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TMI Blog2022 (2) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary for anti-torpedo attacks. The market identity of the SFDS as a system connected to a submarine for anti-torpedo measures qualifies the argument that it is part of submarine in commercial parlance too - as per the detailed write up on the usage of SFDS in the Appeal, it appears that, SFDS is a defense Mechanism and without which the very existence of the submarine is at stake. This in itself is an irrevocable proof/evidence that this is an essential part of the said submarine. Similarly, in case of IN RE: M/S. BHARAT ELECTRONICS LIMITED [ 2019 (9) TMI 823 - AUTHORITY FOR ADVANCE RULING, KARNATAKA] , the systems like color tactical display system, Radar system, Electro Optical fire control system, optical director system , etc, are ruled as parts of submarine . Now in the present case, SFDS system is a similar system, as is in the case of Bharat Electronics Ltd. Further, following the spirit of the advance rulings pronounced by various Advance Ruling Authorities (on which the appellant placed reliance), we differ with the ruling of the lower Authority that, SFDS is not a part of Submarine , but an additional feature that falls under the category of arms and ammunition . The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapter Heading 8906 and, therefore, attract a GST rate of five (5%) by virtue of entry no. 252 of Schedule I in Notification No. 1/2017-Integrated Tax (Rate) dated 28.07.2017 ? The Authority for Advance Ruling, Andhra Pradesh in its orders in AAR No.11/AP/GST/2021 dated 10.02.2021 held: "The proposed supply in question falls under SI.No.434 under Chapter/Heading/Sub-heading/ Tariff Item 9306 under Schedule III of Notification No. 1/2017 - Central Tax (Rate) dt: 28.06.2017 attracting tax rate of 18% as amended from time to time". Aggrieved by the impugned order dated 10.02.2021, the appellant has filed the present appeal, on the following grounds. 2. Grounds of Appeal: The Appellant prefers the present appeal before this Authority on the following grounds, amongst others, each of which is taken in the alternative and without prejudice to each other: 2.1 The appellant claims that the Ld. Designated authority passed a non speaking order, without considering the submissions and declarations submitted by email sent on 07.01.2021 claiming that SFDS is designed to be fitted in the submarine as a basic protective system and it is designed with a separate space for fitment of this sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, Jammers and Decoys Reaction Managed Firing (RMF) panel. The Jammer part of SFDS is an underwater broadband noise generator that is launched in the water by means of a dedicated system installed on onboard submarines. The unit is an expendable device to be launched against an attacking torpedo in order to mask the submarine echo by increasing the noise level received by the torpedo acoustic homing system. The decoy is an underwater echo repeater. It is an expendable device launched against an attacking torpedo in order to simulate false target echoes, seducing the torpedo acoustic system. When the appellant refers to a decoy system, the decoy system is an anti-torpedo countermeasure system for submarines. Thus, the SFDS is an important part of the submarine. 2.3 The appellant while quoting the relevant provisions of the GST law, under the said Schedule-I of the Rate Notification 01/2017 Central Tax (Rate) dt: 28.06.2017 refers to serial no. 246 to 251 wherein given group of items falling under chapter 89 are placed in the 5% category and then Entry no.252 i.e., parts of headings of 8901, 8902, 8904, 8906, 8907 as presented below: S.No. Chapter/Heading/Sub-heading/Tariff Des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espective of classification of the particular product/item/goods, the rate of tax applicable would be 5% only. It is to be noted here that Entry No.252 referred supra covers parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907. There is no question in the current case on the fact and understanding that the submarines are classified under 8906. Thus, the appellant wishes to submit that the parts of such goods are eligible to be covered under Entry no.252 referred above. SFDS, being a part of submarines, is covered under such entry and hence liable to GST at the rate of 5%. 2.5 The appellant submits that submarine fired Decoy Systems (SFDS) is required to protect submarines against enemy attacks using torpedoes. If a warship is attacked by an enemy torpedo, it loses it capacity to function to its potential. Thus, the very existence or functionality of a warship will be jeopardized if it is not protected against enemy attack. One such protection is to equip the warship with a counter measure to an attacking torpedo and this counter measure is SFDS. This establishes that the SFDS is an integral and essential system of a warship in the absence of which the warship's capab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly useful in the warships/submarines, and hence the same ought to be classified under s.no. 252 of 5% schedule of the Notification. 