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TMI Blog2022 (11) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... orvani Nagar, Bengaluru Urban, 560016 (herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 27/2022 dated 12th August 2022. Brief Facts of the case: 3. The Appellant is engaged in the business of trading of hearing aids and their parts and accessories. Hearing aids are classifiable under HSN 9021 40 90 and are exempt from GST by virtue of Sl.No 142 of Notf No 2/2017 CT (Rate) dated 28-06-2017. The parts and accessories supplied by the Appellant are imported from the manufacturer and supplied for use solely with the hearing aids. The Appellant is currently supplying the parts and accessories of hearing aids by classifying them under HSN 90219010 and charging GST at 18% under Sl.No 453 to Schedule III to Notf No 01/2017 CT (Rate) dated 28-06-2017. In order to understand the correct classification and rate of tax on the supply of parts and accessories which are suitable for use solely with hearing aids, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following questions:- a. "Classification of parts and accessories suitable for use solely with the hearing aids? b. Rate of tax on supply of such parts and acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 6-digit level and includes 'tariff item'; "Heading" is at 4-digit level and includes 'sub-heading'. Thereby, 'heading' includes 'tariff item' at 8-digit level. They submitted that the entry No 221 (Schedule II) of Rate Notification which excludes hearing aids and entry No 142 of exemption Notification which includes hearing aids are both defined at 4-digit level i.e only 'heading' 9021 is mentioned while covering the goods. Since 'heading' includes 'tariff item' at 8-digit level within its ambit, the HSN 9021 includes both HSN 902140 (dealing with hearing aids) at 6-digit level and HSN 902190 (dealing with parts and accessories of hearing aids) at 6-digit level within its ambit. Thereby, any reference of HSN 9021 will naturally and automatically mean and include both HSN 902140 and HSN 902190. They also submitted that the description of HSN 9021 at 'heading' level only mentions hearing aids. However, description of HSN 902140 and HSN 902190 at 'subheading' level talks about parts and accessories of hearing aids. Unless and until HSN 9021 at 'heading' level covers parts and accessories within its amb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of exemption notf has been consciously made. Stating that parts and accessories are not exempted, clearly when Entry No 142 of exemption Notf is not at 6/8-digit level, is against the intentions of the law makers. 5.6. Notwithstanding the above, the Appellant also submitted that even if it is held that parts and accessories of hearing aids are taxable, even then they would be taxable at the rate of 12% in terms of SL.No 221 (Schedule II) of Rate Notification; that if exclusion of hearing aids from Sl.No 221 (Schedule II) and exempting the same in SL.No 142 of exemption Notf does not cover parts and accessories of hearing aids, then SL.No 221 (Schedule II) of Rate Notf (at 4-digit level) does not remove parts and accessories of hearing aids from its ambit. As noted above, Sl.No 221 (Schedule II) of Rate Notf is replaced by SL.No 255A (Schedule I) of Rate Notf. Therefore, even if the parts and accessories are held to be taxable, the rate of tax would be 12% under SL.No 221 (Schedule II) from 1-7-2017 to 17-7-2022 and 5% under Sl.No 255A (Schedule I) from 18-7-2022 onwards. In view of the above submissions, the Appellant prayed that the ruling by the AAR be set aside and modified as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry Sl.No 221 of Schedule II. Therefore, even if it is held that the parts and accessories are taxable, the rate of tax will be 12% under entry Sl.No 221 of Schedule II and not the residual entry Sl.No 453 of Schedule III. He submitted that with effect from 18th July 2022, this rate will change to 5% by entry Sl.No 255A of Schedule I. 6.4. To further buttress his argument that heading 9021 mentioned at entry Sl.No 142 of exemption Notification covers both hearing aids as well as parts and accessories of hearing aids, he brought forth a fresh argument by drawing attention to entry Sl.No 151 of exemption notification. He submitted that entry Sl.No 151 of the exemption notification specifically exempts 'parts used for the manufacture of hearing aid' falling under any Chapter. He argued that if parts and accessories of hearing aids are already exempted under entry Sl.No 142, then there was no need to have a separate entry Sl.No 151 exempting parts used in the manufacture of hearing aids. He submitted that the reason for this entry Sl.No 151 is that if a particular part used in the manufacture of hearing aid is not covered under heading 9021, then such part classified under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accessories of hearing aids, we find that they have not disputed the ruling given by the lower Authority that the parts and accessories of hearing aids are classifiable under HSN 9021 90 10. They are particularly aggrieved with the ruling that the parts and accessories of hearing aids are not exempted under Sl.No 142 of the exemption notification but are chargeable to tax at 18% under residual entry Sl.No 453 of Schedule III of Rate Notification No 1/2017 CT (Rate) dated 28-6-2017. 