ADVANCE RULING - ‘RIGHT in rem’ OR ‘RIGHT in personam’?

[Mr. M. GOVINDARAJAN]

Binding precedents

The judgments of Supreme Court/High Courts are binding on the lower Courts. The judgment is called as ‘in rem’ when it is applicable widely. Therefore the judgments of upper courts are called as ‘in rem’. When the judgments are applicable only to the parties concerned then it is called as ‘in personam’.

Binding nature of Advance Ruling

Chapter XVII of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides the procedure for getting advance ruling from the Authority for Advance Ruling and also the procedure for filing appeal by the aggrieved person on the ruling given by the Authority for Advance Ruling before the Appellate Authority for Advance Ruling.

Section 103 of the Act provides that the advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only-

• on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling;
• on the concerned officer or the jurisdictional officer in respect of the applicant.

Therefore the Advance Ruling got in the Act is only ‘in personam’ and not ‘in rem’ and the said rulings cannot be cited in other applications for Advance Rulings or in any other proceedings.

The same has been confirmed by the Appellate Authority for Advance Ruling, Punjab in ‘ESS ESS Kay Engineering Company Private Limited’ - 2023 (3) TMI 424 - AAAR, Punjab, the appellant is engaged in the manufacturing of ‘Roof Mounted Air Conditioner unit for Passenger Coaches of railways’. The appellant filed an application for Advance Ruling with the Authority for Advance Ruling, Punjab seeking ruling for the question as to whether roof mounted Air conditioning unit especially for use in railway coaches (manufactured as per railway design) should be classifiable under HSN- 8415 1090- IGST 28% or under HSN 8607 99 - IGST 18% as parts of Railway Coaches/ Locomotives. The Authority for Advance Ruling ruled that the Roof Mounted Air-Conditioning unit manufactured by the applicant is classifiable under HSN Heading 8415 and the classification of the goods shall not alter on account of supply by them to Railways.

The appellant filed an appeal against the ruling given by the Authority for Advance Ruling before the Appellate Authority for Advance Ruling. The appellant contended that classification of impugned goods may be done in terms of Note 3 to the Section XVII of Customs Tariffs Act read with corresponding Explanatory notes of the HSN. The principle use of the goods manufactured is as per the design given by the Railways for exclusive use with the railway coaches only. Authority for advance ruling erred in placing reliance on note 2(e) to the section XVII without considering Note 3 to section XVII of the Customs Tariff act and various case laws relied on by the appellant. As per note 3 to section XVII by applying ‘user test’, the impugned goods are classifiable under HSN 8607.

The Appellate Authority for Advance Ruling considered the submissions made by the appellant and also analyzed the findings of the Authority for Advance Ruling against which the present appeal was filed. The Appellate Authority for Advance Ruling analyzed the Heading 8415 and 8607 of Customs Tariff. The Appellate Authority observed that the entry 8415 is a very specific entry that is devoted to the classification of the Air Conditioning machines whereas the entry 8607 is general in nature and seeks to bring within its ambit parts of railway locomotives or rolling stock. One of the fundamental rules of classification of goods is that where there are two competing entries laying claim to the classification of a particular good, a specific entry shall be preferred over the general entry.

The GST Tariff is entirely based upon the Customs tariff and therefore the provisions and entries of Customs Tariff are required to be considered for fixing correct classification of goods in GST Tariff. The Chapter Note of 8607 details the various good which may fall within the scope of this entry. The air conditioning machines are not mentioned in the said Chapter note. The Appellate Authority further observed that clause (e) to the section note provides - machines and apparatus of headings 8401 to 8479, or parts thereof, other than the radiators for the articles of this Section, articles of heading 8481 or 8482 or, provided they constitute integral parts of engines and motors, articles of heading 8483. This clause highlights the fact that the expressions ‘parts’ and ‘parts and accessories’ do not apply to machines and apparatus of headings 8401 to 8479 or parts thereof. By virtue of the Section Note 2 (e) the same shall be excluded from the said section and therefore cannot claim the right to be treated as an accessory or part of the goods mentioned in the said section.

