2022 (12) TMI 1135 - HC - GST

Classification of goods - marine paint used on the hull of the ships - anti-fouling paint should be considered part of the ship or not? - N/N. 1/2017, dated 28 June 2017 - HELD THAT - The Authority has observed that the paint generally means any liquid or composition that, after application to a substrate in a thin layer, converts into a solid film. There are various types of paints; one type is anti-fouling paint, which falls under Item 3208. It was the Petitioner's case that the goods marine paint would be covered under Sr.No.252 being part of goods falling under Headings-8901, 8902, 8904, 8905, 8906 and 8907 and; therefore, the enquiry before the Authority was restricted to ascertaining whether goods- marine paint supplied by the Petitioner would be a part of goods Headings 8901, 8902, 8904, 8905, 8906 and 8907. Both the Authorities concluded that just because, as per the Merchant Shipping Act, the marine paint is mandatory to be applied, it does not become part of the ship. This is a considered opinion reached by both Authorities - both the Authorities have adopted the approach required for the classification of the goods in the context of the application of tax, and the Authorities have not widened the enquiry to ascertain various issues sought to be raised by the Petitioner as regards the legality of sailing of the vessel without the marine paint. The contention of the Petitioner primarily centered around the necessity to apply marine paint to increase the longevity and productivity of the vessel, and the legal position requiring that the paint to be used on a ship without which it cannot sail and requirements of International Conventions for applying anti-fouling system. Though the learned counsel for the Petitioner is right in contending that the argument of the learned counsel for the State that paint is just one part of the anti-fouling system was not a ground on which both the Authorities decide the question, the conclusion arrived at by the Authorities cannot be said to be without considering the material on record. In the case at hand, the Authority was considering the interpretation and classification of entries under the CGST Act. In our opinion, the Appellate Authority has rightly distinguished all these decisions cited observing that under this regime prime test is whether the product is marketable or not. Similarly, the Appellate Authority has also referred to and distinguished the decision of the Gujarat High Court in the case of SURGICHEM VERSUS STATE OF GUJARAT 1991 (7) TMI 303 - GUJARAT HIGH COURT . The Authorities have dealt with the decisions cited before the Authorities, and there is no fundamental error in their approach. The view taken by the Authority and Appellate Authority is based on the material placed before it. The Petitioner seeks to convert this limited enquiry in respect of Advance Ruling into an appellate enquiry, which is not permissible to be undertaken in writ jurisdiction. The scrutiny in writ jurisdiction of the orders passed by the Authority and the Appellate Authority is minimal. The Petitioner, who sought an advance ruling as to which entry the marine paint should fall, was given full opportunity of hearing - Petition dismissed.

Summary

Issues Involved:
1. Classification of marine paints under GST.
2. Applicability of advance ruling.
3. Scope of writ jurisdiction against orders of Advance Ruling Authority and Appellate Authority.

Issue-wise Detailed Analysis:

1. Classification of Marine Paints under GST:
The Petitioner, a manufacturer and supplier of marine paints, sought an advance ruling to classify marine paints as part of the ship/vessel, which would result in a lower GST rate. The Advance Ruling Authority and the Appellate Authority rejected this interpretation, classifying marine paints under Chapter heading 3208 and 3209, subject to 28% GST, instead of being considered as parts of ships under headings 8901, 8902, 8904, 8905, 8906, and 8907, which would attract a 5% GST rate.

The Petitioner argued that marine paints are essential for ships' functionality and are mandated by the Merchant Shipping Act, 1958, making them an integral part of the ship. However, both Authorities concluded that marine paints, despite their mandatory application, are not integral parts of ships but standalone commodities. The Authorities emphasized that the ship could function without the paint, which only enhances comfort and durability, not its operational capability.

2. Applicability of Advance Ruling:
The Petitioner applied for an advance ruling under section 97 of the CGST and MGST Acts, seeking clarification on whether marine paints could be classified under Sl. No. 252 of Schedule-I of Notification No. 1/2017. The Advance Ruling Authority and the Appellate Authority held that marine paints should be classified under Chapter 3208, subject to a higher GST rate, as they are not considered parts of ships.

The Authorities reasoned that the classification of goods under GST should be based on their independent existence and marketability, not on their mandatory application under other legal provisions. The Authorities distinguished judicial precedents cited by the Petitioner, which arose from different contexts, emphasizing that the marine paint's classification should be based on its standalone nature and not its functional necessity for ships.

3. Scope of Writ Jurisdiction Against Orders of Advance Ruling Authority and Appellate Authority:
The Court examined whether it should interfere with the orders passed by the Advance Ruling Authority and the Appellate Authority under its writ jurisdiction. The Court noted that the legislative scheme under the CGST Act provides that advance rulings are binding only on the applicant and the concerned officer, with no further appeal provided. The Court emphasized that writ jurisdiction should not be used to assume appellate jurisdiction and examine the merits of the case substantively.

The Court referred to the decision in JSW Energy Limited v. Union of India, which held that the absence of an appeal does not enlarge the writ court's power of judicial review. The Court also cited the Supreme Court's decision in Appropriate Authority v. Sudha Patil, which stated that the sufficiency or adequacy of material is not open to judicial review if two views are possible. The Court concluded that the orders of the Advance Ruling Authority and the Appellate Authority were based on a considered opinion, following the principles of natural justice, and did not warrant interference in writ jurisdiction.

Conclusion:
The Court dismissed the writ petition, upholding the classification of marine paints under Chapter heading 3208 and 3209, subject to 28% GST. The Court found no fundamental legal error in the approach of the Advance Ruling Authority and the Appellate Authority, emphasizing that the scope of writ jurisdiction is limited and does not extend to re-evaluating the merits of the case as an appellate body.