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TMI Blog2018 (9) TMI 1105X X X X Extracts X X X X X X X X Extracts X X X X ..... the 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 - in addition, there are some additional equipments that are required to be made available on a ship as a measure of statutory compliances under various marine acts such as Merchant Shipping Act or Additional Safety measures such as Walkie-talkie, Binoculars, Life Jackets, Lifeboats, etc. Though these are also to be compulsorily made available on a vessel and ship but cannot be taken to be parts of a ship as per general understanding but are rather additional equipments on a ship - also, other essential items like furniture, fans, air-conditioners, television, etc which are very essential for comfort of officers and crew of the ship but do not come under essential parts or equipments of a vessel/ship. The items that are discussed as essential parts of a ship/ vessel are such essential components of a vessel/ ship without which the ship would not be complete and would not exist. These are very integral for the functioning of the ship and can be separated from the ship for repair/replacement. There are various consumable it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be mentioned as being under the GST Act . 02. FATC AND CONTENTION - AS PER THE APPLICANT The submission (Brief facts of the case), as reproduced verbatim, could be seen thus - Jotun Group is a leading supplier of paints and powder coatings. The Applicant, Jotun India Private Limited is a supplier, exporter and manufacturer of paints and powder coatings, The Applicant supplies paints and coatings that are specially designed for unique conditions. Broadly, the paints supplied by the applicant can be categorized in Solvent based paints and Water based paints. One of the major supplies by Applicant are marine paints, Composition of such marine paint being manufactured by Applicant makes it suitable for ships during building stage and even during maintenance. Details of such products along with its description are enclosed as Annexure 4 In the erstwhile Indirect Tax regime, Applicant has been discharging applicable Indirect taxes on supply of such paints and availing exemptions when granted under respective legislation. Since July 2017, new Indirect Tax regime - Goods and Service Tax (GST) has been introduced in India by way of introduction of followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osion has a significant impact on sea carriers and their longevity. Therefore, effective corrosion control strategies are chosen considering appropriate selection of coating for a marine environment. Marine coatings have special functionality to protect marine vessels and other carriers above and below the waterline. Accordingly, marine paints supplied by Applicant has following technical features: Protects the body Of Ship from highly corrosive environment Blocks barnacles and other marine organisms from adhering to the hulls of ships Lessens fuel consumption as it controls damage to the ship. Prevents impact on water eco-systems by reducing emission of Green House Gases. Transportation of marine organisms to other areas Vide notification no 1/2017 of Integrated Tax (Rate) dated June 28, 2017, the Government of India has notified IGST rates for goods. The said notification has classified goods into 4 digit HSN Codes. Further under the said notification, it has been specified that section notes, chapter notes and General explanatory notes mentioned under Customs Tariff Act, 1975 shall apply to the goods classified therein under GST. Since the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustoms Tariff Act, 1975, Applicant has adopted classification of paints under heading 3208 to determine applicable rate. Entry number 20 of Schedule IV of IGST Rate Notification reads as under: Sr.No. Chapter/Heading/ Sub-heading/ Tariff item Description of Goods 20. 3208 Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, dispersed or dissolved in a non-aqueous medium; solutions as defined in Note 4 to this Chapter However, marine paints are suitable for principally use of ships and hence, it is also pertinent to analyse Entry 252 to Schedule I of Notification No 1/2017 Integrated Tax (Rates) dated June 28, 2017 liable to 5% IGST: Sr.No. Chapter/Heading/ Sub-heading/ Tariff item Description of Goods 252. Any Chapter Parts of goods of heading 8901, 8902, 8904, 8905, 8906 and 8907' Description of goods falling under above referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under said chapter. The goods falling under any Chapter, as long as they are parts of goods of Heading 87.01 will be covered by the said Notification. A7. Thus bearing in mind, entry 252 of Schedule I of GST classification notification (1/2017 - Integrated Tax dated June 28, 2017) and aforesaid case law, one may interpret that goods falling under any chapter, as far as they constitute to be part of vessel/ship, would be subjected to tax at 5%. A8. Accordingly, for marine paints to be classified under this entry, it should be construed as 'part of the ship' covered under entry 252. B. Marine paint is mandatorily to be applied on all ships under Merchant Shipping Act, 1958 and hence the same should be considered as part of Ship B1. As highlighted above, there is no separate tariff item as 'parts of ship' under chapter 89 of First Schedule to Customs Tariff Act, 1975. Thus, meaning of the term 'parts of goods', could then be adopted from its meaning in common parlance. Consequently, we have referred to the definition of the term 'Part', legal jurisprudence on the term 'Parts / Components' under erstwhile Indirect Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable standards and requirements as prescribed front time to time as well as effective measures to ensure that such ships comply with the requirements, as may be prescribed from time to time. 2. All other vessels to which this Part applies shall comply with requirements of the anti-fouling systems as prescribed from time to time. Section 356X of MS Act - Information regarding contravention of the provisions of Convention 1. If, on receipt of a report from a surveyor or other person authorised to inspect a ship, the Director-General