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TMI Blog2019 (3) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE- APPLICANT The submissions, as reproduced verbatim, could be seen thus- STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED 1. This Application is being preferred on behalf of Cummins India Limited ("Company/the Applicant"), a company incorporated in India under the provisions of the Companies Act, 1956 having its registered office at Cummins India Office Campus, Tower A, 5th Floor, Survey No. 21, Balewadi, Pune-411045. 2. Applicant is a group company of Cummins Inc. situated in Columbus, Indiana and as such is engaged in manufacture, sale of a variety of diesel engines, parts thereof and related services; and undertakes all day-to-day activities required th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motives 1. STATEMENT OF THE RELEVANT FACTS 1.1 The range of products manufactured and supplied by the company inter alia include engine ('subject engine'), which are manufactured for Railways/Locomotive manufacturers Railways as per the design specifications provided by Railways such Railways/Locomotive manufacturers itself. These subject engines have sole use of main propulsion in railways/locomotives and have no alternate usage. Railways. In other words, these engines are manufactured and supplied 'solely and principally' for its application in the railways/locomotive engines. 1.2 The engines manufactured by applicant may potentially be classified under heading 8408 as Compression- Ignition Internal Combustion Piston Engines (Diesel or Semi- Diesel Engines) as well as heading 8607 as 'Parts Of Railways Or Tramway Locomotives Or Rolling-Stock' inasmuch as these engines are used 'solely and principally in railways/ tramway/ locomotives. 1.3 The aforesaid proposition is time and again subjected to interpretation by all stake holders given the specific Section Notes under Section XVI and XVII of the Tariff, which do not yield a clear result. It may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding / Sub-heading / Tariff item under the First Schedule to Customs Tariff Act, 1975 ('Customs Tariff) and warrants reliance on the rules of interpretation and Section/ Chapter/ General Explanatory note thereto, which provide prescription for interpretation of the Customs Tariff (refer to Explanation (iii) & (iv) in the CGST Rale Notification 1/2017 dated June 28, 2017). 4.2 It may be noted that Customs Tariff follows the common classification system, which is popularly called the Harmonized System of Nomenclature (I IS or HSN), developed by the World Customs Organization and is used/ accepted world over. 4.3 Note 3 to Section XVII has been re-produced below for quick reference: "3. References in Chapter 86 to 88 to "parts" or "accessories" do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters..." 4.4 It is submitted that, Section Note 3 (supra) provides that, an article cannot be classified as a part of an article covered under Section XVII unless the same is designed to be used 'solely' or 'principally for articles of chapters falling under the said Section. A corollary to the said Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Hi-tech Industries Limited vs. Commissioner of Customs, Bangalore (2005 (180) ELT 0356] wherein an identical issue in the context of classification of goods on the basis of principal or sole use of the goods was involved. As a matter of fact, the facts of the said case are applicable mutatis mutandis in the present factual matrix. The Hon'ble Tribunal while deciding the case in the favour of the assessee relied on the observations of the Commissioner (Appeals) while passing the Order in Appeal as under: "It is observed that the impugned product imported by the appellants is a web camera. From the technical ¦ ;literature submitted at the time of personal hearing, it is observed that the camera is not an ordinary camera and functions only with the computer and this camera has got very specific functions and it works basically as a part of the computer and cannot function independently on its own. Thus, it is observed that the web camera imported by the appellant is not an ordinary camera and does not function independently. The image can be captured only when it is connected with the computer. Thus, from the above, it can be seen that the product imported by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessees have no use or relevance in the structures. These are being manufactured by them on the drawings and specifications provided to them, by the railways, for their sole use in the railways conches. These aluminium windows and doors, as not disputed by the counsel before us, are neither marketable in the market nor can be used in any structure. He has rather fairly conceded that these can be solely used in the railways coaches. That being so, it can be safely concluded that these are parts of the railways classifiable under Tariff Heading 86.07(sub-heading 8607.00) of the Tariff. The principal that specific tariff entry has to prevail over the general entry, is not attracted in this case.The view taken in the impugned order dated 15-06-1994 by the Collector (which is the subject matter of the appeal of the assessees) is legally correct and no fault can be found with the same." 4.12 The classification of goods owing to sole and principal usage thereof in view of Section Note 3 is a widely regarded and accepted position of law and the same is also supported by Circular No. 17/90-CX.4, dated 9-7-1990 which clarified that Gear, gear boxes per se classified under 8483 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t products which are admittedly to be used solely for manufacture of railways/locomotives; merits its classification under Chapter 86 and thereby accord the rate of GST at 5% in the larger scheme of GST rate structure. 