TMI Blog2022 (12) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... as restricted to ascertaining whether goods- marine paint supplied by the Petitioner would be a part of goods Headings 8901, 8902, 8904, 8905, 8906 and 8907. Both the Authorities concluded that just because, as per the Merchant Shipping Act, the marine paint is mandatory to be applied, it does not become part of the ship. This is a considered opinion reached by both Authorities - both the Authorities have adopted the approach required for the classification of the goods in the context of the application of tax, and the Authorities have not widened the enquiry to ascertain various issues sought to be raised by the Petitioner as regards the legality of sailing of the vessel without the marine paint. The contention of the Petitioner primarily centered around the necessity to apply marine paint to increase the longevity and productivity of the vessel, and the legal position requiring that the paint to be used on a ship without which it cannot sail and requirements of International Conventions for applying anti-fouling system. Though the learned counsel for the Petitioner is right in contending that the argument of the learned counsel for the State that paint is just one part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er coatings. One of the major supplies of the Petitioner is marine paints, and the marine paints manufactured by the Petitioner are used on vessels as anti-fouling paints. 3. Notification No.1/2017, dated 28 June 2017, prescribes applicable rates of CGST. The rules of interpretation of the First Schedule to Customs Tariff Act, 1975 are applicable for the classification of the GST regime. Relevant entries for the present petition are as follows: Sr.No. Chapter/ Heading/Sub-heading/ Tariff item Description of Goods 20. 3208 Paints. and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, dispersed or dissolved in 2 nonaqueous medium; Solutions as defined in Note 4 to this Chapter. x x x x Sr.No. Chapter/ Heading/Sub-heading/ Tariff item Description of Goods 252 Any chapter Parts of goods of heading 8901, 8902, 8904, 8905, 8906 and 8907. x x x x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly be classified under Sl. No.252 of Schedule-I of Notification No.1/2017 of Central Tax (Rates) dated 28 June 2017. In the application, the Petitioner contended that under the erstwhile regime of Maharashtra Value Added Tax, the marine paints were classified under Schedule-E-1. Under the excise regime, the said goods were classified under Chapter 32 and were taxed at the rate of 12%. The marine paints/ anti-fouling paints are part of the ship due to their special functionality to protect marine vessels and other carriers above and below the waterline. The Petitioner stated that anti-fouling paints are statutorily mandated for application on ships to make them sail-worthy under the Merchant Shipping Act, 1958 and that makes it an essential part of the ship. Any product without which the main product is not workable is to be considered as the main product, and, therefore, the marine paints will have to be construed as an essential part of the ship. 5. The Maharashtra Authority of Advance Ruling on Goods and Service Tax- Respondent No.3 (Authority) rejected the contentions of the Petitioner, holding that merely because antifouling paints are mandatory in the Merchant Shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have anti-fouling paint to prevent marine life as algae and barnacles, from attaching themselves to the ship's hull. Even a small amount of fouling in the hull of the ship can lead to an increase in fuel consumption. Antifouling measures are also important for protecting marine ecology as ships that sail in different oceans can carry organisms attached to them to another ocean. The Technical EIA Guidance Manual for Ship Breaking Yards published by the Ministry of Environment and Forests in August 2010 treats the lead-based anti-fouling coatings as part of the ship's structure. Prudent owners will only sail the ship with anti-fouling paint. The anti-fouling paint is essential to make the ship usable apart from its application, making sailing legal; therefore, the anti-fouling paint must be considered part of the ship. Both the Authorities are in complete error in stating that the ship can enter the water without anti-fouling paint, overlooking that it cannot sail as per the governing legal position. If such activity is carried out, then the owner is liable to a fine and confiscation of the ship. Both the Authorities wrongly overlooked these mandatory requirements. Also, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and paint alone is not the anti-fouling system. Sections 356-R, 356-S, and 356-B of the Merchant Shipping Act refer to the anti-fouling system, which includes the paint. The question framed for consideration of the Authority is only relating to paint and not about the anti-fouling system. Both the Authorities, having considered the material on record and after giving a full opportunity of hearing to the Petitioner, have taken a view which is inter partes binding. There is no need to interfere with the impugned orders on merits, and the Petitioner cannot convert this proceeding to an appellate proceeding. 9. First and vital aspect of the matter is the scope of writ jurisdiction against the order passed by the Authority and Appellate Authority. 10. Chapter XVII of the Central Goods and Services Tax Act, 2017, deals with Advance Ruling. This Chapter is separate from Chapter XVIII which deals with Appeal and Revision. Section 96 provides for the constitution of the Authority for Advance Ruling. Provision for application for advance ruling is specified under section 97 stating that an applicant desirous of obtaining advance ruling may apply in such form and manner as prescribed s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance ruling pronounced by the Authority and the Appellate Authority shall be binding only on the Applicant who has sought it for any matter under section 97(2) for advance ruling and the concerned officer or the jurisdiction officer in respect of the applicant. Section 104 lays down that where the applicant or the appellant obtains the advance ruling pronounced by the Authority or the Appellate Authority by fraud or suppression of material facts and misrepresentation of facts; the Authority may declare such rule to be void ab initio. Therefore, the legislative scheme indicates that the advance ruling is distinct from the appeal and revision. The order is binding only on those specified under section 103 of the Act. This, in short, is the scheme