2018 (9) TMI 1105 - AAR - GST

Classification of goods - marine paints - Whether marine paints supplied by the applicant, would be considered to be part of ship and accordingly be then classified under SI no 252 of Schedule I of Notification No 1/2017 of Central Tax (Rates) dated June 28, 2017? Held that - here is no dispute with regard to classification of the subject goods under CTH 3208 and 3209. The difference of opinion is only with respect to the claim of the applicant that the goods are parts of ship and therefore would be eligible for concessional rate of IGST @ 5% as given under Sr. No. 252 of Schedule -I of Notification No. 1/2017 of Integrated Tax (Rates). The benefit of concessional rate of IGST @5% is available to parts of goods of headings 8901, 8902, 8904,8905,8906 and 8907 - it is very apparent that parts of goods of Heading 8901, 8902, 8904, 8905, 8906 and 8907 are eligible for concessional rate of IGST @ 5%. Anchor, Bow, Bowsprit, Fore and Aft, Hull, Keel, Mast, Rigging, Rudder, Sails, Shrouds, Engines, gearbox, Propeller, Bridge, etc. are the very essential parts of a ship or vessel and are quite clearly parts of a vessel/ ship and a ship cannot be imagined to be in existence without these parts - in addition, there are some additional equipments that are required to be made available on a ship as a measure of statutory compliances under various marine acts such as Merchant Shipping Act or Additional Safety measures such as Walkie-talkie, Binoculars, Life Jackets, Lifeboats, etc. Though these are also to be compulsorily made available on a vessel and ship but cannot be taken to be parts of a ship as per general understanding but are rather additional equipments on a ship - also, other essential items like furniture, fans, air-conditioners, television, etc which are very essential for comfort of officers and crew of the ship but do not come under essential parts or equipments of a vessel/ship. The items that are discussed as essential parts of a ship/ vessel are such essential components of a vessel/ ship without which the ship would not be complete and would not exist. These are very integral for the functioning of the ship and can be separated from the ship for repair/replacement. There are various consumable items like paints varnish, oils, grease, etc. which are essentially applied and used in or on all or most of these essential ship parts as discussed above to make them tenable, durable and worthy of the ocean. Once applied, these consumable items are consumed and lost and cannot be reused and are also not worth recovery, reuse or recycle for use on ship. Considering the meaning of an expression (Part) as defined in the dictionary, besides common parlance test it can be safely concluded that Marine Paint is not a component part of Ship. This conclusion which we have drawn as above gets support from the facts stated by the appellant and detailed discussions above as per which marine paints are clearly consumable items and not parts. Marine Paint should not be considered as a part of Ship and are not covered under Serial No.252 of Schedule I of Notification No. 1/2017 of Central Tax(Rates) Dated June 28,2017. Ruling - Marine Paint should not be considered as a part of Ship and are not covered under Serial No.252 of Schedule I of Notification No. 1/2017 of Central Tax(Rates) Dated June 28, 2017.

Summary

Issues Involved:
1. Classification of marine paints as part of a ship.
2. Applicability of concessional IGST rate on marine paints.

Detailed Analysis:

1. Classification of Marine Paints as Part of a Ship:
The applicant, a manufacturer, supplier, and exporter of paints, contended that marine paints should be classified as parts of ships under Sr. No. 252 of Schedule I of Notification No. 1/2017 of Integrated Tax (Rates) dated June 28, 2017, which would make them eligible for a 5% IGST rate. The applicant argued that marine paints are essential for ships, providing protection from corrosive environments, reducing fuel consumption, and preventing the attachment of marine organisms. They cited the Merchant Shipping Act, 1958, which mandates the application of anti-fouling systems on ships, and various legal precedents and definitions to support their claim that marine paints are integral parts of ships.

2. Applicability of Concessional IGST Rate on Marine Paints:
The jurisdictional officer opposed the applicant's claim, stating that marine paints have a specific entry under CTH 3208 and 3209, which are liable to 28% IGST. The officer argued that since there is a specific entry for paints, they cannot be classified differently as parts of ships. The officer also noted that the applicant's interpretation of the term "parts" was overly broad and not supported by the definitions and legal precedents provided.

Observations and Judgment:
The Authority for Advance Ruling examined the definitions of "parts" and "spare parts" from various dictionaries and legal precedents. They found that parts are typically separate pieces that combine with other pieces to form a whole, and are essential for the functioning of the whole. Marine paints, being consumables that are applied to the ship's hull and other parts, do not fit this definition as they are not separate pieces that form part of the ship's structure. Instead, they are consumables that protect and maintain the ship's parts.

The Authority also considered the applicant's reference to the Merchant Shipping Act, 1958, and the UK VAT Act, but found these references insufficient to classify marine paints as parts of ships. The Authority concluded that marine paints are not parts of ships and do not fall under Sr. No. 252 of Schedule I of Notification No. 1/2017 of Integrated Tax (Rates).

Order:
The Authority ruled that marine paints supplied by the applicant are not considered parts of ships and are not eligible for the concessional IGST rate of 5%. They are to be classified under CTH 3208 and 3209 and are liable to 28% IGST. The application was answered in the negative.