4.18 NOTE 2Ie) OF SECTION XVII FALLS SHORT TO EXCLUDE SUBJECT GOODS FROM CHAPTER 86 It is seen that the major deterrent to classification of subject goods under Chapter 86 as part for sole/ principal use with articles of those chapters is Note 2(e) of Section XVII of the Customs Tariff (supra), 4.19 It is submitted that, provisions of Note 2Ie) of Section XVII excludes articles of heading 8401 to 8479 from being covered as 'part' under Section XVII itself. However, in Applicant's view the Note 3 supersedes Note 2 due to following reasons: a. Note 3 being specific cannot be superseded by generic Note 2; b. Note 2, by theme, seem to be exclusion for generic parts and accessories, which may have multiple application notwithstanding its usability inter-alia with articles falling in Section XVII; c. Reference is also invited to note 1(I) of Section XVI, which is inter-alia governs coverage under Chapter 84 (which falls in Section XVI) provides as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Section Note 2(e) as well as Section Note 3 and held that articles in question attract classification under heading. 8607 in view of the collective reading of the Section Notes. The Relevant portion of the said decision is extracted below: The Excise Department took the stand that the goods manufactured by the applicant company are not parts of locomotives but they are parts of machines and apparatuses falling under Chapter Heading 84 or 85. This approach was made on the basis of Note 2el. For a proper understanding of that Note, we read the same: "2....... The expressions "parts" and "parts and accessories" do not apply to the following articles, whether or not they are identifiable as for the goods of this Section: (a) Machines and apparatus of heading Nos. 84.01 to 84.79, and parts thereof; articles of heading No: 84:81 or 84.82 and provided they constitute integral parts of engines or motors, articles of heading No. 84.83." The Commissioner in the impugned order took note of the meaning or locomotive given in the Explanatory Notes to HSN... He further noted the meaning of locomotive from Encyclopaedia Britannica as a vehicle containing the power unit used on railroa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Railways is to be classified under sub-heading 8607.00 or otherwise. The Board observed that product radiator assembly is designed according to the specifications of the Indian Railways and is for use solely and principally with locomotives of Heading 8601 and 8602. It is clarified that the radiator assembly is not to be classified as parts of IC engines under Heading 8409. This understanding of the Central Board of Excise and Customs is discernible from circular No. 16/90 dated 77-6-7 990, which still holds good. If radiator assembly manufactured for Railways for being fitted in locomotives is to be classified under Heading 8607, we do not find any justification in the department taking a view that integral parts of IC engines which form locomotive are outside Chapter Heading 86. In the light of the above discussion, we come to the conclusion that the various components manufactured by the appellant company are classifiable solely under Chapter Heading 86. The contrary view taken by the Commissioner is clearly erroneous." (Emphasis supplied) 4.24 The Applicant submits that the present issue and relevant facts are squarely covered by the ratio laid down by the Hon'ble Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision Assuming for sake of argument, and without admitting, even if the competing Headings equally merit consideration and there is a state of indecision, for classification of goods, the general rules of interpretation of the Harmonized System prescribe that goods should be classifiable under the heading occurring last in the numerical order (commonly known as latter the better rule). 4.31 in the instant case, if the said rule is applied that also yields conclusion in favour of Heading under Section XVII only i.e. 8607. 5. PRAYER "Owing to sole and principal usage for Railway/locomotives (Chapter 86 goods) the engines manufactured by Applicant are rightly classifiable as parts of goods falling under Chapter 86 and hence, classifiable under heading 8607 and not elsewhere. GST rales should therefore, be determined accordingly." 1. STATEMENT OF THE RELEVANT FACTS 1.1 The Applicant has its presence across various states in India through its manufacturing/service/sales units. These units are located in different states of India. Therefore, in view of section 25(4) of CGST Act, units located in each such state are to be treated as a 'distinct person' from units located in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8B1Z9 Goa Floor 2 Hat NoS-1, Buliding No 5, Kimat Estate, lisivadi, Panji, Goa, 403001 Area Office 32AAACC72588125 Kerala Floor 1, TV/431 H, VINCENT PLAZA, THIRUVANKULAM PANCHAYATH,HILL PALACE ROAD, Cochin, Ernakulam Area Office 33AA ACC72588123 Tamil Nadu 62, SREE TEJA, GREENWAYS, RAJA ANNAMALAIPURAM Chennai, Tamil Nadu, 600028 Manufacturing 34AAACC7258B1Z1 Puducherry No 14, Pillayar koil street, G. N. Palayam, Arumparthapuram,Puducherry;605110 Area Office 36AAAG0725861ZX Telangana 4th Floor, 404/1 404/2. Block I, White House, Kundan Bagh, Begumpet, Hyderabad, Telangana, 500016 Depot 1.2 The Applicant, being a registered person and engaged in the activity of making taxable supply, is eligible to avail Input Tax Credit ("IT:C") of GST paid on all the input, capital goods and input services procured in the course of furtherance of business. 