of advance ruling under the Act. 11. Under the above scheme, it is the applicant who seeks an advance ruling on the matter as specified, which is not pending or decided in the applicant's case and the decision so given after hearing the applicant and the concerned officer is binding on the applicant or the concerned jurisdictional officer. Therefore, no further appeal is provided. This legislative scheme has to be kept in mind when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show-cause-notices were issued by the Department to Asahi India in respect of defective modvat credit of inputs. Asahi India approached the Settlement Commission. In the settlement application, Asahi India admitted to the extent that it had received the goods in package form, and upon opening, certain pieces were found to be broken, and they were not used as inputs which Asahi India agreed to pay back. The Settlement Commission went into the issue and directed Asahi India to pay back the balance amount towards settlement. Asahi India filed a writ petition in the High Court which remanded the proceeding to the Settlement Commission for consideration afresh in the light of the legal principles. This order was challenged by the Department on the ground that the High Court had no jurisdiction to tinker with the order of the Settlement Commission, stating that once such an order was passed, the High Court had no jurisdiction to interfere with the same. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Union of India v. Swift Laboratories Ltd. 2011 (4) SCC 635: 1011 (265) ELT 3 (SC). The Hon'ble Supreme Court found the High Court had not meddled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a statement of facts. The case was taken up for a preliminary hearing on 28 March 2018. The jurisdictional officer filed a written statement objecting to the admission of the application contending that where there is a specific entry for the commodity, it cannot be classified differently. The application was admitted. An advocate appeared for the Petitioner and made oral and written submissions. Thereafter the Authority passed an order on 15 May 2018. The Petitioner filed an appeal wherein the Petitioner submitted the grounds of appeal. A personal hearing was conducted on 16 January 2019 when the advocate appeared for the Petitioner and also submitted written submissions. The representative of the Revenue also made submissions. Thereafter by a detailed order, the Appellate Authority dismissed the appeal. 17. Therefore, the Authority and the Appellate Authority followed the entire procedure, and full opportunity was given to the Petitioner. There is no ground raised of breach of principles of natural justice on account of not giving an opportunity of being heard. All points put forth by the Petitioner as to why anti-fouling paint should be considered as part of the ship were ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principally the Petitioner seeks is the reclassification of its goods by the Authorities. The thrust of the Petitioner's argument before the Authorities centered around the legal provisions, i.e. sections 356P, 356Q, 356R and 356X of the Merchant Shipping Act to demonstrate that the use of ship without marine paint is not legally permissible. It was also the contention of the Petitioner that the Authorities proceeded on surmises and referred to phrases such as common parlance when there is no evidence and data based on which such position could have been assumed. The Petitioner has also sought to criticize the approach of the Authorities in mentioning the analogy that the units such as walkie-talkies, binoculars, life jackets, and lifeboats on the ground of such safety equipment are generic and not ship-specific. The Petitioner had also contended that the standards prescribed for hull performance under ISO 19030-1:2016 state that an anti-fouling system is necessary for maintaining the hull in proper condition. Even the Merchant Shipping (Control of Anti-Fouling System) Rules, 2016 makes marine paint mandatory. 22. Both the Authority and the Appellate Authority have dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correctly focused on the meaning of the word part in terms of classification and has held that to make the vessel operative as a matter of mechanics, marine paint is not necessary. Both the Authorities have proceeded on the basis that there is a distinction between what makes the Whole operational from what makes the Whole legal to use. The Petitioner is mixing up legality with mechanics. The Authorities have rightly focused only on the first aspect as that was the scope of enquiry before them. Once the Authorities correctly adopted that approach, the issue of whether the ship was permitted in law to sail in view of the statutory provisions was an issue outside the enquiry of the Authorities. There is no error in the principle adopted by the Authorities that a part is one without which the whole cannot function and then applying that to the Petitioner's case. This is the only enquiry that both the Authorities had to undertake and they have rightly undertaken the same. There is no dispute before us that a ship can enter the water and sail without the marine/anti-fouling paint. We find that there is no fundamental legal error in the approach going by the decision of the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship for the classification of entries. 27. The Petitioner had also relied upon the decision of the Hon'ble Supreme Court in Jay Engg. Works Ltd. This decision was in an appeal from the order of the Customs Excise and Gold (Control) Appellate Tribunal under section 35L(b) of the Central Excises, and Salt Act, 1944 The issue was regarding the nameplates to be fixed on the electric fans. The Hon'ble Supreme Court observed that to obtain proforma credit, fans with nameplates have a certain value that the fans without the nameplates did not have, and the fans did not become marketable products without the nameplates. The Hon'ble Supreme Court observed that the name should be in terms of the relevant Notification. The third decision relied upon by the Petitioner was of the Hon'ble Supreme court in the case of H.M.M. Ltd. In this case, whether the metal screw cap put on the bottled product, Horlicks, was a part of the manufacturing process in question. The Tribunal had held that the metal screw cap put on the bottle was manufacturing process. The Hon'ble Supreme Court again considered the matter in terms of marketability and observed that after the Horlicks bottle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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