2019 (3) TMI 433 - AAAR - GST

Classification of goods - Reactor - classified under HSN 8413 91 or HSN 8421 21 90? - Held that - The impugned product is not fitted with the hand pumps at the time of manufacturing of the hand pumps, rather it is retrofitted with the hand pumps with the purpose different from the hand pumps whose main function is to draw the underground water from the bore well whereas the primary function of the impugned product is to purify the water. Thus, the impugned product is not an essential part of the hand pumps because hand pump can function even without the impugned product. Rather it can be construed as accessory fitted to the hand pumps having the characteristics of the water purifier which adds to the value of the product- in this case, water- obtained from the main equipment/machines- in the instant case, the Hand Pump. The impugned product is in no way associated with the extraction of the underground water from the bore well, which is the main function the Hand Pump - the impugned product manufactured by the Appellant does not merit classification under the subheading 8413 91- as Hand Pumps and parts thereof as contended by the Appellant and is classifiable under the heading 8421 21 90 having description as 'filtering or purifying machinery and apparatus for liquids'. Appeal dismissed.

Summary

Issues:
Classification of the Reactor under the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017.

Analysis:
The appeal was filed against an Advance Ruling rejecting the classification of the Reactor under a specific HSN code, resulting in a higher GST rate. The Appellant argued that the Reactor should be classified under a different HSN code to lower the GST rate. The Appellant contended that they had submitted necessary documents to clarify the nature and function of the product, contrary to the ruling's assertion. They also disputed statements attributed to them by the department, claiming inaccuracies and denial of natural justice. The Appellant emphasized the product's utility for rural areas and its recognition by state governments and the Prime Minister's Office, though the authorities highlighted that such factors do not influence classification under GST law.

The discussion focused on determining whether the Reactor could be classified as parts of hand pumps. The authorities examined the design and function of the Reactor, noting its purpose of purifying water extracted by hand pumps to eliminate waterborne diseases. They emphasized that the Reactor was not an essential part of hand pumps but an accessory that added value by purifying water. The authorities rejected the Appellant's claim that the Reactor was solely designed for hand pumps, pointing out its compatibility with motorized water lines, indicating a broader application beyond hand pumps. Despite recognizing the product's benefits for rural areas, the authorities underscored that classification under GST law is based on the nature, design, and function of the product, rather than external factors like social utility or recognition.

The final ruling upheld the classification of the Reactor under a specific HSN code related to filtering or purifying machinery and apparatus for liquids, as proposed by the Jurisdictional Officer. The order dismissed the appeal, affirming the decision of the Advance Ruling Authority and maintaining the higher GST rate for the Reactor under the designated classification.