TMI Blog2019 (3) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... ffers for rolling-stocks; hooks and other coupling gear and corridor connections, and (e) coachwork. Therefore it is crystal clear that Heading 8607 does not cover engines of any type - the goods classified under Heading 8607 are subjected for assessment on the basis of quantity cleared on weight basis whereas the goods classified under Heading 8408 are subjected for assessment on the basis of quantity cleared on number basis. This shows that the nature of goods classified under these two heads is inherently different from each other - thus, the subject engines manufactured and supplied for use in railway, locomotives are classifiable under HSN Heading 8408 and not under Heading 8607 of the Customs Tariff. Supply of services or not - Input tax credit - common input supplies on behalf of other unit/units registered as distinct person - allocation of the cost incurred for same to such other units qualifies as supply - levy of GST or not - Held that:- As per Section 25 of the CGST Act, 2017, a person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as the CGST Act and MGST Act ] by Cummins India Limited, the applicant, seeking an advance ruling in respect of the following issue. whether engine manufactured and supplied solely and principally for use in railways/locomotives are classifiable under HSN Heading 8408 or under HSN Heading 8607 of the Customs Tariff (which has been borrowed for classification purposes under GST regime) as a part used solely or principally for Railways or Tramway Locomotives or Rolling Stock? At the outset, we would like to make it clear that the provisions of both the CGST Act 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- S TATEMENT OF THE RELEVANT FACTS HAVING A BE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units and are sought to be assessed for GST at a nominal value. Levy of GST on facilitation of common input services, necessity of registering as an ISD and determination of assessable value. 4. For the sake of brevity these issues are being collectively presented for a suitable ruling. Facts in detail of each transaction referred above followed by issue for determination in detail and submissions on interpretation of law is enclosed vide separate Annexures. The documents in support of the submissions are enclosed as Exhibits thereafter. STATEMENT CONTAINING APPLICANTS INTERPRETATION OF LAW IN RESPECT OF THE QUESTIONS RAISED Classification of Engines exclusively manufactured for use in Railways/Locomotives 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part of accessory Relevant Customs Tariff entries SECTION CHAPTER HEADING DESCRIPTION XVI 84 8408 COMPRESSION- IGNITION INTERNAL COMBUSTION PISTON ENGINES (DIESEL OR SEMI-DIESEL ENGINES) XVII 86 8607 PARTS OF RAILWAYS OR TRAMWAY LOCOMOTIVES OR ROLLING-STOCK 4. OUR SUBMISSIONS SECTION NOTE 3 TO SECTION XVII OF CUSTOMS TARIFF SUPERSEDES ALL OTHER NOTES AND REFERENCES AND MERITS CLASSIFICATION OF ENGINE MANUFACTURED BY THE APPLICANT UNDER CHAPTER 86 BASED ON ITS USAGE Owing to sole and principal usage. Section note 3 to Section XVII confirms classification of subject goods under Chapter 86 4.1 The classification of goods under the Goods and Services Tax regime is expressly aligned to Chapter/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me have been manufactured to cater to a specific design and configuration. As a matter of fact these engines (made to specification of Railways/Locomotive manufacturer) do not have any other buyer and hence, cannot be supplied by the Applicant otherwise than to railways/locomotive manufacturer for specific railways application. 4.8 In view of customized design/ specification, lack of usage other than in railways/locomotive engines, it is evident that said engines are indeed manufactured solely and principally for its usage by the Railways/Locomotive manufacturers as a part of railways/ tramway/ locomotive and hence, qualify the test of Section Note 3 of Section XVII. In such a case the subject engine merit its classification under heading 8607 as 'parts of railways or tramway locomotives or rolling stock notwithstanding a probable classification under any other chapter of the Customs Tariff. 4.9. Classification of goods owing to its sole and principal usage is supported by a plethora of judicial precedents It is well settled law that predominant use to be established where classification relates to function of goods. In this regard attention is invited to the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing was held: 9. The bare perusal of Tariff heading 76.10 shows that it covers aluminium structures and parts thereof. The entry windows and their frames in the bracketed words, in this Tariff Heading refers only to the parts of the structure. Even the aluminium, plates, rods, profiles, lubes and the like, had been referred to in this Tariff Heading as the ones prepared for use in structures. Similarly, the entry in the sub-heading 7610.10 of this Tariff Heading, regarding doors, windows and their frames and thresholds for doors refers to the ones which are meant for use in the structures as this entry is contained in the sub-heading of the main tariff heading 76.10 of the CETA. The entries in the Tariff heading and sub-heading have not to be read distinctively but collectively and in such a manner that the entry in the main Tariff Heading 76.10 does not become superfluous, redundant or in any manner isolated from its sub-heading entry. Therefore, only those doors, windows and their frames and threshold for doors, would be covered by sub-heading 7610.10 of the CETA which have relevance and use in the structures and not others. 