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TMI Blog2024 (7) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... or vsessel and are quite clearly parts of a vessel/ship and a ship cannot be imagined to be in existence without these parts. 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 also be separated from the ship for repair/ replacement. On refering to the definition of the word 'part as discussed, it is found that 'part' is a separate piece of something or a piece that combines with other pieces to form the whole of something - the second definition of part also defines 'part' as one of the pieces that together form a machine or some type of equipment. It is pertinent to mention here that serial number 252 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 is applicable only to goods which qualify to be parts of goods of headings 8901, 8902, 8904, 8905, 8906 and 8907. This implies that any goods in the nature of consumables, tools and other materials, which do not answer the specific requirement of being parts of warships, would not fall under the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The Applicant is registered under GST Act with registration number: 37AAACH4275P1Z2, in the Malkapuram range, Visakhapatnam South Division allotted to Central Jurisdiction. 2. The Applicant a manufacture of ships and vessels as per the specifications / requirements provided by its customers which are covered under the HSN 8906 Other vessels, including warships and lifeboats other than rowing boats. Such HSN is covered under Entry No. 250 of Schedule-I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017 and Entry No. 250 of Schedule-I of Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017 (referred to as Notification ). 3. All the inputs including equipment, material, consumables, tools etc., (jointly referred to as inputs in this application) required for construction of the ships / vessels are directly procured / imported by HSL. Currently, the vendors charge GST on such inputs supplied to HSL by classifying under the tariff item as applicable as per the GST rate Schedules to each of such inputs. 4. Entry No. 252 of Schedule-I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017 and Entry No. 252 of Schedule-I of Notification No. 01/2017 Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06, 8907 and should be chargeable to GST at the rate of 5%, since such individual Inputs are supplied as a part of the ship or vessel, to ensure that the ship is sea worthy. 4. Questions raised before the authority: The applicant sought advance ruling on the following: Whether the expression parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907 in Entry No. 252 of Schedule-I of Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017 and Entry No. 252 of Schedule-I of Notification No. 01/2017 Integrated Tax (Rate) dated 28.06.2017, will include all the inputs including equipment, material, consumables, tools etc., (as listed in Annexure 2A, 2B, 2C and 2D) purchased domestically or imported for use in manufacture of ships? On Verification of basic information of the applicant, it is observed that the applicant is under Central jurisdiction i.e, Malkapuram Range, Visakhapatnam South Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the Central Tax authorities to offer their remarks as per Sec. 98 (1) of CGST /APGST Act 2017. In response, remarks are received from the Central jurisdictional officer concerned statin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ship, as such (i.e., in its same form) or as part of certain equipment in the ship, would qualify as parts. Therefore, as long as such criteria is met, the equipment, material, consumables, tools etc., which are fitted into the ship should qualify as parts. 5.5 The Applicant relies on the judgement of Hon ble Supreme Court in the case of M/s Saraswati Sugar Mills Vs CCE, Delhi III [2011 (8) TMI 4 Supreme Court] wherein the Hon ble Supreme Court while determining on whether items used for fabricating structures to support machinery qualifies as capital goods in terms of Rule 57Q of Central Excise Rules, 1944, held that those items which are used in the manufacture of the final product and without which the final product cannot be conceived shall be termed as components . The relevant extract of the judgement is as follows: 12. In order to determine whether a particular article is a component part of another article, the correct test would be to look both at the article which is said to be component part and the completed article and then come to a conclusion whether the first article is a component part of the whole or not. One must first look at the article itself and consider wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not contain any definition of the expression. 19. It has been urged on behalf of the department that since the subject Notifications refer to Refractory Bricks for use as component parts of..... , that is an indication that the Bricks must be intended for use in the manufacture of furnace and not for use as spares. We have indicated that the word component cannot be understood in such a restricted manner. Component indicates that it must be an integral part. Spare is a component used for replacement. In other words, the word component indicates the nature of the article and not the use of the article while the word spare indicates the use to which the article is put and not the nature of the article. The nature of the spare is that it is a component and its use is as replacement . Component means an essential or integral part of the whole. Its use is in different contexts, in the initial manufacture or as spare. As already indicated, component is the genus and spare is a species. The word component without any qualifying or restrictive words must be allowed free play and must comprehend components used for initial manufacture or for replacement. [Emphasis supplies] In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e . 