2023 (7) TMI 753 - AAR - GST

Classification of goods - rate of tax - marine propellers, stern tube set, rudder set, SS propellers shaft, MS shaft for couplings and intermediate and cutlass rubber bushes - parts of fishing / floating vessels - classifiable under HSN 8902 or not - applicability of Sl.No. 252 of the 1st schedule or Sl.No. 371 of the 3 rd schedule - replacement of parts during the warranty period constitutes supply under GST or not - input tax credit on the purchase of raw materials, as the manufactured products - HSN code of cutlass rubber bush . HELD THAT - It is an admitted fact that the. Marine Propellers; Rudder Set, Stem Tube Set, SS Propeller Shaft and MS Shah are classifiable under Customs Tariff Headings 8487 - Ships or boats propellers and blades therefor; 7325 - Rudders for ships or boats; 7304 - Tubes, pipes and hollow profiles of iron; 7222 - Other bars and rods of stainless steel and 7215 - Other bars and rods of iron or non-alloy steel and attracts GST at the rate of 18% as per entry at Sl. Nos. 371, 237, 218, 209 and 204 respectively of Schedule III of Notification No. 01/2017 Central Tax (Rate) dated 28.06,2017. Ships, boats and floating structures 'are classifiable under Chapter 89 of the Customs Tariff Act, 1975. CTH 8901 covers Cruise ships, excursion boats, ferry boats, cargo ships, barges and similar vessels for the transport of persons or goods; 8902 covers Fishing vessels, factory ships and other vessels for processing or preserving fishery; 8904 covers Tugs and pusher crafts; 8905 covers Light vessels, fire-floats, dredgers, floating cranes and other vessels; 8906 covers other vessels including warships and lifeboats other than rowing boats and 8907 covers other floating structures and arc liable to GST at the rate of 5% as per entries at SI. Nos. 246, 247, 248, 249, 250 and 251 respectively of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. Further as per entry at Sl. No. 252 of Schedule I of Notification No 1/2017-CT (Rate) dated 28.06.2017 the parts of goods of Headings 8901, 8902, 8904, 8905, 8906, and 8907 falling under any chapter attracts GST at the rate of 5%. Whether the replacement of parts without consideration during the warranty period, constitutes a supply under the CGST Act, 2017? - HELD THAT - A warranty is a return guarantee issued to the purchaser of the goods by its manufacturer promising to repair or replace them, if necessary, within a stipulated period. If the goods are supplied with a warranty the consideration received as part of the original supply (includes the consideration for the promise to repair or replace. Hence separate consideration is not charged for warranty replacement. The supply of goods for warranty replacement is incidental to the original supply and the value of the supply made earlier includes the charges for the warranty supply also. Therefore, the supply of goods without consideration in the discharge of warranty obligation is not liable to GST, However, if any additional consideration is received in respect of such supplies of goods It will be liable to GST at the rate applicable for the goods as per the rate schedule. Whether they are eligible to avail of 18% input tax credit on the purchase of raw materials, as the manufactured products are taxable at the rate of 5%? - HELD THAT - As the output supply made by the applicant is liable to GST though at a lower rate and not exempted the applicant is eligible to avail of the credit of tax paid on inputs, input services and capital goods subject to the conditions and limitations prescribed under Sections 16, 17 and 18 of the CGST Act, 2017 and the relevant rules made thereunder. Classification of Cutlass Rubber Bush under the Customs Tariff - HELD THAT - Cutlass Rubber Bush is an article manufactured from vulcanized rubber. Rubber and articles thereof are classifiable under Chapter 40 of the Customs Tariff. Customs Tariff) Heading 4016 covers other articles of vulcanized rubber other than hard rubber and 4016 99 60 pertains to rubber bushes. Therefore, Cutlass Rubber Bush is classifiable under CTH 401 6 99 60 and is liable to GST at the rate of 18 % CGST - 9% SGST - 9%) as per entry at SI. No. 123 A of Schedule III of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017. However, parts of goods of Heading 8901, 8902, 8904, 8905, 8906 or 8907 falling under any chapter of the Customs Tariff attract GST at the rate of 5% CGST - 2.5% SGST - 2,5% as per entry at SI. No. 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate) dated 28,06.2017. Therefore, if the Cutlass Rubber Bush is supplied for use as parts of goods of Heading 8901, 8902, 8904, 8905, 8906 or 8907 the same is liable to GST at the rate of 5% as per the said entry of the notification.

Summary

Issues:
1. Tax rate of marine propellers, stem tube set, rudder set, SS propeller shaft, MS shaft for couplings, and cutlass rubber bushes.
2. Classification of parts of fishing/floating vessels under HSN 8902.
3. Whether replacement of parts during warranty period constitutes a supply under GST.
4. Eligibility to avail 18% input tax credit on purchase of raw materials.
5. HSN code classification of cutlass rubber bush.

Analysis:

Issue 1:
The applicant contended that marine propellers, stem tube sets, rudder sets, SS propeller shafts, MS shafts for couplings, and cutlass rubber bushes used in fishing/floating vessels should be taxed at 5% under Entry 252 of Schedule I of Notification No. 01/2017-CT (Rate). The Authority found that if these goods are supplied for use as parts of vessels under specific Customs Tariff Headings, they indeed attract GST at 5%.

Issue 2:
Regarding the classification of parts of fishing/floating vessels under HSN 8902, the Authority ruled that goods supplied as parts of such vessels are taxable at 5% under Entry 252 of Schedule I of Notification No. 01/2017 Central Tax (Rate).

Issue 3:
The question of whether replacement of parts during the warranty period constitutes a supply under GST was addressed. The ruling clarified that replacement of parts without consideration during the warranty period is not subject to GST, as it is considered incidental to the original supply.

Issue 4:
In terms of availing 18% input tax credit on the purchase of raw materials when the manufactured products are taxed at 5%, the Authority stated that the applicant is eligible for the credit of tax paid on inputs, subject to the prescribed conditions and limitations under the CGST Act, 2017.

Issue 5:
Lastly, the classification of the cutlass rubber bush under the Customs Tariff was discussed. The ruling specified that the cutlass rubber bush falls under Heading 4016 99 60 of the Customs Tariff Act, 1975, and is liable to GST at 18% as per the relevant entry in the notification.

In conclusion, the Authority provided detailed rulings on each issue raised by the applicant, addressing tax rates, classification, warranty replacements, input tax credit eligibility, and HSN code classification of specific products, ensuring clarity on the GST implications for the manufacturing and supply activities in question.