8. We will limit our discussion to the applicable rate of tax for the parts and accessories of hearing aids falling under tariff item 9021 90 10. The classification of goods under GST regime has to be done in accordance with Customs Tariff Act 1975, which is in turn based on Harmonised System of Nomenclature (HSN). Under the harmonised system, there is an eightdigit code assigned to each commodity. The first two digits represent the "chapter" within the harmonised system. The first four digits collectively represent a "chapter heading" which is a collation of goods with similar characteristics or attributes housed under a chapter. The first six digits represent "chapter sub-heading" which comprises of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecifies goods which carry a rate of 9% / 18% d) Schedule IV - specifies goods which carry a rate of 14% 128% e) Schedule V - specifies goods which carry a rate of 1.5% / 3% f) Schedule VI - specifies goods which carry a rate of 0.125% 10.25% g) Schedule VII (inserted with effect from 18th July 2022) - specifies goods which carry a rate of 0.75% / 1.5% Each of the above rate schedules specifies the description of goods and a corresponding Customs Tariff entry at the level of either Chapter or Heading or Sub-heading or Tariff item. Goods which are not specified in Schedules I, II, IV, V and VI are grouped into a residuary entry at Sl.No 453 of Schedule III with a GST rate of 18%. Similarly, the goods which are exempted from GST i.e have a NIL rate of GST are specified separately in the Schedule to Notification No 02/2017 Central Tax (Rate) dated 28-06-2017 (for intra-state supplies) and notification No 02/2017 Integrated Tax (Rate) dated 28-06-2017 (for inter-state supplies). Here too the description of the specified goods is given along with a corresponding Customs Tariff entry at the level of either Chapter or Heading or Sub-heading or Tariff item. The Explanation appende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Schedule specifies a description of goods at a four-digit Chapter Heading level and the description matches the Chapter Heading description in the Customs Tariff, the rate of tax will apply to all goods under all the sub headings and tariff items of the said Chapter Heading. However, when the entry in the rate notification specifies a description of goods at a four-digit Chapter heading level which is different from the description in the Customs Tariff Chapter Heading or which excludes certain goods, the rate of tax will apply only to those goods which are described against the respective entry in the rate notification. In other words, when the description of goods under a chapter heading in the GST rate notification is different from the description in the Customs Tariff Chapter heading, it cannot be assumed that all sub-headings and tariff items are automatically covered under the entry. In order to assign a rate of tax to a particular item, it is essential that the item must confirm to the HSN classification at the level indicated in the rate Schedule as well as the item figures in the description of the goods as mentioned the rate Schedule. 13. Applying the above princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich excludes hearing aids and the entry Sl.No 142 of exemption notification which includes hearing aids, are both at a four-digit heading level and hence both entries will exclude I include respectively even the sub-heading 9021 90 10 applicable to parts and accessories of hearing aids. In other words, the argument is that the exclusion of hearing aids under 9021 from entry Sl.No 221 of Schedule II implies that parts and accessories of hearing aids are also excluded from the said entry; that the exemption to hearing aids under heading 9021 specified at entry Sl.No 142 of the exemption notification implies that parts and accessories of hearing aids under 9021 90 10 are also exempted. This is not a correct interpretation of the rate notification. Assuming for a moment that the contention of the Appellant is correct, then it would mean that the entry 221 of Schedule II which also excludes orthopaedic appliances such as crutches, surgical belts and trusses under heading 9021 and includes orthopaedic appliances falling under heading 9021 under entry Sl.No 257 of Schedule I read with List 3 (B)(1), would automatically exclude parts of such orthopaedic appliances falling under heading 902 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No 02/2017 CT (Rate). However, parts which are generic in nature which are used for the manufacture of hearing aids and not classifiable under 9021 9010, are exempted under entry Sl.No 151 of exemption Notification No 02/2017 CT (Rate). We do not see any merit or logic in this argument. Entry Sl.No 151 of the exemption notification is no doubt applicable for parts falling under any chapter which are used in the manufacture of hearing aids. In this case, we are not concerned with goods which are used in the manufacture of hearing aids but rather, the impugned goods are in the nature of parts and accessories which are used solely and principally with the hearing aids and classifiable under tariff item 9021 90 10. We have already held that parts and accessories of hearing aids are not covered within the scope of exemption entry Sl.No 142 and hence are not exempted. The impugned goods are also not covered within the scope of entry Sl.No 221 of Schedule II of the rate notification. 17. Now the question arises as to under which entry of the rate notification will 'parts and accessories of hearing aids' be covered? Since the parts and accessories of hearing aids falling under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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