5.11 The Applicant submits that the Annexure 2A lists various Equipment and machinery which are either fitted into the Ship or are essential parts of the equipment which are used in manufacturing the Ship, without which the ship could not be said to be complete and seaworthy, Such Annexures 2A includes various goods namely: * Main Engines - Internal combustion engines, control panels and systems used to turn the propellers and sail the ship through water, * Diesel Generators - Diesel engines as prime movers with control panels and switch boards to provide power supply to ship/vessel, * Gear-box unit - Series of gear train enclosed in a lubricated enclosure which is used to vary the RPM of propeller shaft as desired, * Shaft-line - Includes Shafts, Plummer blocks etc. which acts as link to convert power generated by main engine to propeller towards generation of required thrust for vessel's movement. * Propellers - An equipment with a rotating hub and radiating blades that are set at a pitch to form a helical spiral which, when rotated, exerts linear thrust upon working fluid such as water. * And other equipment s mandatory/necessary for proper functioning of the vessel such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribe the various requirements in relation to Heating, Lighting, Air conditioning ventilation facilities, availability of sleeping rooms with Beds and other Furniture and fixtures, availability of Mess room, recreation spaces along with furniture and equipments, Laundry facilities along with washing accommodation, Galley's for preparation of food, Cold storage rooms with equipments, Medical rooms. Thus, it is mandatory for the Ships to have such equipment for usage of the officers and the crew of the ship and only when such equipment is fitted into the ship that the ship can be considered to be seaworthy. Thus, HSL believes that such essential equipment would qualify as parts of ship and attract GST @ 5%. 5.16 In this regard, the Applicant places reliance on the Customs Circular No. 01/2005 dated 11.01.2005 where the Board has issued clarifications with respect to various issues as discussed during the Tariff Conferences of the Chief Commissioners of Customs. One such issue discussed was with respect to admissibility of exemption under S. No. 356 of Notification No. 21/2002-Cus., having description Raw material and parts, for use in manufacture of goods falling under heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measured so that the depth can be corrected to the mean sea level. The vessel on which the above equipment is placed and used is a survey launch owned by the Dredging Corporation of India, a Govt. of India undertaking for hydrographic survey in the harbour and along the coast. From the functions of the items as set out above, it is clear that they are parts of boats and launches as they are required for the function of the survey vessel falling under CTH 89.06. As per Sl. Nos. 2 to 9 of the Table to Notification No. 23/98, raw materials and parts falling under any chapter, for use in the manufacture of goods falling under Heading 89.01, 89.02, 89.04, 89.05 (except 8905.20) or 89.06, in accordance with the provisions of Section 65 of the Customs Act, 1962 are exempt from payment of duty. Since the items in dispute are parts for use and actually used in the manufacture of launches falling under Heading 89.06, and they are manufactured in accordance with the provisions of Section 65 of the Act, the benefit of the notification is admissible to all six of the disputed items. We, therefore, set aside the denial of the benefit of exemption to DGPS, Electronic Theodolite, and Radio Telepho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n manufacture of vessel, which are also statutorily required to be so fitted into the ship, will qualify as parts and thereby would attract GST @ 5%. 6. Personal Hearing: Sri VVR Ravindra , GM (finance) along with Mohammed Kagalwala, Chartered Accountant has attended for personal hearing on 04.03.2024 and requested for adjournment to submit clarification certificate and other documents. Further Sri VVR Ravindra , GM (finance),Sri S.Thiramalai, Advocate and sri B Jagadeesh Kumar, Manger (Finance) duly authorized representatives of the applicant appeared for personal hearing held on 02.04.2024 and reiterated the facts narrated in their application and also submitted additional grounds along with copies of the list of documents such as factory acceptance certificate, joint inspection reports and Certificate issued by Warship Overseeing Team and IRCLASS System and Solutions. 7. The Additional Submissions made by the Applicant are extracted here under as follows : 1. Recipient of supplies can file Application for Advance Ruling 1.1. In this regard, the Company relies on the judgment by the Hon ble High Court of Calcutta in the case of Anmol Industries Limited Anr. Vs. The West Bengal Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very existence of submarine is at stake, and therefore this is in itself irrevocable proof / evidence that it is an essential part of the said submarine. 2.4. The Applicant submits the following to establish the essentiality of the items sought to be procured by the Applicant and used as parts of ship - (i) The critical aspect of the present case of the Applicant (manufacturer and supplier of ship) and the use of the items in the Annexures to the Application is that the ship building process is spread over 36 to 48 months and during such period there will be multiple inspections that will be carried out to ensure the use of materials as per the bill of materials (BOM) agreed with the Indian Navy. (ii) That, if during any on these aforesaid periodic inspections while the ship building is in progress, it is found that any of the materials, components, machinery, equipment have not been used as prescribed specification, then the entire activity would come to a stand-still and could resume only after rectification. Thus, this substantiates the essentiality of the various items listed in the Annexures of the present Application and their use in the ships to be built by the Applicant. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the present application are as per the specific requirement of Indian Navy for construction of the Fleet Support Ships to be manufactured and supplied by the Applicant to the India Navy. It is also certified that such items are essential to ensure the seaworthiness of the ships and providing the technical features to meet the functional requirement of the Naval Vessels. 