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2021 (1) TMI 598 - AAR - GSTClassification of goods - marine-pressure tight and non-pressure tight cables manufactured and designed by the applicant, for use by the Ministry of Defence in their warship as parts of warship - taxable at the concessional rate of GST@5% as per Entries No.250 and 252 of Schedule-I of the Notification No.01/2017-Integrated Tax(Rate) dated 28.06.2017 or otherwise? - HELD THAT - Items like Anchor, Bow, Bowsprit, Bow Thrusters, Fore and Aft, Ship s Hull, Keel, Mast, Rigging, Rudder, Sails, Shrouds, Engines, gearbox, Propellor, Funnel, Navigation Bridge, Deck, Deck Crane, Forecastle etc. are 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 i.e. the ship/vessel would not be complete without these parts. The essential items that are essential parts of a ship/vessel are such essential components/parts of a vessel/ship without which the ship/vessel would not be complete and without which the ship would not exist. While referring to the definition of the word part , we find that it is a separate piece of something or a piece that combines with other pieces to form the whole of something. Similarly, the second definition of part also defines part as one of the pieces that together forms a machine or some type of equipment. It is required to find out whether the marine pressure tight cables and marine non-pressure tight cables manufactured and supplied by the applicant can be considered as parts of a warship. The classification of these goods under Entry No.252 of Schedule-I of Notification No.01/2017-Integrated Tax(Rate) dated 28.06.2017 is solely dependent on the nature of use to which these goods are put to in order to be able to decide as to whether these goods are integral parts of the ships without which the ship would not be complete or would not exist. In order to avail of the benefit of reduced rate of GST as mentioned hereinabove, the applicant has to prove that the goods manufactured and supplied by them to the Navy are an integral part of the warship and are goods without which the warship would not come into being, or would not be complete or would not come into existence. The applicant has claimed that the marine pressure tight and marine non-pressure tight cables manufactured and supplied by them are very essential and integral part of the warship, without which warship cannot function and cannot be completed and at the same time the said goods supplied and used in the warship are capable of being separated as such for the purpose of repairs and replacement. However, they have not submitted any details with regard to these goods, which are essential to prove that the subject goods are integral parts of the warship such as (i) the definition of marine pressure tight cables and non-pressure tight cables (ii) in which part of the warship they are used. (iii) do they constitute parts which can be used solely in warships? (iv) what are the uses of these cables i.e. what is the purpose they serve. (v) the reason why these cables can be considered to be so essential or so integral a part of a warship, without which the warship would not come into existence or would not be complete. -In the absence of these details, it would not be possible for us to decide whether the subject goods are parts of warship or otherwise. In fact, we will be left with no option but to make a decision based on the records available with us as well as on the merits of the case. The applicant has failed to prove their claim that the marine pressure tight cables and marine non-pressure tight cables manufactured and supplied by them are integral parts of warship without which the warship would not come into existence or would not be complete. It is therefore concluded that the marine pressure tight cables and the marine non-pressure tight cables manufactured and supplied by the applicant to the Navy are not parts of the warship and hence the benefit of reduced rate of GST of 5% is not available to the applicant as per Notification No.01/2017-Integrated Tax(Rate) dated 28.06.2017.
Issues Involved:
1. Determination of the correct GST rate applicable to marine pressure tight and non-pressure tight cables supplied for use in warships. 2. Interpretation of the term "parts of goods" under the relevant GST notification. 3. Examination of whether the supplied cables qualify as integral parts of warships. Issue-wise Detailed Analysis: 1. Determination of the correct GST rate applicable to marine pressure tight and non-pressure tight cables supplied for use in warships: The applicant, M/s. Apar Industries Ltd., sought an advance ruling to confirm whether the marine pressure tight and non-pressure tight cables supplied to the Defence Machinery Design Establishment (DMDE) for use in warships qualify for a concessional GST rate of 5% under Entries 250 and 252 of Schedule-I of Notification No.01/2017-Integrated Tax (Rate) dated 28.06.2017. The general GST rate for such cables under Chapter Heading No.8544 is 18%. The applicant argued that these cables are essential and integral parts of warships, thus qualifying for the reduced GST rate. They provided an End User Certificate from the Rear Admiral of the Indian Navy certifying the intended use of the cables in warships. 2. Interpretation of the term "parts of goods" under the relevant GST notification: The notification in question includes two relevant entries: - Entry No.250: "Other vessels, including warships and lifeboats other than rowing boats" with a GST rate of 5%. - Entry No.252: "Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" with a GST rate of 5%. To determine if the supplied cables qualify as "parts of goods," the ruling examined the definition of "parts." The term "part" is not defined in GST law, so the common parlance meaning was considered, which is "a separate piece of something or a piece that combines with other pieces to form the whole of something." 3. Examination of whether the supplied cables qualify as integral parts of warships: The ruling referenced various judicial precedents to understand what constitutes a "part." The key test is whether the item is an integral component necessary for the existence or completion of the whole article (in this case, a warship). The ruling noted that essential parts of a ship include items like the anchor, hull, mast, rudder, engines, and propeller, without which a ship cannot be imagined to exist or be complete. Additional equipment required for statutory compliance or safety, such as walkie-talkies, life jackets, and furniture, are not considered integral parts. The applicant failed to provide sufficient details to prove that the marine pressure tight and non-pressure tight cables are integral parts of warships. Specifically, the ruling required information on: - The definition and specific use of the cables. - The exact part of the warship where these cables are used. - Whether these cables are solely used in warships. - The purpose these cables serve and why they are essential for the warship's existence or completion. The End User Certificate provided by the Rear Admiral did not explicitly state that the cables are integral parts of the warship without which the warship would not exist or be complete. Conclusion: The ruling concluded that the marine pressure tight and non-pressure tight cables supplied by the applicant do not qualify as integral parts of warships. Therefore, the applicant is not eligible for the reduced GST rate of 5% under Entries 250 and 252 of Schedule-I of Notification No.01/2017-Integrated Tax (Rate) dated 28.06.2017. The applicable GST rate remains 18%. Ruling: The applicant M/s. Apar Industries Ltd., Valsad, is not eligible to avail the benefit of GST @5% as per Entries 250 and 252 of Schedule-I of Notification No.01/2017-Integrated Tax (Rate) dated 28.06.2017.
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