10. In the instant case, admittedly, aluminium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otives or rolling-stock under appropriate headings covering parts/ accessories. 4.15 Classification of subject goods under Chapter 86 based on its usage is also in line with the GST rate Structure It is submitted that the GST rate structure in India covers in its fold multiple rates to address the diversity in the Indian social stratification. Accordingly, a lower rate of 5% is assigned to many of the articles which are of social significance and are in the interest of public at large. The necessity of a lower rate of GST has been widely discussed by many stakeholders in the incumbent government as well as bureaucrats. 4.16 The rationale behind introducing GST with varied rate structure, is also evident from the fact that entire Chapter 86 which covers in its fold articles such as Railways, locomotive, rolling stock and parts thereof which are of substantial significance for public at large is subject to a levy of GST at the rate of 5%. This submission also finds force by Circular No. 30/4/2018-GST dated January 25, 2018 which clarifies that goods supplied to railways, which are classified under Chapter 86 attract GST at the rate of 5%. A copy of the said Circular is enclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l use of the goods in question, is with articles of Chapter 86 i.e. as part thereof and also that, the goods are so custom made that the same cannot be put to an alternate use at all. Accordingly, the correct classification of the subject goods should be under those heading that covers part under Chapter 86. 4.21 Consequentially, it follows that provisions of Note 2(e) are rendered inapplicable where the goods are squarely covered by operation of Note 3 of Section XVII i.e, owing to their sole and principal use. The said view is further strengthened by available jurisprudence, which without exception favours and approve the Applicant's view. 4.22 Reliance is placed on the decision of the Hon'ble Tribunal in the case of Diesel Components Works vs. CCE, Chandigarh (2000 (120) ELT 648] = 2000 (6) TMI 68 - CEGAT, COURT NO. I, NEW DELHI , which deals with an identical issue wherein articles of heading 8409 were proposed to be classified under heading 8607 in view of Section Note 3 owing principal usage in the railways. However departmental authorities sought to invoke provisions of Note 2(e) to disallow the said classification under heading 8607. 4:23 in the said cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in one or more other Sections as well as in Section XVII, its final classification is determined by its principal use. Thus the steering gear, braking systems, road wheels, mudguards, etc. used on many of the mobile machines falling in Chapter 84 are virtually identical with those used on the lorries of Chapter 87, and since their principal use is with lorries, such parts and accessories are classified in this section. So, this Section Note of HSN makes it clear that final classification is determined by its principal use. The principal use of the components manufactured by the appellant company is admittedly as parts of locomotive. A similar issue came up for consideration before this Tribunal in the decision reported in Bajaj Auto Ltd. v. Collector of Central Excise, Pune, 1994 (74) E.L.T. 599 = 1994 (9) TMI 171 - CEGAT, NEW DELHI where the question, unspecific parts of IC engines used in motor vehicles are parts of motor vehicles came up for consideration. The Tribunal gave the answer in the affirmative. These parts of IC engines which were the main parts in the locomotive should also be termed as part of the locomotive and not as IC engines coming under the gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise and GST (which in turn relies on customs) is HSN, a reliance of the aforesaid circular is helpful. INTERPRETATION OF STATUE - CUSTOMS TARIFF - OTHER CONSIDERATIONS Specific entry would prevail over general entry for classification of goods 4.28 Without prejudice to averments above, the Applicant humbly submits before the Hon'ble Authority that it is a settled position in law that, in tariff, a specific entry would prevail over a general entry. This applied to present context would also yield a conclusion that Heading 8408 being generic should be discarded for products for which a specific entry in form of Heading 8607 is available. This position is further strengthened by the fact that, subject goods are used solely and principally with articles of Chapter 86, which would make the heading 8607 be deemed as specific and Heading 8408 as general. The net result would, therefore, be that classification of subject goods under the entry 8607 follows. 