at Sr. No. 252 covers goods which merit classification under Any Chapter of the GST Tariff wherein the description in Sr. No. 252, is Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 . Accordingly, in the present matter, the Subject Goods will be covered under Sr. No.252. The supply of MDEs and parts thereof supplied by the Applicant exclusively and directly to ship building companies/shipyards or Indian Navy for use in manufacture of ships, vessels, boats, floating structures etc. will be classified under Sr. No. 252 of Notification No. 1/2017- C.T. (Rate), dated 28-6-2017. If the applicant supplies the impugned goods to parties other than ship building companies and for other purposes, it would not be covered in the said entry and is liable to be taxed at respective higher rates as per schedule entry.
Issues Involved:
1. Classification of marine diesel engines and parts thereof. 2. Applicability of Sr. No. 252 of Notification No. 1/2017-Central Tax (Rate) dated 28-6-2017. 3. Determination of GST rates for marine diesel engines and parts supplied to shipbuilding companies/shipyards or Indian Navy. Issue-wise Detailed Analysis: 1. Classification of Marine Diesel Engines and Parts Thereof: The applicant, MAN Energy Solutions India Private Limited, is engaged in the design and manufacture of two-stroke and four-stroke engines, including marine diesel engines and parts thereof. The marine diesel engines and parts are supplied exclusively to shipbuilding companies, shipyards, and the Indian Navy for use in ships, vessels, boats, and floating structures. The engines are classified under Chapter Heading 8408, and parts suitable for use with these engines are classified under Chapter Heading 8409 of the Customs Tariff Act, 1975. 2. Applicability of Sr. No. 252 of Notification No. 1/2017-Central Tax (Rate) dated 28-6-2017: The applicant contends that the marine diesel engines and parts thereof should be classified under Sr. No. 252 of Notification No. 1/2017-C.T. (Rate), which specifies a reduced GST rate for parts of goods falling under headings 8901, 8902, 8904, 8905, 8906, and 8907. The applicant argues that the subject goods are designed for exclusive use in the marine sector and should, therefore, be taxed at the lower rate of 5% IGST (or 2.5% CGST + 2.5% SGST) as per the said notification. 3. Determination of GST Rates for Marine Diesel Engines and Parts Supplied to Shipbuilding Companies/Shipyards or Indian Navy: The Authority examined whether the marine diesel engines and parts supplied by the applicant are indeed parts of ships, vessels, boats, and floating structures falling under headings 8901, 8902, 8904, 8905, 8906, and 8907. It was determined that marine diesel engines are essential components for the propulsion and auxiliary power of ships and vessels, and therefore, they qualify as parts of these goods. The Authority concluded that the marine diesel engines and parts thereof supplied exclusively to shipbuilding companies/shipyards or the Indian Navy for use in the manufacture of goods falling under the specified headings would be classified under Sr. No. 252 of Notification No. 1/2017-C.T. (Rate), attracting a reduced GST rate of 5% IGST (or 2.5% CGST + 2.5% SGST). Conclusion: The marine diesel engines and parts thereof, when supplied exclusively to shipbuilding companies, shipyards, or the Indian Navy for use in the manufacture of goods falling under headings 8901, 8902, 8904, 8905, 8906, and 8907, are to be classified under Sr. No. 252 of Notification No. 1/2017-C.T. (Rate) dated 28-6-2017. This classification entitles them to a reduced GST rate of 5% IGST (or 2.5% CGST + 2.5% SGST). However, if the goods are supplied for purposes other than the specified headings, they will not be eligible for the reduced rate and will be subject to the applicable higher rates.
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