Submarine Fired Decoy System is Classifiable as 'Parts of Submarine' and only attract 5% GST: AAAR [Read Order]

The Andhra Pradesh, Appellate Authority For Advance Ruling held that modify the same and hold that the Submarine Fired Decoy System (SFDS) is classifiable as 'parts of Submarine' falling under Chapter 8906 and consequently attract 5% GST.

The appellant, M/s Bharat Dynamics Limited (BDL), a Government of India enterprise under the Ministry of Defence is a manufacturing base for guided missiles and allied Defence equipment. The clarification sought by the appellant relates to supply Order from the Government of India, Ministry of Defence (MOD) for the supply of Submarine Fired Decoy System (SFDS) along with associated services. The aforesaid supply shall be executed at the appellants unit in Andhra Pradesh with principal place of business at Autonagar, Gajuwaka, Visakhapatnam, Andhra Pradesh.

The SFDS in question is a component proposed to be fitted to the submarines operated by the Indian Navy for protection/safety of the submarines against incoming torpedoes/missiles. The appellant approached AAR for clarification regarding the applicable Chapter Heading and applicable GST rate. The contention of the appellant is that the proposed supply of (SFDS) is classifiable as ‘parts of submarine’ under Chapter Heading 8906 and, therefore, attracts a GST rate of 5%. But the lower authority has taken up a different view classifying it under Sl.No.434 under Chapter/Heading/Sub-heading/ Tariff Item 9306 under Schedule III of Notification attracting tax rate of 18%. Hence, appellant approached AAAR.

The appellant submitted that SFDS is designed to be fitted in the submarine as a basic protective system and it is designed with a separate space for fitment of this system. The said system as such has got no other use than in a submarine which is a warship in nature. As per the Merriam Webster Dictionary, "Warship" means a "military ship that has many weapons and is used for fighting in wars". Certain parts would be essentially required in a warship to protect the warship and armies. Therefore, in case of warships, parts required for protecting the warship constitute an essential and integral part of the warship”.

The appellant further submitted that, there is a designated space allocated in for the fitment of the SFDS system and it is permanently fitted in that space. The said system has life equivalent to the submarine and overhauled/maintained periodically.

The AAAR differ with the ruling of the AAR. The Coram of Sri Suresh Kishnani (Member) (central Tax) and Sri S. Ravi Shankar Narayan (Member) (State Tax) while modifying the order of the lower authority held that “whether as an 'essential part' or an 'additional feature' that enables the submarine fit for a definite or a designated purpose; we look into the role of 'submarines' for military operations as such in the present case. The submarines under discussion pertain to the Indian Navy and are basically used for warfare. A submarine, when used as a warship, is equipped with a torpedo launching system as well as a decoy system. Therefore, it can rightly be concluded that the said Submarines are 'Warships' which are classifiable under CTH 8906. 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”.

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