1.3 Amongst all such procurements, certain common input services are availed by head office of the Applicant located in Pune. Further, the units of the Applicant may also avail common services. Accordingly, the head office or the respective unit, as the case may be, avails ITC of GST paid on such common input supplies subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the activity of facilitating common input supplies. 3.3 At this juncture, attention is invited to provisions of Section 7 of the CGST Act, 2017 which provides the scope of 'supply' and specifies activities which qualify as supply if undertaken for consideration. It further refers to the activities enlisted in Schedule -1 of the CGST Act, 2017 which are to be treated as supply even if made without consideration. Said Schedule -1 at its entry no. 2 refers to supply of goods or services between distinct persons. Relevant portion is reproduced below: ''SCHEDULE 1: ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:" 3.4 As such the units of the Applicant located in different states qualify as distinct person, and any service inter se qualifies as 'supply irrespective of whether there is any consideration for the same. 3.5 The Hon'ble Authority is therefore requested to kindly pass a ruling to clarify that the facilitation of availing common input services by Units of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of subject transaction to the Applicants own business, it cannot be assessed with reference to value of 'supply of like kind and quality' as well. 3.9 Further, the subject supply being 'service of facilitation of common input, ascertaining 'cost of provision of service would involve ascertaining cost of service and all the ancillary activities necessary to facilitate the same to recipient units. As such, the activity of facilitation would include multiple of tangible and intangible activities and cost for all such activities cannot be ascertained rationally. Owing to inability to determine the cost of providing the service of facilitation, provisions of Rule 30 also cannot be referred to determine the assessable value. 3.10 In such a case, the applicant is left with the only resort to assess the subject supply with reference to the provisions of Rule 31 which directs a taxable person to assesse the value of 'supply with reasonable means consistent with Section 15 and provisions of CGST Rules. 3.11 in view of Rule 31 which refers to 'reasonable means' the applicant is of the view that facilitation on input supplies by one unit to each of its distinctl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing on the relevant proportion of ITC to the respective distinct person. However, it does not indicate that such issuance of invoice for distribution of ITC as a mandatory activity and it appears that operating as an ISD is an option. 3.17 We further refer to provision of Section 24 of the CGST Act which enlists the entities that are required to be registered as a taxable person, and the said Section at its sub-clause (viii) requires an ISD to obtain an independent registration. The Applicant submits that, Section 24 merely refers to the necessity' of an independent registration if a person intends to avail the facility of ISD. It however, does not create any stipulation as to necessity' of availing the ISD facility itself. The Applicant further submits that there exists no other statutory provision which compels a person to act as an ISD, and the mechanism of ISD in all its possibilities appear to be an 'option' to be exercised at the discretion of registered person itself. 3.18 This position is also explained by the clarification as offered by CBIC (the then CBEC) vide its tweeter handle. A snapshot of the same is reproduced herein below for ready reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 8408 as Compression-Ignition Internal Combustion Piston engines (Diesel or Semi-diesel engines) as well as heading 8607 as Tarts of Railway or Tramway Locomotives or Rolling Stock' in as much as these engines are used 'solely and principally' in rail ways/ tramway/locomotives. For discussing the issue raised by the applicant, the Section Note 2 of Section XVII which deals in goods like vehicles, aircrafts, vessels and associated transport equipments is reproduced as below:- 2. The expressions "parts" and "parts and accessories" do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:- (a) joints, washers or the like of any material (classified according to their constituent material or in heading 8484) or other articles of vulcanized rubber other than hard rubber (heading 4016) (b) parts of general use, as defined in Note 2 of Sec.XV, of base metal (Sec XV), or similar goods of plastics (Chap 39); (c) articles of Chapter 82 (tools); (d) articles of heading of heading 8306; (e) machines or apparatus of headings 8401 to 8479, or parts thereof, articles of heading 8481 or 8482 or, provided then constitute in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nherently different from each other. In view of the foregoing para it appears that Note 2 of the Chapter 86 clearly indicates goods like engines cannot be classified under this chapter. Further, Note 2(e) of the Section XVII clearly states that the expression parts and parts and accessories do not apply to machines or apparatus of headings 8401 to 8479, or parts thereof. Hence, the engine manufactured and supplied for use in railway, locomotives are classifiable under HSN Heading 8408 and not under Heading 8607 of the Customs Tariff. I. Common Input Services: Levy, Assessable value and ISP Registration: The applicant stated that it has presence across various states in India through its manufacturing/service/sales units and they are located in different states in India. As per provisions of Section 25(4) of CGST Act, 2017, units located in each such state are to be treated as a 'distinct person' from units located in other states. The applicant further stated that certain common input services are availed by the head office located in Pune and the units of the applicant. The costs incurred by head office/ units for procurement of such common input services, is booked by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth.