2022 (1) TMI 948 - AAR - GST

Classification of supply - applicable rate of CGST - supply of pressure tight cables, non-pressure tight cables and special cables for use in S4 submarine supplied by the Applicant to DMDE, Ministry of Defense, Govt of India - to be considered to be as parts of warships and accordingly classifiable under Sl.No.252 read with Sl.No.250 of Schedule I in Notification No. 01/2017 dated 28.06.2017? - HELD THAT - The goods supplied by the applicant are electrical cables used for electronic communication. which are specifically enumerated initially at Sl.No.161 of the Schedule IV of Notification No.01/2017 as item 8544. These goods are taxable initially at the rate of 28% and later at a reduced rate of 18% - the Entry 252 of the Schedule I of Notification 01/2017, dated.28-06-2017 as amended i.e., parts of goods of headings 8901, 8902, 8904, 8905, 8906 8907 falling under any chapter are made eligible for a concessional rate of tax of 5% under CGST SGST. The specifications for one cable i.e., CAT6 (PT-10) cable has in its scope the development of communication and signalling cables for marine applications and at clause 1.2 of these specifications it is mentioned that these cables are required for safe transmission of electrical energy between selected devices or points. These narrations in the purchase order indicate that certain cables are used to connect different devices without any indication that such devices are present on the warship. However, the design data in the appendix for certain types of cables in both the contracts pertain to MIL-DTL categories of cables which are used on ships. The end utilization certificate issued by the defence department show that such cables are used as parts of goods mentioned under headings 8901 to 8907 except 8903 - The word Component or Part is not defined in the CGST Act, 2017. The meaning and import of this word has to be obtained from the catena of case law decided by the Hon ble Courts of India. In this connection, law declared by the Hon ble Apex Court of India in the case of COLLECTOR OF C. EX. VERSUS EASTEND PAPER INDUSTRIES LTD. 1989 (8) TMI 81 - SUPREME COURT comes to our aid wherein it was held that anything that enters into and forms part of that process must be deemed to be raw material or component part of the end product and must be deemed to have been used in completion or manufacture of the end product. In the present case, the applicant has submitted certain utilization certificates from the Naval authorities. The certificates categorically state that the goods supplied are used as stores for consumption onboard of Indian Navy Ship (Certificate dated 29.08.2016 08.11.2016). Similarly, in the certificate dated 24.02.2017 it is stated that they are exclusively for use onboard Indian Naval Ships. In the certificate dated 30.03.2017 it is stated that these goods are required for ATV program - When the above (2) evidences are read in tandem, it is clear that the appellant is supplying special types of cables to the Naval authorities. The supplies made by the applicant to Defence Machinery Design Establishment (DMD) for the purpose of use in warship building of Indian Navy will qualify for the concessional rate of tax of 5% under CGST SGST.

Summary

Issues:
1. Clarification on the applicable rate of CGST on the supply of cables for use in submarines.
2. Classification of supplied goods as parts of warships for concessional tax rate eligibility.

Analysis:

Issue 1: Applicable Rate of CGST
The applicant sought clarification on the applicable CGST rate for supplying pressure tight cables, non-pressure tight cables, and special cables for use in submarines to the Ministry of Defense. The applicant contended that the cables supplied were eligible for a concessional tax rate under Notification No. 01/2017. The Authority analyzed the nature of the goods supplied, which were electrical cables used for electronic communication. Although initially taxable at 28%, the cables could qualify for a reduced rate of 18%. However, Entry 252 of Notification 01/2017 allowed parts of specified goods to be taxed at a concessional rate of 5% under CGST & SGST. The Authority examined purchase orders from the Defense Machinery Design Establishment and end-user certificates from the defense department, concluding that the applicant's supplies for warship building qualified for the concessional rate of 5% under CGST & SGST.

Issue 2: Classification of Goods as Parts of Warships
The second issue revolved around whether the supplied cables could be considered as parts of warships for classification under Sl.No.252 read with Sl.No.250 of Schedule I in Notification No. 01/2017. The applicant presented purchase orders and specifications indicating the use of cables in marine applications, including Navy shipboard applications. The Authority scrutinized the specifications and certificates provided by the Naval authorities, which confirmed the exclusive use of the goods onboard Indian Naval Ships. Relying on legal precedents, including the definition of 'component' or 'part,' the Authority determined that the applicant's supplies to the Defense Machinery Design Establishment for warship building purposes qualified for the concessional tax rate of 5% under CGST & SGST.

Conclusion:
The Authority ruled that the applicable rate of CGST on the supply of cables for submarines to the Ministry of Defense was 2.5% each for CGST & SGST. Furthermore, the supplied goods were considered as parts of warships, making them eligible for classification under Sl.No.252 read with Sl.No.250 of Schedule I in Notification No. 01/2017.