The Appellate Authority then considered the heading 8415 which provides - AIR CONDITIONING MACHINES, COMPRISING A MOTOR-DRIVEN FAN AND ELEMENTS FOR CHANGING THE TEMPERATURE AND HUMIDITY, INCLUDING THOSE MACHINES IN WHICH THE HUMIDITY CANNOT BE SEPARATELY REGULATED.

The said entry applies to the air conditioning machines which have the elements for changing the temperature and humidity. It further includes those machines even where the humidity cannot be separately regulated. The said entry clearly applies to the good under question as the same is an air conditioner unit that is roof mounted in the railway coaches. The said heading is wide enough to cover within its realm all kind of air conditioning machines irrespective of the fact that whether the same are manufactured in such a manner to be installed on a particular vehicle or a machine or even a location. It can be inferred that once the said good is classified under the heading 8415, then by virtue of the clause (e) of the Section Note 2 of the Section XVII, the same is excluded from classification under heading 8607.

The Explanatory notes to Chapter 84 provides that the industry in which the said goods are deployed is immaterial for determining the classification and the same should be guided by the function which it is expected to perform. To take this logic further, the good under contention i.e. ‘Roof Mounted Air Conditioning Units’ being manufactured by the appellant have a specific function to perform i.e., of air conditioning and same should clearly be covered under the heading 8415 and not under 8607.

The Appellate Authority also analyzed the Explanatory note to Heading 4607. The said explanatory note brings out the fact that for the goods to be classifiable under HSN 8607, there are two conditions that are required to be satisfied as detailed below-

• The goods under consideration must be identifiable as being suitable for use solely or principally with the above-mentioned vehicles i.e., railway or tramway locomotives or rolling-stock.
• The goods should be brought into the domain of the said heading by virtue of Notes to the Section XVII they must not be excluded from the classification thereto.

Section Note 2(e) and have brought out the fact that goods which acquire the character of machines and apparatus and fall within the domain of headings 8401 to 8479 shall not be treated or classified as ‘parts’ or ‘parts and accessories’ for 8607. The Appellate Authority, therefore, held that the goods being manufactured by the appellant fail to satisfy the second condition of the said explanatory note and therefore lose their claim to classification under the heading 8607.

The Appellate Authority then considered the submissions of the appellant that the Authority for Advance Ruling ignored the Section Note 3 of Section XVII while dealing with the application. The Appellate Authority analyzed the provisions of the said Section Note 3. It observed that an analysis of the said section note demonstrates that the parts or accessory which are not suitable for use solely or principally with the articles of Chapter 86 to 88 are not to be included in the said chapter.

Further the appellant relied on some judgments of Supreme Court. The Appellate Authority considered the said judgments and held that the said judgments are not applicable to the case of the appellant. The appellant has also submitted certain Orders passed by Authority for Advance Ruling and Appellate Authority for Advance Ruling in his favor in -

• Daulat Ram Engineering Services Pvt Limited passed by AAR, MP - 2022 (7) TMI 1097 - AUTHORITY FOR ADVANCE RULING, MADHYA PRADESH and
• Prag Polymers passed by AAR, U.P - 2022 (2) TMI 826 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH and M/s Concord Control Systems Private Limited passed by AAAR, U.P. - 2021 (12) TMI 466 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH

The Appellate Authority noted that as per Section 103 of CGST Act, 2017, the advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only,-

• on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 91 for advance ruling;
• on the concerned officer or the jurisdictional officer in respect of the applicant.

The appellant has conveniently overlooked the basic nature of the ruling given by the Authority for Advance Ruling. The said rulings are in the nature of ‘in personam’ and not ‘in rem” and therefore their applicability as well as their protection cannot be sought by the others who were not party to the said proceedings.

The Appellate Authority for Advance Ruling upheld the findings of the Authority for Advance Ruling. The Appellate Authority for Advance Ruling held that the subject goods i.e. Roof Mounted Air-Conditioning unit manufactured by the appellant are classifiable under HSN Heading 8415.