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2022 (2) TMI 651 - AAAR - GSTClassification of goods - Submarine Fired Decoy System (SFDS) - classifiable as 'parts of submarine' under Chapter Heading 8906 or not - taxable GST rate of 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 submarines under discussion pertain to the Indian Navy and are basically used for warfare. A submarine, when used as a warship, is equipped with a torpedo launching system as well as a decoy system. Therefore, it can rightly be concluded that the said Submarines are 'Warships' which are classifiable under CTH 8906 - the SFDS system in question is tailor made/customized for use in the submarines by the Indian Navy. Apart from their usage in a submarine for countering torpedoes, it does not have any independent use for it to be sold in the market. Thus it deserves to be classifiable as 'part' of a submarine. Even the defence market recognizes the SFDS as a system necessary for anti-torpedo attacks. The market identity of the SFDS as a system connected to a submarine for anti-torpedo measures qualifies the argument that it is 'part of submarine' in commercial parlance too - as per the detailed write up on the usage of SFDS in the Appeal, it appears that, SFDS is a defense Mechanism and without which the very existence of the submarine is at stake. This in itself is an irrevocable proof/evidence that this is an essential part of the said submarine. Similarly, in case of IN RE M/S. BHARAT ELECTRONICS LIMITED 2019 (9) TMI 823 - AUTHORITY FOR ADVANCE RULING, KARNATAKA , the systems like color tactical display system, Radar system, Electro Optical fire control system, optical director system , etc, are ruled as 'parts of submarine'. Now in the present case, SFDS system is a similar system, as is in the case of Bharat Electronics Ltd. Further, following the spirit of the advance rulings pronounced by various Advance Ruling Authorities (on which the appellant placed reliance), we differ with the ruling of the lower Authority that, SFDS is not a part of 'Submarine', but an additional feature that falls under the category of 'arms and ammunition'. The SFDS is classifiable as 'parts of Submarine' falling under Chapter 8906 and consequently attract a GST rate of five (5) percent, by virtue of entry No.252 of Schedule I in Notification No. 28.06.2017.
Issues Involved:
1. Classification of Submarine Fired Decoy System (SFDS) under GST. 2. Applicable GST rate for SFDS. Detailed Analysis: 1. Classification of Submarine Fired Decoy System (SFDS) under GST: The appellant, M/s Bharat Dynamics Limited (BDL), sought clarification on whether the SFDS supplied by them is classifiable as 'parts of submarine' under Chapter Heading 8906, which would attract a GST rate of 5% by virtue of entry no. 252 of Schedule I in Notification No. 1/2017-Integrated Tax (Rate) dated 28.07.2017. The Authority for Advance Ruling, Andhra Pradesh, had previously classified the SFDS 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 a tax rate of 18%. The appellant argued that the SFDS is an integral part of the submarine, designed specifically for use in submarines to counter torpedo attacks. It was emphasized that the SFDS has no other use than in a submarine, making it an essential and integral part of the warship. The appellant cited various judicial precedents and dictionary definitions to support their claim that SFDS qualifies as a 'part' of a submarine. 2. Applicable GST rate for SFDS: The appellant contended that the SFDS should attract a GST rate of 5% as it falls under entry no. 252 of Schedule I in Notification No. 1/2017-Integrated Tax (Rate). This entry covers parts of goods of headings 8901, 8902, 8904, 8905, 8906, and 8907. The appellant argued that since submarines are classified under heading 8906, parts of such goods should be eligible for the 5% GST rate. The appellant provided additional submissions, including an Inspection Note and Certificate of Acceptance from the Ministry of Defence, to further substantiate that the SFDS is an integral part of the submarine. They also referenced several advance rulings and judicial precedents under the pre-GST regime to support their claim. Discussion and Findings: Upon reviewing the entire records of the appeal, the facts of the case, and the written and oral submissions, the appellate authority observed that the main issue was the classification and relevant HSN code of the proposed supply of SFDS. The authority noted that the SFDS system is tailor-made for use in submarines by the Indian Navy and has no independent use outside of this context. The authority concluded that the SFDS is an essential part of the submarine, as it is permanently fitted and periodically maintained. The defense market also recognizes SFDS as necessary for anti-torpedo attacks, further supporting its classification as a part of the submarine. The authority referenced similar cases, such as Bharat Electronics Limited, where systems like radar and fire control systems were classified as 'parts of submarine.' Following the spirit of these advance rulings, the authority differed from the lower authority's ruling and held that SFDS is a part of the submarine under Chapter 8906. Order: The appellate authority modified the ruling of the Advance Ruling Authority, holding that the SFDS is classifiable as 'parts of Submarine' falling under Chapter 8906 and consequently attracts a GST rate of 5% by virtue of entry No.252 of Schedule I in Notification No. 28.06.2017.
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