2.9 In CCE, Chennai v. Besmak Components (P) Ltd., 2007 (3) TMI 50 GE, the Chennai Bench of the Hon`ble CESTAT had to decide upon the classification of plastic parts used in automobiles. Following the decision in GS Auto International Limited on ascertaining the plastic goods in question designed for use in motor vehicles, the Tribunal sustained the classification of these goods as parts of motor vehicles and not parts of general use. The relevant extract of the decision is as hereunder: "6. We have carefully considered the facts of the case and the grounds of appeal. The first two categories of goods are parts of gadgets used in cars. As per section note 1 (k) to Section XVI, as parts falling under Section XVII. In the instant case they are classifiable as automobile parts of chapter 87. The third category of goods is designed for use in automobiles and is of high degree of precision. They have to be classified under the related heading for parts of vehicles etc. of Section XVII. in this connection we also rely on the observation of the apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only is appropriate. The appellant further submitted that S.No. 252 of Schedule I of the GST Rate Notification is applicable so long as the goods are used in warships, vessels and submarines, whether for construction or repair or replacements. 2.15 It was held by the Maharashtra Appellate Authority for Advance Ruling in the case of A.S. Moloobhoy Pvt Ltd. that "35. We agree with the contention of the appellant that if EPIRE3 which is a critical element of GMDSS is classified as part of the ship under SR.no.252 then there is no reason to exclude SART, NAVTEX and AIS from it. GMDSS includes the following systems: - (a) Communication equipment (b) Positioning and localization system (c) Maritime safety information. EPIRB on SART are a part of the positioning and localization system and NAVITEX is a part of maritime and safety information." It is submitted that even in appellant's case the purpose of warship would get defeated if the safety of warships is not kept in mind. Hence, SFD system is an integral part of the warships. 3. Additional Submissions: The appellant submits that the present appeal has been filed against the order issued vide 11/AP/GST/2021 dt 10.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or accessory of the said ship, irrespective of its classification and merits classification under sl.no.252 of the Schedule of Notification No.1/2017 Central Tax (Rate) dt:28.06.2017. SI.No. Advance Rulings Parts involved Relevant Para 1. Bharat Electronics Limited [2019 (29) G.S.T.L. 178 (A.A.R.-GST).] Systems such as color tactical display system, Radar system (for surveillance and threat alert, Navigation and attack, weather surveillance), Missile system, Electra Optical fire control system, optical director system, etc. (c) Submarines Warships are required to be fitted with certain systems/sub-systems such as radar, sonar etc meant for On Board Ships" of the Indian Navy. These systems are meant for warships, more specifically warships. Without these systems, the warships cannot function in required, proper & effective manner. Therefore, it can be considered that these systems are essential parts/ accessories of the warships. 2. Alekton Engineering Industries Pvt. Ltd [2019 (26) G.S.T.L.143 (AAR GST)] Triple screw pumps and its parts used for marine application, i.e., on board vessels and warships supplied to Indian Navy. Lubrication & Screw Pumps to be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tariff Heading 8906, where the warships are classified, which states that This heading includes Warships of all kinds including ships designed for warfare, fitted with various offensive and defensive weapons and incorporating protective shields against projectiles (e.g., armour-plating, or multiple watertight bulkheads), or with underwater devices (anti-magnetic mine-detectors). They are also generally fitted with detection and listening devices such as radar, sonar, infra-red detection apparatus and scrambling equipment for radio transmissions". The said tariff heading also includes submarines which are used as Warships. 3.4.2 Classification under Central Excise law: The appellant submitted that even under the Central Excise Regime and the customs, whenever the exemption was provided to goods meant for ships, etc falling under Chapter 89 either for manufacture of ships or for repairs or for specified purposes such as under by Indian Navy, such exemption has been provided to all the goods falling under any chapter. Thus, the intention was to exempt all the goods meant for ships falling under chapter 89. 3.4.3 In the regard, the appellant submitted that they have been cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 8906 and, therefore, attract a GST rate of (5%) by virtue of entry No,252 of Schedule I in CGST Rate Notification. 4. Virtual Hearing: The proceedings of Hearing were conducted through video conference on 14th December 2021, for which the authorized representatives, Sri Krupasindu Satpathy, DGM - Finance, BDL and Sri Sivarajan Kalyanaraman, Tax-Consultant attended and presented further additional submissions. 5. Discussion and Findings: We have gone through the entire records of the appeal, facts of the case, and also considered the written and oral submissions made at length by the appellant in light of the Ruling pronounced by the AAR. It is observed that the main issue to be decided is the classification and the relevant HSN code of the proposed supply of goods i.e,,the Submarine Fired Decoy System (SFDS) supplied by the appellant. It is the contention of the appellant that the proposed supply of Submarine Fired Decoy System (SFDS) is classifiable as 'parts of submarine' under Chapter Heading 8906 and, therefore, attract a GST rate of five (5%) by virtue of entry no. 252 of Schedule I in Notification No. 1/2017-Integrated Tax (Rate) dated 28.07.2017. But the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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