2022 (11) TMI 1119 - AAAR - GST

Classification of goods - rate of tax - parts and accessories suitable for use solely with the hearing aids - exemption by virtue of Sl.No 142 of 2/2017 CT (Rate) dated 28-06-2017 as amended from time to time - HELD THAT - Although the Appellant had sought for a ruling on the classification of parts and accessories of hearing aids, we find that they have not disputed the ruling given by the lower Authority that the parts and accessories of hearing aids are classifiable under HSN 9021 90 10. They are particularly aggrieved with the ruling that the parts and accessories of hearing aids are not exempted under Sl.No 142 of the exemption notification but are chargeable to tax at 18% under residual entry Sl.No 453 of Schedule III of Rate Notification No 1/2017 CT (Rate) dated 28-6-2017. Applicable rate of tax - parts and accessories of hearing aids - HELD THAT - Once an item is classified under a particular sub-heading or tariff item in accordance with the Customs Tariff Act 1975, the rate of GST applicable would be arrived at on the basis of notifications issued under GST law. In the GST Acts, Section 9 (1) of the CGST/KGST Act and Section 5(1) of the IGST Act, creates a charge for the levy of GST on intra-state and inter-state supplies respectively, at the rates which are notified by the Government on the recommendations of the GST Council. Accordingly, the rate of GST applicable to the goods classified under the Customs Tariff Act has been notified vide Notification No 01/2017 Central Tax (Rate) dated 28-06-2017 (for intra-state supplies) and Notification No 01/2017 Integrated Tax (Rate) dated 28-06-2017 (for inter-state supplies). The scope of the entry Sl.No 142 of exemption notification is confined only to hearing aids under heading 9021 and does not include parts and accessories of hearing aids falling under tariff item 9021 90 10. We therefore, dismiss the argument of the Appellant that entry Sl.No 142 of exemption notification which specifies the goods at four-digit heading level should be read to include all sub-heading and tariff item level goods i.e parts and accessories of hearing aids. Parts and accessories of hearing aids are neither covered in the scope of entry Sl.No 221 of Schedule II at 12% tax nor are they covered under the exemption entry Sl.No 142 of Notification No 02/2017 Central-Tax (Rate) - the parts and accessories of hearing aids are not covered within the scope of exemption entry Sl.No 142 and hence are not exempted. The impugned goods are also not covered within the scope of entry Sl.No 221 of Schedule II of the rate notification. Which entry of the rate notification will 'parts and accessories of hearing aids' be covered? - HELD THAT - Since the parts and accessories of hearing aids falling under tariff item 9021 90 10 are not specifically mentioned in any of the entries of the exemption notification No 02/2017 Central Tax (Rate) and are also not specifically mentioned in either Schedule I, II, IV, V and VI of the rate Notification No 01/2017 Central Tax (Rate), they will get covered under entry Sl.No 453 of Schedule III of Notification No 01/2017 Central Tax (Rate) as this is a residuary entry which covers goods under any chapter which are not specified under any of the other rate Schedules. The very purpose of a residuary entry in Schedule III is to cover goods which are not specified in any of the other Schedules - the description of goods in entry Sl.No 221 of Schedule II / 255A of Schedule I does not include within its scope parts and accessories of hearing aids - the parts and accessories of hearing aids falling under tariff item 9021 90 10 are not entitled for exemption under entry Sl.No 142 of Notification No 02/2017 Central Tax (Rate) but are chargeable to tax at the rate of 18% in terms of entry Sl.No 453 of Schedule III of Notification No 01/2017 Central Tax (Rate).

Summary

Issues Involved
1. Classification of parts and accessories suitable for use solely with hearing aids.
2. Rate of tax on the supply of such parts and accessories.
3. Applicability of GST exemption under Sl.No 142 of Notification No 2/2017 CT (Rate) for parts and accessories of hearing aids.

Issue-wise Detailed Analysis

1. Classification of Parts and Accessories Suitable for Use Solely with Hearing Aids
The Appellant sought a ruling on the classification of parts and accessories of hearing aids. The Authority for Advance Ruling (AAR) classified these parts and accessories under HSN 9021 90 10. The Appellant did not dispute this classification.

2. Rate of Tax on Supply of Such Parts and Accessories
The AAR ruled that the parts and accessories of hearing aids are taxable at 18% under entry No 453 of Schedule III to Notification No 01/2017 CT (Rate). The Appellant argued that the correct rate of tax should be 12% under entry No 221 of Schedule II of the Rate Notification or 5% under entry No 255A of Schedule I from 18th July 2022. However, the Appellate Authority upheld the AAR's ruling, stating that parts and accessories of hearing aids do not fall under the scope of entry No 221 of Schedule II or entry No 255A of Schedule I.

3. Applicability of GST Exemption Under Sl.No 142 of Notification No 2/2017 CT (Rate)
The Appellant contended that parts and accessories of hearing aids should be exempt from GST under Sl.No 142 of Notification No 2/2017 CT (Rate), which exempts hearing aids. They argued that the term 'heading' at the four-digit level (9021) should include all sub-headings and tariff items, thereby covering parts and accessories of hearing aids. The Appellate Authority rejected this argument, clarifying that the exclusion of hearing aids from entry No 221 of Schedule II does not imply the exclusion of parts and accessories. The Authority held that the exemption under entry No 142 is limited to hearing aids and does not extend to parts and accessories.

Additional Arguments and Findings
- The Appellant also referred to entry Sl.No 151 of the exemption notification, which exempts parts used in the manufacture of hearing aids. They argued that parts and accessories of hearing aids under HSN 9021 90 10 should be exempt under entry Sl.No 142, while generic parts used in manufacturing should be exempt under entry Sl.No 151. The Authority found no merit in this argument, stating that entry Sl.No 151 applies to parts used in manufacturing, not to parts and accessories used solely with hearing aids.
- The Appellate Authority emphasized that the description of goods in the GST rate notification should be read along with the Customs Tariff Act, including the Section and Chapter Notes and General Explanatory Notes. The Authority concluded that parts and accessories of hearing aids under tariff item 9021 90 10 are not covered under any specific exemption or lower tax rate entry and thus fall under the residual entry No 453 of Schedule III, attracting an 18% GST rate.

Conclusion
The Appellate Authority upheld the AAR's ruling that parts and accessories of hearing aids are taxable at 18% under entry No 453 of Schedule III to Notification No 01/2017 CT (Rate) and are not exempt under entry No 142 of Notification No 2/2017 CT (Rate). The appeal filed by the Appellant was dismissed on all accounts.