4.29 It is also pertinent to mention before the Hon'ble Bench that, keeping parts meant for sole and principal use in articles of Section XVII outside that Section (and corresponding Chapters/ Headings) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, Laxmi Nagar, New Delhi, 110092 Area Office 08AAACC7258B1ZW Rajasthan 6th Floor Office no. 604-605, Signature Tower, Lai Kothi, Tonk Road,, Jaipur, Rajasthan, 302016 Depot 09AAACC7258B1 ZU Uttar Pradesh 102,First floor,Cyber Heights, TE G2/2; :3/5, Vibhuti Khanc Gomali Nagar, Lucknow: 226010 Area Office 18AAACC7258B2ZU Assam 4th Floor, NA, Archon Arcade, Dr. B. Barua Road, Ulubari, Guwahati, Kamrup Metropolitan, Assam 781007 Area Office 19AAACC7258B225 West Bengal 204/2, Ceramic Road, GT: Road, Asansol, Bardhaman, West Bengal,713303 Depot 20AAACC7258B1ZA Jharkhand Plot No 43; Near Imam Kothi, hazaribagh Road, Kokar, Ranchi, Ranchi, Jharkhand, 834009 Depot 21AAACC7258B1Z8 Odisha PLOT NO 1473/3230, KHATANO 808/255, Rourkela, Sundargarh Odisha, 769041 Depot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to provisions of Section 17 of the CGST Act. 1.4 The costs incurred by head office/ units for procurement of such common in head office/ units for procurement of such common input services, is booked by such unit/head office in its own books of accounts. Such cost is then allocated and recovered proportionately from each of the recipient unit to determine the office/plant wise profitability, which is an internal procedure. 1.5 Based on these facts the applicant herein seeks a Ruling with respect to questions framed and submissions enumerated thereafter. 2. ISSUE FOR DETERMINATION 2.1 Whether availment of input tax credit of tax on common input su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E 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 the Applicant to its other units registered as distinct persons qualifies as 'supply of service'. SUPPLY OF FACILITATING COMMON INPUT SERVICES BETWEEN DIFFERENT UNITS WHICH ARE REGISTERED AS DISTINCT PERSON CAN BE ASSESSED AT A NOMINAL VALUE 3.6 Since each of Applicant's unit is registered independently and is treated as a 'distinct person in view of provisions of Section 25(4) of the CGST Act, value of supply made between such distinct person is required to be assessed in view of Rule 28 of the Central Goods and Service Tax Rules, 2017 ( CGST Rules ). Relevant portion of Rule 28 is extracted below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 distinctly registered unit can be assessed by assigning a nominal charge for facilitating common input supplies to each of the distinct unit. 3.12 It is therefore submitted that, it is only judicious for Hon'ble authority to pass a ruling to accept nominal value as to be assigned for facilitating common input supplies by Unit of the Applicant to its other units registered as distinct person, to be a statutorily correct assessable value. THE FACILITY OF REGISTERING AS AN ISD IS AN OPTION PROVIDED BY THE STATUTE AND THERE IS NO COMPULSION FOR A TAXABLE PERSON TO REGISTER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' 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: GST@Gol@ask GST_GoI Jun 2 ISD is an option provided to distribute your input tax credit for services. Ayush Goenka @Ayush Goenka9 @askGST_Gol Is ISD an option or a mandate under the law? GST@Gol #RGST Gol Jul 18 It is not mandatory but if ur registered as ISD than it is mandatory CMA Sagar Daivadnya @saganya @askGST _GoI have 3 registration and have some common input services at head office. I: is mandatory to opt for ISD and allocate credit? 3.19 Based on the submissions expounded and supporting twitter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 integral parts of engines or motors, articles of heading 8483; (f) electrical machinery or equipment (Chapter 85); (g) articles of Chapter 90; (h) articles of Chapter 91; (I) arms (Chapter93); (k) lamps or lighting fittings of headings 9405; or (l) brushes of a kind used as parts of vehicles (heading 9603). Further Chapter Notes I of Chapter 86 is reproduced as below:- 1. Chapter does not cover: (a) railway or tramw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply 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 oral contentions for admission of application as per contentions in their ARA application. Jurisdictional Officer Sh. B. K. Mishra, Supt., Pune II, CGST Commissionerate, appeared and stated that they would be making submissions in due course. The application was admitted and called for final hearing on 27.11.2018, Sh. Rohit Jain, Advocate along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid 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 and cannot be called as parts of goods falling under Chapters 86 to 88. Thus this note 2(e) is self-explanatory and does not contradict any other Note 3 of Chapter XVII as claimed by the applicant. Further Note 2 of Chapter 86 states that Heading 8607 applies to (a) axles, wheels, wheels sets (running gear), metal tyres, hoops and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks 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 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. As per Section 25 of the CGST Act, 2017, a person who has obtained or is required to obtain more than one registration, whether in one Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 common input supplies? ISD is a facility available to persons/businesses having a large share of common expenditure and where billing/payment is done from a centralized location. The concept of ISD has been introduced to simplify the credit taking process for various assesses/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
