The Andhra Pradesh Authority for Advance Ruling ruled that ‘Habitability Upgradation Works’ conducted on board the Indian Navy’s Rajput-class Destroyer Warship ‘INS Ranveer’ are liable to be taxed at regular Goods and Services Tax (GST) rates.
The Application for Advance Ruling was filed by M/s Visakha Trades, an entity involved in the business of renting immovable property on the basis of a contract awarded to the Applicant by the Admiral Superintendent, Naval Dockyard, Visakhapatnam.
The Contract pertaining to Habitability Upgradation Works on board INS Ranveer valued at Rs.3,02,18,862.00 (inclusive of GST) was awarded to the Applicant subsequent to a Tender Process initiated by the Indian Navy.
The Applicant sought clarity on whether Entry 25(ib) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 02/2021-Central Tax (Rate) dated 02.06.2021 is applicable to the present tender and whether the Applicant could avail Input Tax Credit (ITC) for purchases made in relation to their contract with the Navy.
CA Vinay Gandhi, appearing for the Applicant reiterated their submissions before AAR that, the Applicant maintains that the services rendered by them falls under the ambit of “Maintenance, Repair or Overhaul services (MRO services) in respect of ships and other vessels, their engines and other components or parts” and is subject to 2.5% Central GST (CGST) and 2.5% State GST (SGST) as per the amendment by Notification No.02/2021-Central Tax (Rate) dated 02.06.2021.
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The two-member Coram of the Andhra Pradesh Authority for Advance Ruling constituted by Dr. K.Ravi Sankar, Commissioner of State Tax and B. Lakshmi Narayana, IRS, Joint Commissioner of Central Tax observed that MRO services have not been defined under GST Law or in the Rate Notification and sought to ascertain the same using commonly used dictionary meanings of the same.
AAR further observed that MRO services are activities carried out on equipment, Machinery, Engine, Appliance or Vehicle, none of which are applicable in the present case.
Additionally, if the ‘repair’ or ‘maintenance’ has expanded the capacity or productivity of the machinery, then the same will not be classifiable under “repair and maintenance” heading.
Examination of the work order between both parties and the tender document revealed that the Applicant does not have a specific maintenance contract with the Naval Dockyard. Though the Contract has been entered into for services related to a naval vessel, it is better aligned with that of a ‘works contract’ entered into for supply of goods and installation services.
Concludingly, the AAR held that the scope of work rendered by the Applicant involved upgradation and installation activities rather than repair or maintenance of existing equipment, thus disentitling the Applicant from claiming concessions under Entry 25(ib) of Notification No.11/2017-Central Tax (Rate) amended by Notification No. 02/2021-Central Tax (Rate).
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In light of the above observations, it was clarified that the Applicant would be liable to pay GST at normal rates as per GST law. AAR further held that the question of availment of full Input Tax Credit against purchases towards the completion of works does not arise in the present context.
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