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2019 (3) TMI 434

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....CE RULING, MAHARASHTRA. BRIEF FACTS OF THE CASE A. Jotun Group is a leading supplier of paints and powder coatings. Jotun India Private Limited (herein after referred to as 'Appellant') is a supplier, exporter and manufacturer of paints and powder coatings. The Appellant supplies paints and coatings that are specially designed for unique conditions. B. Broadly, the paints supplied by the Appellant can be categorized in solvent based paints and water based paints. One of the major supplies by Appellant are marine paints. Composition of such marine paint being manufactured by Appellant makes it suitable for ship during building stages and even during maintenance. C. In the erstwhile indirect tax regime, Appellant has been discharging applicable indirect taxes on supply of such paints and availing exemptions when granted under respective legislation. D. With the introduction of GST, Appellant has analyzed classification and applicability of CGST, SGST and IGST in light of new legislation. For classification, it has been clarified in the rate notification of respective legislation that rule of interpretation of the First Schedule to the Customs Tariff Act, 1975 including Section N....

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....echnical 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 2. It is submitted that vide notification no 1/2017 of Central Tax (Rate) dated June 28, 2017, the Government of India has notified CGST 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. 3. It is submitted that the notification refers to the classification of goods under the Customs Tariff Act, 1975. 4. As regards, classification of the marine paints under Customs Tariff Act, it would be pertinent to refer to extract of description of goods falling under Customs Heading 3208: "Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemica....

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....ed here that Entry 252 reproduced above is applicable to goods falling under any chapter but which are parts of goods falling under headings 8901, 8902, 8904, 8905, 8906 and 8907. Accordingly, a product which is classifiable under any chapter, if could be construed as part of these prescribed goods then the same would fall within the purview of entry 252 and hence would be liable to 2.5% CGST. 9. It is submitted that similar view was adopted by the Hon'ble Court in the case of Mahindra & Mahindra Ltd. vs Commissioner of C. Ex., Nagpur [2007 (210) E.L.T. 579 (Tri. - Mumbai)] = 2006 (12) TMI 289 - 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 clas....

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....pare, 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." 16. It is submitted that also as per the above definitions referred by the Ld. AAR, it is clear that part is one of the piece or ingredient of the main machine. In the present case, ship is main machine and marine paint is essential part of the same. 17. It is further 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 f....

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....hip and other ships which are not entitled to fly Indian flag but operating under the authority of India, shall comply with the requirements set forth in this Part, including the applicable standards and requirements as prescribed from 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 22. It is submitted that from conjoint reading of the above provisions, it is evid....

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....in the instant case, the plastic spools over which the adhesive plaster tapes are wrapped have to be considered 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. 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 ....

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....nbsp;   Thinner for yellow primer (manufacturer - South Field Paints & Chemicals Pvt. Ltd.) 9.5    Rivets (manufacturer - M/s. Ankit Forgings) 9.6    Epoxi black paint (manufacturer - South Field Paints & Chemicals Pvt. Ltd.) 9.7    Industrial Laminates Fabric (manufacturer - Lamtuf Plastics Ltd.)" 33. It is submitted that from the facts of above case, it is clear 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 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 Exci....

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..... Hence, entry 252 of IGST Rate notification should be read to cover all raw materials and parts which are meant for use in manufacture of different types of vessels. VAT legislation of United Kingdom also considers paint as part of ship 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 ....

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....nent to identify what would be considered to be parts and equipment of a ship. Therefore 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. 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 b....

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.... = 2011 (8) TMI 4 - SUPREME COURT OF INDIA B) Jindal Strips 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 FIND....

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.... ship from highly corrosive 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 i....

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....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 of marketability and....

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....le 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 Electronics (Sales Tax Reference No 29 of 2009 in Reference Ap....