In Re: M/s. Jotun India Pvt. Ltd.
GST
2019 (3) TMI 434 – APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – 2019 (22) G. S. T. L. 581 (App. A. A. R. – GST)
APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA – AAAR
Dated:- 5-2-2019
MAH/AAAR/SS-RJ/17/2018-19
GST
SMT. SUNGITA SHARMA, AND SHRI RAJIV JALOTA, MEMBER
PROCEEDINGS
(Under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and M
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
vailing exemptions when granted under respective legislation.
D. With the introduction of GST, Appellant has analyzed classification and applicability of CGST, SGST and IGST in light of new legislation. For classification, it has been clarified in the rate notification of respective legislation that rule of interpretation of the First Schedule to the Customs Tariff Act, 1975 including Section Notes and Chapter Notes and general explanatory notes of the said first schedule would be applicable for the purpose of the classification under GST.
E. Accordingly, Appellant has sought to classify paints being supplied under HSN 3208 and 3209 basis the nature of the product and after considering relevant chapter notes and Section notes. Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 prescribe applicable rate of CGST. Paint supplied by the Appellant classifiable under chapter heading 3208 and 3209 are covered under Schedule VI of the said Notification and accordingly were liable to
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
I has been rejected. Hence, the Appellant has preferred an appeal before this Appellate
Authority against the impugned Advance Ruling.
GROUNDS OF APPEAL
1. The Appellant submitted that marine paint is a specific type of paints suitable for use principally for ships during building stage and even during maintenance. The sailing ship needs protection from corrosive environment in which they operate. Such marine corrosion has a significant impact on sea carriers and their longevity. Therefore, effective corrosion control strategies are chosen considering appropriate selection of coating for a marine environment. Marine coatings have special functionality to protect marine vessels and other carriers above and below the waterline. Accordingly, marine paints supplied by them has following technical features:
* Protects the body of ship from highly corrosive environment
* Blocks barnacles and other marine organisms from adhering to the hulls of ships
* Lessens fuel consumption as it
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
y modified natural polymers or chemically modified natural polymers dispersed or dissolved in a non-aqueous medium; solutions as defined in Note 4 to this Chapter”
5. It is submitted that based on the technical specification of the product, marine paints appear to be classifiable under heading 3208. Since, marine paint is suitable for use for ships, it could also get classified as part of ship. For the purpose of this analysis, Appellant referred to chapter 89 for 'Ships, boats and floating structure'. They further submitted that there is no specific entry in Chapter 89 for 'parts' of ships covered therein. In the absence of any entry for part of ship, Appellant had adopted classification of marine paint under chapter heading 3208.
6. The Appellant has also been adopting similar classification under Central Excise Law. The excise duty liability has accordingly been discharged by Appellant under erstwhile Indirect Tax regime.
7. It is submitted that marine paints are suitable princip
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ther vessels, including warships and lifeboats other than rowing boats
251
8907
Other floating structures (for example, rafts, tanks, coffer-dams, landing-stages, buoys and beacons)
8. It is submitted that on conjoint reading of above entries, it could be construed that the aforementioned goods along with its parts (covered under entry 252) would be taxed at the rate of 2.5%. It is to be noted here that Entry 252 reproduced above is applicable to goods falling under any chapter but which are parts of goods falling under headings 8901, 8902, 8904, 8905, 8906 and 8907. Accordingly, a product which is classifiable under any chapter, if could be construed as part of these prescribed goods then the same would fall within the purview of entry 252 and hence would be liable to 2.5% CGST.
9. It is submitted that similar view was adopted by the Hon'ble Court in the case of Mahindra & Mahindra Ltd. vs Commissioner of C. Ex., Nagpur [2007 (210) E.L.T. 579 (Tri. – Mumbai)] = 2006 (12) TMI 289
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
at there is no separate tariff item as 'parts of ship' under chapter 89 of the First Schedule to Customs Tariff Act, 1975. Thus, meaning of the term 'parts of goods', could then be adopted from its meaning in common parlance.
13. It is submitted that the said term 'Part' means an essential ingredient of the main product. The said word i.e. part has been defined in various dictionaries as under: The term 'Part' as defined under The Black's Law Dictionary
'an integral portion, something essentially belonging to a larger whole, that which together with another or others makes up a whole.
Definition of 'Part' from Thesaurus
'an essential or integral attribute or quality'
The meaning of the term 'part' in common parlance is that component part of an article is an integral part necessary to the constitution of the whole article and without it, the article will not be complete'.
14. It is submitted that it could be understood that anything which is an integral element and is also essent
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
part or replacement part is an interchangeable part that is kept in an inventory and used for the repair or replacement of failed units. Spare parts are an important feature of Logistics Engineering and Supply Chain Management.”
16. It is submitted that also as per the above definitions referred by the Ld. AAR, it is clear that part is one of the piece or ingredient of the main machine. In the present case, ship is main machine and marine paint is essential part of the same.
17. It is further submitted that the Ld. AAR has observed that anchor, bow etc. are very essential parts of the ship or vessel and are quite clearly part of the vessel. However, in addition to the above there are some additional equipment that are required to be made available on a ship as a measure of statutory compliance under the various marine acts. Though these parts are very essential, cannot come under the essential parts or equipment of a vessel/ship.
In this regard, it is submitted that the courts in v
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
st suited to serve the national interests. This Act provides registration, certification, safety and security provisions for Indian ships and generally deals with amendments law relating to merchant shipping.
21. It is submitted that as per the provisions of Merchant Shipping Act, 1958 ('MS Act'), marine paint is essential part of the ships. Relevant provisions of the said act which would help in demonstrating that marine paint is integral and essential component of ship as referred below for ease of reference.
