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TMI Blog2019 (3) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... s generally applied to hulls of ships. In order to address the contention of the appellant, it is to be seen as what is understood by the meaning of the term parts - What we understand from the term part is that it should be identified as something integral and mandatory to the completion of the whole article and without which the article will not be complete. By the application of the above, it cannot be said that marine paint is part of the ship. An essential part of ship or something without which ship could not be completed and would not exist. It presumes that the article as such must, in its condition and functioning, be so essential that the whole cannot function without it. We agree with the observation of the AAR that marine paints are in no way an integral piece of a ship which would in any way form the whole ship. The main contention of the appellant is that as per the provisions of the Merchant Shipping Act, paints are mandatorily required on all ships and therefore they should be considered as part of ships. This may be mandatory requirement for the sail worthiness of the ship but that does not indicate that they are parts of the ship. The mandatory requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes and general explanatory notes of the said first schedule would be applicable for the purpose of the classification under GST. E. Accordingly, Appellant has sought to classify paints being supplied under HSN 3208 and 3209 basis the nature of the product and after considering relevant chapter notes and Section notes. Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 prescribe applicable rate of CGST. Paint supplied by the Appellant classifiable under chapter heading 3208 and 3209 are covered under Schedule VI of the said Notification and accordingly were liable to 14% CGST and subsequently at 9% CGST. F. However, under same CGST Rate Notification, Schedule I liable to 2.5 % CGST covers parts (classifiable under any chapter) of goods, falling under heading 8907 i.e. part of ships. Since, marine paints supplied by the Appellant are suitable for use by ships, Appellant seeks the clarification whether the said marine paints could get classified under Schedule I to the Notification No. 1/2017-C.T. (Rate) dated 28.06.2017. G. Accordingly, the Appellant had made application before the Advance Ruling Authority seeking a ruling on the following question: Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on synthetic polymers or chemically modified natural polymers or chemically modified natural polymers dispersed or dissolved in a non-aqueous medium; solutions as defined in Note 4 to this Chapter 5. It is submitted that based on the technical specification of the product, marine paints appear to be classifiable under heading 3208. Since, marine paint is suitable for use for ships, it could also get classified as part of ship. For the purpose of this analysis, Appellant referred to chapter 89 for Ships, boats and floating structure . They further submitted that there is no specific entry in Chapter 89 for parts of ships covered therein. In the absence of any entry for part of ship, Appellant had adopted classification of marine paint under chapter heading 3208. 6. The Appellant has also been adopting similar classification under Central Excise Law. The excise duty liability has accordingly been discharged by Appellant under erstwhile Indirect Tax regime. 7. It is submitted that marine paints are suitable principally for use in ships and hence, it is also pertinent to analyze Entry 252 to Schedule I of Notification No 1/2017 of Central Tax (Rates) dated June 28, 2017 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 - CESTAT, MUMBAI , wherein it was held that we also note that the recent Circular No. 839/16/06-CX dated 16-11-2006 issued by the Board has clarified that inasmuch as Notification No. 6/2002 exempts parts, falling under any Chapter, used within factory of production for manufacture of goods of Heading 8701, the benefit cannot be denied to the product which may not fall under said chapter. The goods falling under any Chapter, as long as they are parts of goods of Heading 8701 will be covered by the said Notification. 10. It is submitted that in light of the entry 252 of Schedule I of GST classification notification (1/2017-Central Tax dated June 28, 2017) and case law referred above, it is clear that the goods falling under any chapter, as far as they constitute to be part of vessel / ship, would be subjected to tax at 2.5%. 11. Accordingly, for marine paints to be classified under this entry, it should be construed as part of the ship covered under entry 252. 12. It is submitted that there is no separate tariff item as parts of ship under chapter 89 of the First Schedule to Customs Tariff Act, 1975. Thus, meaning of the term parts of goods , could then be adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submitted that the Ld. AAR has observed that anchor, bow etc. are very essential parts of the ship or vessel and are quite clearly part of the vessel. However, in addition to the above there are some additional equipment that are required to be made available on a ship as a measure of statutory compliance under the various marine acts. Though these parts are very essential, cannot come under the essential parts or equipment of a vessel/ship. In this regard, it is submitted that the courts in various cases has held that the goods which are essential to make a final main product marketable should be considered as part of the said main product. However, Ld. AAR has failed to appreciate the same and hence impugned advance ruling needs to be set aside. 18. The Ld. AAR has also erred in comparing paints with safety equipment s like walkie-talkie, binoculars, life jackets, life boats etc. Such safety equipment are generic in nature and not ship specific. However the marine paints supplied by Appellant are specifically meant for ships/vessels. 19. It is further submitted that the Ld. AAR has also observed that various consumables items like oil etc. are also used to make ship du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouling 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 22. It is submitted that 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 hull of the ship to control or prevent attachment of unwanted organisms. Attention is invited to the meaning of term hull in Concise Oxford English Dictionary, which reads as follows - The main body of a ship or other vessel, including the bottom, sides, and deck but not the mas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keted. Hence plastic spools cease to be packing material. 27. The Apex Court, in case of Collector of Central Excise, Calcutta-II Vs. Eastend Paper Industries Ltd. [1990] 77 STC 203 (SC) = 1989 (8) TMI 81 - SUPREME COURT OF INDIA 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. 28. It is submitted that from the above cases, 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 could be drawn that anything which is required for making goods marketed or to be marketable, would be form component part of that end products. 