2.9. Therefore, in view of the above submissions, the Applicant submits that all the items in the Annexures to the Application are essential items, as certified by the test and production agencies and therefore will qualify as Parts of goods of heading 8901, 8901, 8904, 8905, 8906, 8907 under the Entry No. 252 of Schedule-I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017. In addition to that the applicant has submitted the following documents for consideration: (A) Factory Acceptance Text Certificates a. Main Engine-GMMCO Limited Pages 01-05 b. Head Set with Micro Phone Cable, Way Junction Box Pages 06-09 c. Salvage Pump Pages 10-14 (B) Joint Inspection Reports (JIR) a. Main Engine along with PSL Pump Pages 15-17 b. Purifier with accessories Pages 18-22 c. Bearings, Propeller Blades Pages 23-28 d. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill include all the inputs including equipment, material, consumables, tools etc., (as listed in Annexure 2A, 2B, 2C and 2D) purchased domestically or imported for use in manufacture of ships? The question raised as above appeared to fall within the u/s 97 (2) (a) of the Central Goods Services Tax Act, 2017. Hence the application admitted. Now it is relevant to mention the Provisions of the GST Act 2017. First and foremost it is seen that Entry no. 250 represents Other vessels, including warships and lifeboats other than rowing boats . Against this entry of the Schedule 1 in rate notification under the heading 8906 the rate GST prescribed is 5%. Entry No. 252 of Schedule 1 in rate notification represents Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907. Against this entry of the Schedule 1 in rate notification under the heading 8906 the rate of GST prescribed is 5%. We found that the issue that is raised before us by the applicant is whether the inputs mentioned in Annexure 2A, 2A (i), 2A (ii), 2B, 2B (i), 2C, 2D and 2D (i) of the application, which are used for constructing the warships and submarines are forming parts of such warships/ submarines and therefore charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2C, 2D and 2D (i) of this ARA application can be taken to be covered within the meaning of Parts for Sr. No. 252 of notification No. 01/2017 Central Tax (Rate) Dated: 28.06.2017. We find that items like Engines, gearbox, Propeller, Diesel generators, shift generator, Engine driven pumps, shaft generator, etc. are very essential parts of a ship or vsessel 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 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. In addition to the above there are other items like furniture, fans, air-conditioners, television, Heaters, Laundry facilities, recreational items etc which are for comfort of officers and crew of the ship but do not come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toms, Equivalent citations: 1997 ECR 98 Tri Delhi, 1997 (94) ELT 234 Tri Del. the Two Member Bench of the Tribunal referred the appeal before the larger bench on the following questions: (t) Whether the phrase component parts occurring in Notification 77/90 would cover spare parts for the purpose of granting of benefit thereunder? The larger Bench of the Tribunal having regards to dictionary meaning of part , and Component observed that in common parlance meaning of the expression component is also the same, that is, one of the parts or elements of which anything is made up or into which it may be resolved or a Constituent. The meaning in common parlance has to be looked into since the notification itself does not contain any definition of the expression. In light of the above discussions, considering the meaning of an expression (Part) as given in the dictionary and also the ratio as adopted by the Hon'ble Courts as mentioned above besides common parlance test, we now take up each and every input claimed by the applicant to be parts of a warship/submarine [as listed in Annexures 2A, 2A (i), 2A (ii), 2B,2B (i), 2C, 2D and 2D (i) of this submissions] and discuss and find out whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We further take up the 89 items mentioned in Annexure 2A (ii), list of B D Spares such as, oil purifiers, emergency generators, switch boards, cargo lift, aircraft handing system, etc. These are not considered as the essential part of a warship/submarine without which the ship would not be complete and would not be able to function. The Applicant submitted that the Annexure 2B lists various Material such as DMA 249A special grade Steel Bars Steel Plates are Indigenously produced and exclusively used for Strategic Defence Ships (Indian Navy) to get the desired vield, strength and toughness of the ship and to protect at Sea Bulb Bars, steel plates, cables, pipes, insulation material, guard-rails, scramble nets, smoke curtains, Awning cloth, storage racks etc., which are required as per the Bulld specifications of the ship and whereas certain material are mandatorily required as per Naval Standards Classification Society Rules. Now we examine the items mentioned by the applicant in Annexure 2B which are 20 in number. We found that these are metals used for constructing a warship/submarine and are consumed in the process of construction. The said metals cannot be removed as such for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and maintenance of the ship while at sea. On verification of the same the list containing 16 items in Annexure-2D mainly consisting of tools. Now it is relevant to mention the definition of tools. Any devise, instrument or machine for the performance of an operation, example, a hammer, saw, drill press, planner or screwdriver to equip a factory or industry or a product by designing, making and integrating parts and instrument so as achieve the output of the product on a volume basis at the minimum cast. Hence, these tools cannot be considered as parts of a warship/submarine. They are essentially in the form of consumables and for reasons mentioned above cannot be considered as parts of a ship, as they are not essential or integral part of the ship on which the exitance Annexure-2D (i) The list H.O Inventory containing of 566 Items cannot be considered part of warship. These are not considered as the essential part of a warship/submarine without which the ship would not be complete and would not be able to function. It is pertinent to mention here that serial number 252 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 is applicable only to goods which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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