- Where the value of goods or services or both cannot be determined under Rules 27 to 30 the same shall be determined using reasonable means consistent with the principles and the general provisions of Section 15 and the provisions of this chapter." Therefore, before proceeding for valuation under Rule 31 the possibility of assessment of value of such supply of services must be explored under the provisions of Rule 30 of CGST Rules which is reproduced as below: "30. Value of supply of goods or services or both based on cost.- Where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this chapter, the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provisions of such services." In view of the above, the valuation for such supply can be done under the provisions of Rule 30 of the CGST Rules, 2017 and applicant's request to accept nominal value may not be accepted. 04. HEARING The case was scheduled for 11.09.2018 for Preliminary hearing when Sh. Rohit Jain, Advocate along with Sh. Narender Vaidya, DGM Taxation appeared and made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Circular No. 30/4/2018-GST dated January 25, 2018 has clarified that only the goods classified under Chapter 86, supplied to the railways attract 5% GST rate with no refund of unutilised input tax credit and other goods [falling in any other chapter], would attract the general applicable GST rates to such goods, under the aforesaid notifications, even if supplied to the railways. Therefore it is very important to classify subject engines, whether the same falls under Chapters 8408 or 8607. Section Note 2(e) of the Section XVII of the Customs Tariff clearly states that the expression "parts" and "parts and accessories", whether or not they are identifiable as for the goods of this section, do not apply to the machines or apparatus of heading 8401 to 8479 .............It is very clear from a reading of the said Note 2 (e) that the subject engines which are "Compression-Ignition Internal Combustion Piston Engines ",running on diesel or semi-diesel, cannot be called as parts of goods of Chapter Headings 86 to 88 of the GST Tariff. What this note effectively states is that the subject engines (being compression-ignition internal combustion piston engines), have individual entity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om units located in other states. The applicant further stated that certain common input services are availed by the head office located in Pune and the units of the applicant. The costs incurred by head office/ units for procurement of such common input services, is booked by head office/such unit in its own books of account and is then allocated and recovered proportionately from each of the recipient unit to determine the office/plant wise profitability, which is an internal procedure. The applicant seeks to get ruling as to whether availment of input tax credit of tax on common input supplies on behalf of other unit/units registered as distinct person and further allocation of the cost incurred for same to such other units qualifies as supply and attracts levy of GST. Whether assessable value can be determined by arriving at nominal value and whether the applicant is required to register itself as an Input Service distributor for distribution of ITC on common input supplies when GST is levied and ITC thereof is availed by recipient unit? We find that the applicant is seeking for a ruling as to whether availment of input tax credit of tax on common input supplies on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th is not determinable by any of the preceding rules of this chapter, the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provisions of such services." Rule 30 prescribes for value of supply of goods or services or both based on cost of production or manufacture. The applicant has submitted that they are engaged in manufacture, sale of a variety of diesel engines, parts thereof and related services; and undertakes all day-to-day activities required therefore. Thus they have available the cost of production of such goods and therefore it would be prudent for them to arrive at a value which is 110% of the cost of production. Hence we find that Rule 30 is very much applicable in the applicant's case. In view of the above, we rule that the provisions of Rule 30 of the CGST Rules, 2017 should be followed by the applicant to arrive at the assessable value. The final question raised by the applicant is as under:- "Once GST is levied and ITC thereof is availed by recipient unit, whether the Applicant is required to register itself as an Input Service Distributor for distribution of ITC on co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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