2019 (7) TMI 1506 - AAAR - GST

Classification of goods - rate of tax - Fan Coil Unit - whether the product is covered under HSN Code 8418 under Goods and Service Tax Act, 2017? - challenge to AAR decision. HELD THAT - FCU is a part of the Air Conditioning System. It does not have anything in common with the refrigerating unit. The HSN Code 8418 covers refrigerators, freezers and heat pumps. The essential elements of refrigerator are listed as compressor, condenser and evaporators whereas it is seen from the description of the FCU that it is commonly a part of the Air Conditioning System and Heading 8418 does not include Air Conditioning Systems . Therefore, we are unable to agree with the contention of the appellant that the FCU will be covered under Heading 8418 - It is easily seen from the description that the Fan described under 8414 do not at all have any resemblance with a FCU. Therefore, there is no reason to believe that FCU will be covered by heading 8414. As per the explanatory note, this sub heading also includes both indoor and outdoor units for split system or conditioning machines when presented separately, The explanatory notes also state that in accordance with the provision of Note-2 (b) of Section XVI this heading includes separately presented indoor units and outdoor units in split system or conditioning machine of this heading. In view thereof, the FCU would be covered by HSN Code 8415. Appeal dismissed - Ruling given by the AAR is upheld and warrants no interference.

Issues Involved:

1. Classification of Fan Coil Unit (FCU) under HSN Code 8418 or 8415.
2. Applicability of Note 2(b) and Note 2(a) of Section XVI.
3. Relevance of the Supreme Court judgment in the case of Carrier Aircon Limited.
4. Technical description and functionality of FCU.
5. Comparison of FCU with air-conditioning machines and fans under HSN Code 8414.

Detailed Analysis:

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

The primary issue in the appeal was whether the Fan Coil Unit (FCU) should be classified under HSN Code 8418 or 8415 under the Goods and Services Tax Act, 2017. The appellant argued for classification under HSN Code 8418, which covers refrigerators, freezers, and other refrigerating or freezing equipment. The AAR ruled that FCU should be classified under HSN Code 8415, which pertains to air conditioning machines comprising a motor-driven fan and elements for changing the temperature and humidity.

2. Applicability of Note 2(b) and Note 2(a) of Section XVI:

The appellant contended that the AAR erred in understanding Note 2(b) and Note 2(a) of Section XVI, which deal with the classification of parts used with a particular kind of machine. Note 2(b) states that parts used with a particular kind of machine should be classified under the same tariff heading as the machine they are used with. Note 2(a) deals with the classification of parts and suggests that standalone FCUs should be classified under CTH-8414, which specifically covers fans. However, the AAR concluded that FCUs are part of the air conditioning system and do not fall under the category of standalone fans.

3. Relevance of the Supreme Court judgment in the case of Carrier Aircon Limited:

The appellant cited the Supreme Court judgment in the case of Carrier Aircon Limited, where 'chillers' were classified under HSN Code 8418 as refrigerating equipment. The AAR distinguished this case by noting that chillers primarily function to chill water, whereas FCUs control the temperature in the space where they are installed. Therefore, the Supreme Court judgment did not apply to FCUs, which are integral to the air conditioning system and should be classified under HSN Code 8415.

4. Technical description and functionality of FCU:

The AAR provided a detailed description of the components and functionality of FCUs, including the fan motor, heat exchanger, PCB, main drain pan, filters, and main casing. FCUs are used in Heating, Ventilation, and Air Conditioning (HVAC) systems and consist of various types such as Ceiling Concealed FCU, 4-Way Cassette FCU, Wall Mounted FCU, etc. The AAR concluded that FCUs are not refrigerating or freezing equipment but are part of air conditioning systems.

5. Comparison of FCU with air-conditioning machines and fans under HSN Code 8414:

The appellant argued that standalone FCUs should be classified under HSN Code 8414, which covers fans. However, the AAR noted that the fans described under HSN Code 8414 do not resemble FCUs. Fans under HSN Code 8414 are designed for delivering large volumes of air or gases at low pressure or creating air movement, whereas FCUs are designed to control temperature and humidity as part of an air conditioning system. Therefore, FCUs do not fall under HSN Code 8414.

Conclusion:

The AAR upheld the classification of FCUs under HSN Code 8415, as they are integral to air conditioning systems and not refrigerating or freezing equipment. The appeal was dismissed on merit, and the ruling of the AAR was upheld without any interference.

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