29. It is submitted that, as explained above, basis the provisions of The Merchant Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Notification 6/2002 - CE. Applying similar analogy, paint when supplied for manufacture of ship should be considered as part of ship. 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. 34. It is submitted that in order to evaluate whether marine paint would be eligible for lower rate of GST, it is also relevant to understand tax rate and exemptions, if any, under erstwhile Indirect Tax regime. 35. It is submitted that 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 2012). Said notification inserted following entry for prescribing effective rate of excise for goods mentioned therein. Sr. No. Chapter or heading or sub-heading or tariff item of the First Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39. It is submitted that Value Added Tax (VAT) was introduced in the UK on April 1, 1973. Although Value Added Tax Act 1994 (VATA) provides the main 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. 40. Appellant 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 of 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 incorporated in, and to be installed, or incorporated in, - a. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 43. It is submitted that from the 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. VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 44. In support of its contentions, the Appellant replied upon the various cases. At the time of the passing of the impugned advance ruling, the Ld. AAR, relied upon various case laws different that the cases referred by the Appellant. However, the Appellant was not given chance of representing its case in light of those decisions referred by the Ld. AAR. Such act of the Ld. AAR is clearly violation of the principles of natural justice. 45. It is submitted that from the above, it is clear that the impugned advance ruling has been passed in violation of the principles of natural justice and hence the same is liable to be set aside. HEARING 46. A personal hearing in the matter was conducted on 16.01.2019, where Shri Nitin Shashikant Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps vs. Collector of Customs, Equivalent citations: 1997 ECR 98 Tri Delhi, 1997 (94) ELT 234 Tri Del. = 1997 (5) TMI 152 - CEGAT, NEW DELHI C) State of Uttar Pradesh vs. M/s. Kores (India) Ltd on 18 October, 1976, Equivalent citations: 1977 AIR 132, 1977 SCR (1) 837 = 1976 (10) TMI 131 - SUPREME COURT OF INDIA iv) The ARA has also stated as under: Considering the meaning of an expression (Part) as defined in the dictionary and adopted by the courts mentioned above besides common parlance test, it can be safely concluded that Marine Paint is not a component part of Ship. This conclusion which we have drawn as above gets support from the facts stated by the appellant and detailed discussions above as per which marine paints are clearly consumable items and not parts. v) Thus we would be stretching the definition of part greatly, if we intend to treat paints as parts of ship in view of the above discussions. vi) Basis 30(2) of UK VAT Act, the ARA has mentioned that the statutory provisions, conditions are in different context and therefore not relevant in the facts of the case in present matter. DISCUSSION AND FINDINGS 47. We have perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrosive environment. 2. Blocks barnacles and other organisms from adhering to the hulls of the ship. 3. Lessens fuel consumption as it controls the damage to the ship. 4. Prevents the impact on water eco system by reducing emission of greenhouse gases. 5. Transportation of marine organisms to other areas. 49. It was held by the AAR that marine paints supplied by the appellant is not an integral part of the ship and would not be classified under Sr.No.252 of Schedule-I of the Notification No.1 of 2017. The appellant has therefore filed appeal against the Advance Ruling Order and has reiterated his contention that the marine paints are parts of ships and therefore covered at Sr.No.252 of Schedule-I of the Notification No. 1 of 2017. 50. The question therefore before us is whether marine paint can be considered to be a part of headings 8901, 8902, 8904, 8905, 8906, 8907 which are all various types of water vessels. In common parlance, paints generally means any liquid which is commonly applied to a number of surfaces and is used to provide texture to an object as well as protect the surfaces. The paint supplied by the appellant is anti fouling paint which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an adequate ground for classifying a product as part . 53. The Appellant has placed reliance on the Supreme Court decision in the case of Star Paper Mills v. Collector of Central Excise (1990) 76 STC 317 (SC) = 1989 (8) TMI 78 - SUPREME COURT OF INDIA , wherein it was ruled that if it is found that use of paper core as necessary in any process incidental or ancillary to the completion of paper as marketable goods and it would consequently be commercially inexpedient to sell paper without the use of paper core, it would certainly be construed as part of paper itself and fall within the purview of the term component part used in the notification. The Supreme Court decision in the case of Collector of Central Excise v. East Paper and Industries (1990) 77 STC 201 (SC) = 1989 (8) TMI 81 - SUPREME COURT OF INDIA held that anything required to make the goods marketable must form part of the manufacture and any raw material or any materials used for same would be component part of the end product. All these judgments are rendered under the Central Excise Law where the prime test is that the product is marketable or not. The judgments have been pronounced from the angle o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner, Sales Tax v. Free India Cycle Industries [1970] 26 STC 428 = 1970 (2) TMI 107 - ALLAHABAD HIGH COURT the Allahabad High Court was concerned with an entry bicycles, tricycles, cycle rickshaws and perambulators and parts and accessories thereof other than tyres and tubes . The assessee was a dealer in cycle and cycle goods and the question arose whether rexine saddle covers manufactured and sold by it would fall within that entry. It was observed by the Division Bench that the expression parts and accessories qualified the word bicycles, tricycles, etc. The entry was regarded as referring to parts and accessories of the vehicles and did not include accessories of individual parts or accessories of the vehicle. Dealing with the question of rexine covers, it was held that rexine covers in question are used as a covering of the saddle or seat of a cycle. The seat or saddle of a cycle is, of course, a part of the cycle because without it the cycle is not complete. A rexine cover in that sense is not a part of the vehicle . The above judgement is applicable to the instant case. 57. In a recent Bombay High Court judgment in the case of Khush Bakht Electronic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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