TMI Blog2022 (2) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 SFDS is classifiable as 'parts of Submar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable 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 ? 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 syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmance stationary jammers and stationary decoys. An SFDS encompasses Launcher Assembly, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -heading/items for 'parts and accessories'. In the absence of separate heading of classification for parts of ships, the expression 'any chapter' in Column 2 of the Schedule assumes significance. The appellant submits that the column 2 of the Schedules in the CGST Rate Notification refers to Chapter/Heading/Sub-heading/Tariff item . Whereas for every SI.No, the respective chapter/Heading number has been mentioned, in respect of SI.No.252 of the said notification, in the said column 2 the expression Any chapter is used which signifies that irrespective 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 submar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be treated as falling under chapter heading no. 73.18 and that they can properly be classified under chapter heading no. 87.08 of the Central Excise Tariff Act, 1985. 2.8 Having observed thus, the Supreme Court held the parts in question to be classifiable as parts of automobile. According to the Supreme Court, the test to be applied whether the goods are suitable for use solely or primarily with articles of the said chapter. If the answer to this question is in the affirmative, the goods will be classifiable as part of any good. In the instant case, SFDS is solely or primarily 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t submits that each of the systems are essential for the overall functioning of the warships and submarines and therefore the expression parts in the subject entry of the Notification(s) should be construed to include all such systems / assemblies. 2.14 The appellant submitted that in view of the judicial pronouncements, which though have been rendered in the context of Central Excise law, the fact that they enumerated the scope of 'part' of automobiles, which is broadly the subject matter in this application, it is submitted that the understanding of the appellant that the systems attract 5% GST 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on the FAT report, the Inspection Note will be submitted by the Inspection Agency to the appellant for onward dispatch of material to the consignee (Ministry of Defence). 3.3. Therefore, the appellant further submitted that the SFDS is an integral part of the warships and the FAT is carried out to ensure that it complies with all the necessary technical specifications. A copy of the Certificate of Acceptance and the Inspection Note were submitted. 3.4. The appellant placed reliance on the below rulings wherein it was held that any system/sub-system or article or product, that is fitted to the ship or boat or a floating structure becomes a part 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot Sail. Marine diesel engines to be classified under sl.no.252 of the Notification no.1/2017- CT (Rate), when supplied to ship building companies or Indian Navy for use in manufacture of ships , vessels, boats etc. 6. South Indian Federation of Fishermen Societies (2021 (7) TM1 533 (AAAR -- Kerala) Marine Engines its parts thereof The marine engine and its spare parts supplied for use in vessels shall attract GST at the rate of 5% as per entry at SL.No.252 of schedule I of Notification No.1/2017 Central Tax (Rate). In view of the grounds of appeal and the additional submissions, the appellant reiterated that the submarine Fired Decoy System supplied by the appellant to the Ministry of Defence is classifiable as parts of submarine falling under heading chapter Heading 8906 and therefore, attract a GST rate of Five (5%) by virtue of entry no 252 of Schedule I in CGST Rate Notification. 3.4.1 SFDS is an essential part of a warship: The appellant submitted that the goods in question i.e., SFDS are integral and essential part of a warship. A reference can also be made to the HSN expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the submarine and overhauled/maintained periodically. Earlier supplied similar systems to the Indian Navy are being maintained at monthly routine check-up and overhauling. 3.5.2. The SFDS consists of following sub-systems: a) Launching system: Mounted externally on the pressure hull of the submarine and below the submarine superstructure. b) Control Panel: A man machine interface fitted in CIC room of submarine which controls the launching of the Decoys and Jammers. c) Jammers/Decoys: Fired from the launching system and not recoverable, i.e., expendable/consumable. 3.5.3. Clarification with regards to supply order No. XXXXX: The order is for supply of the SFDS System (including the launching system and control panel, interface and loading platform etc.), while Jammers and Decoys are not part of the supplies under this supply order. Jammers and Decoys are expendable devices and are generally supplied against separate orders from Indian Navy. 3.5.4. In view of the grounds of appeal and the additional submissions, the appellant reiterates that the submarine Fired Decoy System (SFDS) supplied by the appellant to the Ministry of Defence is classifiable as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submarine and overhauled/maintained periodically. Moreover, the SFDS system in question is tailor made/customized for use in the submarines by the Indian Navy. Apart from their usage in a submarine for countering torpedoes, it does not have any independent use for it to be sold in the market. Thus it deserves to be classifiable as 'part' of a submarine. Even the defence market recognizes the SFDS as a system necessary 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. From the above and as per the detailed write up on the usage of SFDS in the Appeal (vide paras 10 to 17), 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 Bharat Electronics Limited 12019 (29) G.S.T.L. 178 (A.A.R.-GST)], the systems like color tactical display system, Radar system, Electro Optical fire control system, optical director system , etc, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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