2018 (12) TMI 143 - AAR - GST

Classification of goods - Fan Coil unit - Whether the Fan Coil unit is covered under HSN Code 8418 under Goods and Service Tax Act, 2017? Held that - Fan Coil Unit (FCU) is a simple device consisting of a heating and or cooling heat exchanger or Coil and fan. It is a part of HVAC system found in residential, commercial and industrial buildings. A FCU is a diverse device sometimes using ductwork and is used to control the temperature in space where it is installed or serve multiple spaces. It is controlled either by a manual on/off switch or by a thermostat which controls the throughput of water to the heat exchanger using a control valve and/or the fan speed - FCUs circulate hot or cold water through a coil in order to condition a space. The unit gets its hot or cold water from a central plant or mechanical room containing equipment for removing heat from the central building s closed loop. The equipment used can consist of machines used to remove heat such as chiller or a cooling tower and equipment for adding heat to the building s water such as boiler of a commercial water heater. It is very apparent that FCUs are not Refrigerators, Freezers and other refrigerating or freezing equipment and neither are heat pumps and therefore in no way they would fall under GST Tariff Heading 8418 - FCUs would clearly be covered under GST Tariff Heading 85159000 as parts of Air Conditioning machines of Heading 8515. The plea of the applicant contending that their goods would be covered under 8418 on the basis of the Hon ble Supreme Court s decision in the case of CCE Delhi versus Carrier Aircon Ltd. 2006 (7) TMI 8 - SUPREME COURT OF INDIA is not sustainable in view of the facts that the goods chillers as discussed in this judgement had the basic function of chilling the water and were thus held by the Hon ble Supreme Court to fall in Heading 8418 for Refrigerators and Freezers, whereas the basic function of a FCU is conditioning the temperature of a place or space and not freezing or refrigerating and therefore FCU would appropriately be covered under CTH 8415. Ruling - The Fan Coil Unit is not covered under HSN Code 8418 but under HSN Code 8415 under Goods and Service Tax Act, 2017

Summary

Issues Involved:
1. Classification of Fan Coil Unit (FCU) under the Harmonized System of Nomenclature (HSN) Code for Goods and Services Tax (GST) purposes.

Detailed Analysis:

Issue 1: Classification of Fan Coil Unit (FCU) under HSN Code 8418 or 8415

Applicant's Contention:
- The applicant, engaged in the supply of Fan Coil Units (FCU) along with standard spare parts and accessories, sought an advance ruling on whether FCU is covered under HSN Code 8418.
- FCU is described as a device consisting of a fan motor, heat exchanger, and PCB, used to control the flow of water and cool the area where installed.
- The applicant argued that FCU should be classified under HSN Code 8418 based on Notification No. 1/2017- Central Tax (Rate), Entry No. 319A, which includes "Refrigerators, freezers and other refrigerating or freezing equipment, electric or other; heat pumps (other than air conditioning machines of heading 8415)."
- Reliance was placed on the Supreme Court decision in Commissioner of Customs & Central Excise, Delhi v/s Carrier Aircon Ltd., where "Chillers" were classified under HSN Code 8418 as refrigerating equipment.

Authority's Observations:
- The Authority examined the nature and use of FCU, noting that it is a part of HVAC systems found in residential, commercial, and industrial buildings, used to control the temperature in the space where it is installed.
- FCUs circulate hot or cold water through a coil to condition a space and get their hot or cold water from a central plant or mechanical room.
- The Authority reviewed GST Tariff Heading 8418 and found that FCUs are not refrigerators, freezers, or other refrigerating or freezing equipment, nor are they heat pumps. Hence, they do not fall under HSN Code 8418.
- The Authority then examined GST Tariff Heading 8415, which includes "Air Conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including machines in which the humidity cannot be separately regulated."
- The Authority concluded that FCUs, being parts of air conditioning systems, should be classified under HSN Code 8415 as parts of air conditioning machines.

Conclusion:
- The Authority ruled that the Fan Coil Unit (FCU) is not covered under HSN Code 8418. Instead, it should be classified under HSN Code 8415, which pertains to air conditioning machines.

Order:
- The question of whether the Fan Coil Unit is covered under HSN Code 8418 was answered in the negative.
- The Fan Coil Unit would be covered under HSN Code 8415.

This comprehensive analysis ensures that the classification of FCU under GST is accurately determined based on its nature, use, and relevant legal provisions.