is satisfied that any provision of this Part has been contravened by such ship within the coastal waters, the Director-General or any officer authorised by him in this behalf, may- a. detain the ship until the causes of such contravention are removed to the satisfaction of the Director-General or the officer authorised by him; and b. levy penalty on such ship as specified in section 436 B4. From conjoint reading of the above provisions, it is evident that every ship has to adhere to the anti-fouling provisions as prescribed under MS Act. Basis the Same, a layer of coating or paint, has to be applied on the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as one of the component parts of the goods marketed, i.e., adhesive plaster tapes. It is not disputed that adhesive plaster tapes can be marketed only after wrapping them on plastic spools. Therefore, plastic spools are to be held component part of the adhesive plaster tapes, that is, the goods marketed. Hence plastic spools cease to be packing material. C4. The Apex Court, in case of Collector of Central Excise, Calcutta-II Vs. Eastend Paper Industries Ltd. [1990] 77 STC 203 (SC) held that to be able to be marketed or to be marketable, it appears to us, in the light of facts in the appeals, that it was an essential requirement to be goods, to be wrapped in paper. Anything required to make the goods marketable, must form part of the manufacture and any raw material or any materials used for the same would be component part for the end product. C5. From the above, it could be summarized that paper core, plastic spools and wrapping paper would be considered to be parts of paper rolls, adhesive plaster tapes and paper reams/reels respectively since without the former goods, the later goods couldn't be marketed or are commercially inexpedient. Thus an analogy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial Laminates Fabric (manufacturer - Lamtuf Plastics Ltd .) D2. From the facts of above case, it could be understood that paints when supplied to manufacturers of aircrafts /helicopter, are treated as parts of aircraft and thus would be eligible for claiming benefit of nil rated duty under notification 6/2002-Central Excise. Applying similar analogy, paint when supplied for manufacture of ship should be considered as part of ship. E. Under erstwhile Indirect Tax regime, Central Excise exemptions were granted to marine paints supplied to ship. Hence. intention of legislators appears to provide indirect tax concession to this product. E1. In order to evaluate whether marine paint would be eligible for lower rate of GST, it is also relevant to understand history of indirect tax rate and exemptions, if any, under erstwhile Indirect Tax regime. E2. Under Central Excise Act, 1944, Notification No. 44/2015-CE dated 24 November 2015 has issued prescribing effective rate of central excise for specified goods (amending Notification 12/2012 dated 17 March 2002). Said notification inserted following entry for prescribing effective rate of excise for goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT legislation of United Kingdom also considers paint as part of ship F1. Value Added Tax (VAT) was introduced in the UK on April 1, 1973. Although Value Added Tax Act 1994 (VATA) provides the lain framework of the tax, the detailed interpretation of the same are found in statutory instruments either in the form of Orders made by Treasury or Regulations made by Her Majesty's Revenue and Customs (HMRC). HMRC has published several Notices and Leaflets affecting law. Though these Notices are not part of the law but they explain how HMRC interprets the law. F2. Applicant would also like to draw your attention to the VAT provisions laid in United Kingdom as regards parts or components of ship. Following is the extract of such germane provisions: a. Section 30(2) of Value Added Tax Act 1994 A supply of goods or services is zero-rated by virtue of this subsection if the goods or services are a description for the time being specified in Schedule 8 or the supply is of a description for the time being so specified. b. Group 8 of Schedule 8 of Value Added Tax Act 1994 The supply of parts and equipment , of a kind ordinarily installed or incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore under VAT Notice 744C, the UK government has prescribed a non-exhaustive list of parts and equipments which are not zero-rated. The said non-exhaustive list of parts and equipments includes paints, solvent and thinners. F5. Thus from above it is clear that paints, solvent and thinners have been considered to be parts and equipments of a ship since it is reported under a non-exhaustive list of parts and equipments. CONCLUSION 1. In our view, marine paints so supplied by applicant, would be classified under Sr No 252 of Schedule I of IGST Act, 2017 - Parts of goods of heading 8901, 8902, 8904, 8905, 8906 and 8907' on following grounds - 2. Since entry at Sr no 252 has been newly introduced under GST Tax Schedules, inference could be drawn from Customs Tariff Act. Hence the meaning of the term 'parts of goods of heading 8901, 8902, 8904, 8905, 8906 and 8907' has to be adopted in general parlance. 3. Thus we have referred to definitions of 'Part' in various Dictionaries. Accordingly, part of an article is an integral part necessary to the constitution of the whole article and without it, the article will not be complete. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah, Advocate, duly authorized, appeared and made oral submissions for admission of application as per details in their written submissions. During hearing, the jurisdictional officer, Sh. Rajesh Gaikwad, Dy.Commr., State GST, stated that they have made written submissions objecting to admission of their application stating that when there is a specific entry for any commodity the said commodity cannot be classified differently. The application was admitted and during the Final Hearing on 11.04.2018, Sh. Nitin S Shah, Advocate, duly authorized, appeared and made oral and written submissions along with case laws. Ms Shweta Patni, Chartered Accountant was also present. The jurisdictional officer, Sh. Rajesh Gaikwad, Dy, Commr., State GST, also appeared and orally reiterated that the goods were having a specific entry and should be classified accordingly. 