2021 (8) TMI 529 - AAR - GST

Classification of goods - HSN Code - rate of tax - Submarine Fired Decoy System (SFDS) supplied by the applicant - classifiable as parts of submarine under Chapter Heading 8906 - whether attract a GST rate of five (5%) by virtue of entry no. 252 of Schedule I in Notification No. 1/2017-Integrated Tax (Rate) dated 28.07.2017? HELD THAT - The proposed supply of goods by the applicant, i.e., Submarine Fired Decoy System (SFDS) is an anti-torpedo defence system - A plain reading of chapter 89 connotes that the heading 8906 constitutes all kinds of structures that make any floating vessel but not of a particular kind. All the assembled, unassembled, or disassembled structures which are integral and essential to the making of a vessel fall in this category. The description of goods under 51.No. 252 is Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907. - In the instant case the product supplied by the applicant i.e., SFDS is basically not part of goods falling under headings 8901, 8902, 8904, 8905,8906, 8907 as claimed by him. It is neither integral nor essential to the basic structure and intended general functioning of the submarine , Besides, this anti-torpedo decoy system detects and locates the incoming torpedo with the help of SONAR deploys decoys to confuse incoming torpedo attack It is an anti-torpedo counter measure system for submarines and not an indispensable part of the submarine. Thus, it is not a part of ships boats and floating structures but an additional feature that falls under the category of arms and ammunition . As there is no description or explanation of arms and ammunition anywhere in the GST Act, we refer to the general usage of the word in trade parlance. In the present instance, SFDS is a part of military supplies and an anti-weaponry defence system used in naval warfare. This anti-torpedo system launches or drops expendable decoys from the launching pad - the SFDS system can very well be categorised under the heading of arms and ammunition . Moreover, in terms of classification rules, the goods need to be classified with goods of similar nature or they are akin to. Accordingly, goods are classified under chapter 93. The proposed supply in question falls under SI.No.434 under Chapter/Heading/Sub-heading/ Tariff Item 9306 under Schedule III of Notification No. 1/2017 - Central Tax (Rate) dt 28.06.2017 attracting tax rate of 18% as amended from time to time.

Summary

Issues Involved:
1. Classification of Submarine Fired Decoy System (SFDS) under GST.
2. Determination of applicable GST rate for SFDS.

Detailed Analysis:

Issue 1: Classification of Submarine Fired Decoy System (SFDS) under GST

The applicant, Bharat Dynamics Limited, sought clarification on whether the SFDS supplied by them is classifiable as 'parts of submarine' under Chapter Heading 8906, thereby attracting a GST rate of 5% as per entry no. 252 of Schedule I in Notification No. 1/2017-Integrated Tax (Rate) dated 28.07.2017.

Applicant’s Interpretation:
The applicant argued that the SFDS is an integral part of submarines, designed specifically for countering torpedo attacks. They cited various judicial precedents and dictionary definitions to support their claim that the SFDS qualifies as a part of a submarine. The applicant emphasized that the SFDS is custom-made for submarines and has no independent use outside this context, thus fitting the description of 'parts of goods of heading 8906'.

Authority’s Examination:
The Authority examined the claim by analyzing the nature of the SFDS. It was noted that Chapter 89 deals with "ships, boats and floating structures" and includes essential structures that make up a vessel. However, the Authority concluded that the SFDS, being an anti-torpedo defense system, is not integral or essential to the basic structure and functioning of a submarine. Instead, it is an additional feature, categorized as 'arms and ammunition'.

The Authority referred to the general trade parlance definition of ammunition, which includes materials fired or detonated from any weapon, and concluded that the SFDS fits this description. The SFDS, being a part of military supplies and an anti-weaponry defense system, launches expendable decoys to counter torpedo attacks, thus falling under the category of 'arms and ammunition'.

Issue 2: Determination of applicable GST rate for SFDS

Applicant’s Argument:
The applicant contended that the SFDS should attract a GST rate of 5% under entry no. 252 of Schedule I, as it qualifies as a part of submarines.

Authority’s Ruling:
The Authority ruled that the SFDS does not fall under Chapter Heading 8906 but under Chapter 93, which deals with 'Arms and ammunition; parts and accessories thereof'. Specifically, it falls under HSN code 9306, which includes bombs, grenades, torpedoes, mines, missiles, and similar munitions of war and parts thereof.

Final Ruling:
The proposed supply of SFDS falls under SI.No.434 under Chapter/Heading/Sub-heading/Tariff Item 9306 in Schedule III of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, attracting a tax rate of 18%.

Conclusion:
The Submarine Fired Decoy System (SFDS) supplied by the applicant is classified under Chapter 93 as 'arms and ammunition' and not as 'parts of submarine' under Chapter Heading 8906. Consequently, the applicable GST rate for SFDS is 18%, as per the relevant notification.