The Andhra Pradesh Authority for Advance Ruling ( AAR ) recently ruled that certain specific inputs including equipment, material, consumables, tools etc. (Inputs) purchased domestically or imported by the Applicant for the construction of ships or vessels shall be liable to 5% Goods and Services Tax ( GST ).
The Application for Advance Ruling was filed by M/s. Hindustan Shipyard Limited (HSL), an undertaking by the Government of India involved in shipbuilding, ship repairs, submarine construction and refit of allied offshore and onshore structures.
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All the Inputs required by the Applicant in order to render services are directly procured or imported by HSL; the Applicant is charged GST by the Vendors on the basis of applicable tariffs stipulated by the GST Rate Schedules.
The Applicant queried before the AAR whether “parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907” in Entry No.252 of Schedule-I of Notification No.01/2017–Central Tax (Rate) dated 28.06.2017 and Entry No.252 of Schedule-I of Notification No.01/2017–Integrated Tax (Rate) dated 28.06.2017,will include all the inputs including equipment, material, consumables, tools etc., (as listed in Annexure 2A, 2B, 2C and 2D) purchased domestically or imported for use in manufacture of ships?”
HSL in the course of their submissions, averred before AAR that that the end-product ships and vessels manufactured by them are classified under HSN 8906 and hence the Inputs purchased by them should also be subject to the same classification under Entry No.252 of Schedule-I attracting GST @ 5% owing to their indispensable nature for making the ship/vessel seaworthy.
The Applicant referred to the Supreme Court’s decision in M/s Saraswati Sugar Mills Vs CCE, Delhi – III (2011) wherein it was held that the test for determining the vitality of a ‘component’ required one to assess the component part (here being the input) and the completed article (here being the ship/vessel) and come to a conclusion on the same.
The Apex Court was of the opinion that there cannot be any confusion on the level of indispensability of any component involved in the manufacture process.
An Agreement between HSL and the Ministry of Defence was adduced by the Applicant to reaffirm that the entire work undertaken by HSL is very closely monitored by the Defence ministry; and in the event of any qualitative or quantitative requirements, the decision of the Ministry would prevail.
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The two-member Bench of the Andhra Pradesh Authority for Advance Ruling comprising K.Ravi Sankar, Commissioner of State Tax (Member) and B. Lakshmi Narayana, IRS, Joint Commissioner of Central Tax (Member) observed that “It is clear the goods which answer the specific requirements of being part for the classified headings 8901, 8902, 8904, 8905, 8906, and 8907 will be chargeable @5%( SGST 2.5% and CGST 2.5%) rate of GST as per Sl.No.252 of Schedule-I of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017.”
Concludingly, the AAR clarified that most of the items that were sought clarification on are liable to be taxed at 5% GST while some of the non-essential inputs annexured within the Application are not encompassed under Sl.No.252 of Schedule-I of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017.
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