05. OBSERVATIONS We have perused the records on file and gone through the facts of the case and the submissions made by the applicant and the department. The applicant has submitted that they are a manufacturer, supplier and exporter of paints and according to their submissions, they supply paints and coating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any liquid or composition that, after application to a substrate in a thin layer, converts to a solid film. It is most commonly used to protect, color, or provide texture to objects. There are various types of paints like enamel paint, emulsion pain, lacquer paint, varnish paint (without pigment), etc. One of the type of paint is 'Anti-fouling' paints. Anti-fouling paints are generally paints that are applied to hulls of ships. They prevent barnacles and other marine organisms from adhering to the hulls of ships. Thus it is the contention of the applicant that such types of paints sold by them should be treated as parts of a ship. First of all we refer to the exact body of the Sr.No. 252 of Notification No. 1/2017 of Integrated tax, the benefit of which the applicant is claiming. Sl. No. Chapter/Heading/ Sub-heading/Tariff item Description of Goods 252. Any chapter Parts of goods of heading 8901, 8902, 8904, 8905, 8906 and 8907' We find that as per above details, the benefit of concessional rate of IGST @5% is available to parts of goods of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le broadcast of a series of television or radio programme or Division of a story. ----one of two or more equal or almost equal measures of something etc. ---------Further, we also find the definition of 'Spare Part' as per Wikipedia A spare part, spare, service part, repair part or replacement part is an interchangeable part that is kept in an inventory and used for the repair or replacement of failed units. Spare parts are an important feature of Logistics Engineering and Supply Chain Management. Thus in view of the above meanings/definitions of part/parts/Spare Part, we will be required to examine as to what are the parts of Goods of CTH 8901, 8902, and 8907 and whether marine paints can be taken to be covered within the meaning of Parts for Sr. No. 252 of Notification no. 1/2017-integrated Tax, We find that Anchor, Bow, Bowsprit, Fore and Aft, Hull, Keel, Mast, Rigging, Rudder, Sails, Shrouds, Engines, gearbox, Propeller, Bridge, etc. are the 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. However, in addition to the above there are some addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial parts of ship. Similarly the second definition of part also defines 'part' as one of the pieces that together form a machine or some type of equipment. We find that marine paints are not covered in this definition also. In the same way we find that marine paints are not covered within the definition of spare part also as given in discussions above. The applicant has contended that marine paints are mandatorily required to be applied on all ships as per Merchant Shipping Act, 1958 and therefore should be considered as parts of ship. Just because it is mandatory, under some law, to be applied on ships, does not essentially make it, its part. The applicant has claimed that under the erstwhile indirect tax regime, Central Excise exemptions were granted to marine paints supplied to ship. They have construed the conditions of exemption very simply to their case. Notification No. 44/2015-CE dated 24 November 2015 was issued prescribing effective rate of central excise for specified goods (amending Notification 12/2012 dated 17 March 2002). The said notification inserted following entry for prescribing effective rate of excise for goods mentioned therein. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. 14. This Court, in Star Paper Mills (supra) has made a settled distinction while considering whether paper cores are `components' in the manufacture of paper rolls and manufacture of paper sheets. It is stated that `paper cores' are component parts in so far as manufacture of roll is concerned, but it is not `component part' in the manufacture of sheets. It is useful to quote the observations made by this Court :- ... paper core would also be constituent part of paper and would thus fall within the term component parts used in the Notification in so far as manufacture of paper in rolls is concerned. Paper core, however, cannot be said to be used in the manufacture of paper in sheets as component part. We are conscious that the relevant tariff item uses the word paper but since paper in rolls and paper in sheets are nothing but different forms of paper, both of them would be excisable goods as paper under the relevant tariff item. 15. In Modi Rubber Ltd. v. Union of India, (1997) 7 SCC 13, = 1997 (8) TMI 75 - SUPREME COURT OF INDIA the appellant had set up tyre and tube manufacturing plant and imported various plants and machineries. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 'the word 'paper' in the common parlance or in the commercial sense means paper which is used for printing, writing or packing purposes. We are, therefore, clear of opinion that Carbon paper is not paper as envisaged by entry 2 of the aforesaid Notification. Regarding ribbon also to which the above mentioned rule construction equally applies, we have no manner of doubt that it an accessory and not a part of the typewriter (unlike spool) though it may not be possible to use the latter without the former. Just as aviation petrol is not a part of the aero- plane nor diesel is a part of a bus in the same way, ribbon is not a part of the typewriter though it may not be possible to type out any matter without it. The very same question with which we are here confronted came up for decision before the High Court of Mysore in State of Mysore v. Kores (India) Ltd. 26 STC 87). = 1970 (3) TMI 126 - MYSORE HIGH COURT (1) where it was held: Whether a typewriter ribbon is a part of a typewriter is to be considered in the light of what is meant by a typewriter in the commercial sense. Typewriters are being sold in the market without the typewriter ribbons and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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