2022 (1) TMI 746 - AAR - GST

Levy of GST - marine engines pertaining to HS code 8407 and its spare parts - engine forms a part of fishing vessel or not - to be classified under HS code 8407 or HS code 8902? - engine forms a part of boats of HS code 8906 being supplied to defence department and other agencies used for patrolling/flood relief and rescue purposes or not - HELD THAT - Applicant had not filed any documentary evidences along with the application to substantiate that the engines they supply are being used in fishing vessels or for boats used by defence departments. During the Personal Hearing held on 05.10.2021, they were called upon to submit Bills of entries, invoices, purchase orders for the products imported and Tax invoices issued by the applicant. Further to that they submitted bills of entries, invoices for purchase and not for sale made by them. When contacted for clarification on these documents, they submitted that the buyers are individual fishermen and mostly they are walk in customers. Hence no purchase orders from fishermen for engines sold for fishing vessels were available with them. The applicant has not furnished any purchase orders for supply of engines at present or for proposed supplies. It is observed that the supplies made for fishing vessels have not been supported with documentary evidences - this authority is constrained to pass any ruling on the question raised about eligibility to avail rate of 5% as prescribed at Sl.no. 252 of Annexure-I of Notification No. 01/2017-C.T (Rate) dated 28.06.2017. Applicability of GST rate 5% on marine engines pertaining to HS code 8407 and its spare parts without considering its general tax rate as per the entry of Schedule I, SI.No.252 of GST Act dated 28.06.2017 - this engine forms a part of boats of HS code 8906 being supplied to defence department and other agencies used for patrolling/flood relief and rescue purposes - HELD THAT - It is seen that the applicant has effected sale of engines to defense department and Naval base at Cochin. The vessels used by the defence and other agencies for patrol, relief and rescue operations fall under Customs Tariff Heading 8906- Other vessels including warships and lifeboats other than rowing boats. As per entry at Sl.no. 252 of Annexure-I of Notification No. 01/2017-C.T (Rate) dated 28.06.2017, parts of goods of headings 8901,8902,8904,8906,8907 falling under any chapter of the customs Tariff attracts GST @5%. Therefore if the marine engines supplied for use as part of vessel falling under tariff heading 8906, which are used by the department of defence and Naval base for patrol, relief and rescue operations, then such engines as part of such vessels will only attract GST at the rate of 5% as per the above entry. The applicant has not established sale of Outboard motors/marine engines to fishing vessels with substantiating documents. Hence no ruling could be offered in this respect. With respect to the Outboard motors/marine engines being supplied to defence department and Naval Base, applicant has submitted invoices and purchase orders to establish the supply and hence it is found that such marine engines supplied being part of Other vessels including warships and lifeboats other than rowing boats falling under Customs Tariff Heading 8906-are chargeable to 5% GST as per entry at Sl.no. 252 of Annexure-I of Notification No. 01/2017-C.T (Rate) dated 28.06.2017. However spare parts are not found to be eligible to avail for this reduced rate specified in the entry.

Summary

Issues Involved:
1. Applicability of GST rate 5% on marine engines (HS code 8407) and its spare parts as part of fishing vessels (HS code 8902).
2. Applicability of GST rate 5% on marine engines (HS code 8407) and its spare parts as part of boats (HS code 8906) supplied to the defence department and other agencies for patrolling, flood relief, and rescue purposes.

Detailed Analysis:

Issue 1: Applicability of GST rate 5% on marine engines (HS code 8407) and its spare parts as part of fishing vessels (HS code 8902)

The applicant, engaged in importing and selling outboard motors, sought an advance ruling on the applicability of a 5% GST rate on marine engines and their spare parts when used as parts of fishing vessels. The applicant referred to para 10.1 of Circular No.52/26/2018-GST dated 09.08.2018, which clarifies that marine engines attract 5% GST when they are part of fishing vessels. However, the applicant failed to provide documentary evidence to substantiate that the engines they supply are indeed used in fishing vessels. The ruling authority noted the absence of purchase orders or invoices for sales to fishermen and concluded that without such evidence, it could not confirm the applicability of the 5% GST rate under Sl.no. 252 of Annexure-I of Notification No. 01/2017-C.T (Rate) dated 28.06.2017.

Issue 2: Applicability of GST rate 5% on marine engines (HS code 8407) and its spare parts as part of boats (HS code 8906) supplied to the defence department and other agencies for patrolling, flood relief, and rescue purposes

The applicant provided evidence of sales to the defence department and Naval Base, Cochin, for engines used in vessels for patrolling, flood relief, and rescue operations. The ruling authority examined the documents, including purchase orders and invoices, and confirmed that the marine engines supplied to these agencies fall under Customs Tariff Heading 8906. As per entry at Sl.no. 252 of Annexure-I of Notification No. 01/2017-C.T (Rate) dated 28.06.2017, parts of goods of headings 8901, 8902, 8904, 8906, and 8907 attract a GST rate of 5%. Therefore, the marine engines supplied to the defence department and Naval Base, Cochin, are eligible for the 5% GST rate. However, the ruling authority clarified that this reduced rate is not applicable to spare parts of marine engines, as they are not classified as parts of the goods under the specified headings.

Conclusion:

1. The ruling on the applicability of the 5% GST rate for marine engines forming part of fishing vessels (HS code 8902) could not be provided due to the lack of substantiating documents.
2. The 5% GST rate is applicable to marine engines (HS code 8407) when used as part of boats (HS code 8906) supplied to the defence department and Naval Base, Cochin, for patrolling, flood relief, and rescue purposes. However, this reduced rate is not available for spare parts of marine engines.