* Section 356P(1) of MS Act: Application of chapter XIB-Control Of Harmful Anti-Fouling Systems On Ships
Save as otherwise provided in this Part, this Part shall apply to-
a. every Indian ship, wherever it is;
b. ships not entitled to fly the flag of India, but which operate under the authority of India; and
c. ships that enter a port, shipyard, or offshore terminal or place in India or within the territorial waters of India or any marine areas adjacent there
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
all comply with requirements of the anti-fouling systems as prescribed from time to time.
Section 356X of MS Act Information regarding contravention of the provisions of Convention
1. If, on receipt of a report from a surveyor or other person authorised to inspect a ship, the Director-General is satisfied that any provision of this Part has been contravened by such ship within the coastal waters, the Director General or any officer authorised by him in this behalf, may-
a. detain the ship until the causes of such contravention are removed to the satisfaction of the Director-General or the officer authorised by him; and
b. levy penalty on such ship as specified in section 436
22. It is submitted that from conjoint reading of the above provisions, it is evident that every ship has to adhere to the anti-fouling provisions as prescribed under MS Act. Basis the same, a layer of coating or paint, has to be applied on the hull of the ship to control or prevent attachment of unwanted o
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
nder 2.5% CGST Rate schedule.
A PRODUCT ESSENTIAL TO COMPLETE THE MAIN PRODUCT AND MAKE IT MARKETABLE IS CONSTRUED AS PART OF THE MAIN PRODUCT
25. Reliance is placed in this regard on the decision of the Hon'ble Supreme Court, in case of Star Paper Mills Ltd. Vs. Collector of Central Excise, Meerut [1990] 76 STC 312 (SC) = 1989 (8) TMI 78 – SUPREME COURT OF INDIA, wherein it has been ruled that if it is found that the use of paper core is necessary in “any process incidental or ancillary to the completion of “paper as marketable goods and it would consequently be commercially inexpedient to sell paper without the use of paper core, it would certainly be a constituent part of paper and would thus fall within the purview of the term “component parts” used in the notification.
26. Reliance is also placed on the decision of Hon'ble Gujarat High Court, in case of Surgichem Vs. State of Gujarat [1992] 87 STC 40 (Guj) = 1991 (7) TMI 303 – GUJARAT HIGH COURT wherein it has been observed tha
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
er. Anything required to make the goods marketable, must form part of the manufacture and any raw material or any materials used for the same would be component part for the end product.
28. It is submitted that from the above cases, it could be summarized that paper core, plastic spools and wrapping paper would be considered to be parts of paper rolls, adhesive plaster tapes and paper reams/reels respectively since without the former goods, the later goods couldn't be marketed or are commercially inexpedient. Thus an analogy could be drawn that anything which is required for making goods marketed or to be marketable, would be form component part of that end products.
29. It is submitted that, as explained above, basis the provisions of The Merchant Shipping Act, ships are bound to adhere to the 'anti-fouling system' norms. Accordingly, ship would not be marketable unless the same has complied with anti-fouling system i.e. application of paints / coating to avoid growth of unwanted o
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
er wires and cables manufactured for aircrafts / helicopters would be considered as parts of aircraft, the Hon'ble Court in case of Sanghvi Aerospace (P) Ltd Vs. Commissioner of Central Excise Ahmedabad[2009 (247) E.L.T. 578 (Tri. – Ahmd.)] = 2009 (6) TMI 808 – CESTAT, AHMEDABAD stated that following:
“he has also submitted a list of goods in respect of which exemption has been allowed to manufacturers supplying the goods to National Aerospace Laboratories, HAL etc. as detailed below :
9.1 Aircraft cables (manufacturer – Radiant Cables Pvt. Ltd.)
9.2 Paints (manufacturer – South Field Paints & Chemicals Pvt. Ltd.)
9.3 Expoxi Yellow Primer (manufacturer – South Field Paints & Chemicals Pvt. Ltd.)
9.4 Thinner for yellow primer (manufacturer – South Field Paints & Chemicals Pvt. Ltd.)
9.5 Rivets (manufacturer – M/s. Ankit Forgings)
9.6 Epoxi black paint (manufacturer –
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
No. 44/2015-CE dated 24 November 2015 has issued prescribing effective rate of central excise for specified goods (amending Notification 12/2012 dated 17 March 2012). Said notification inserted following entry for prescribing effective rate of excise for goods mentioned therein.
Sr. No.
Chapter or heading or sub-heading or tariff item of the First Schedule
Description of excisable goods
Rate
Condition No.
306C
Any chapter
Raw materials and parts
NIL
2 and 3*
* Condition 2 – Where such use is elsewhere than in the factory of production, the exemption shall be allowed if the procedure laid down in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, is followed.
*Condition 3 – The exemption shall be allowed if it has been proved to the satisfaction of an officer not below the rank of the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdic
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
le I of IGST Rate notification vide entry 246 to 251. Whereas separate entry 252 has been inserted for parts of these goods. Thus, the intention appears to be to avoid inverted duty rate structure for vessel manufacturers. They should be able to procure all the parts at 5% IGST and then would also be charging same rate on their outward supply of different types of vessels. Hence, entry 252 of IGST Rate notification should be read to cover all raw materials and parts which are meant for use in manufacture of different types of vessels.
VAT legislation of United Kingdom also considers paint as part of ship
39. It is submitted that Value Added Tax (VAT) was introduced in the UK on April 1, 1973. Although Value Added Tax Act 1994 (VATA) provides the main framework of the tax, the detailed interpretation of the same are found in statutory instruments either in the form of Orders made by Treasury or Regulations made by Her Majesty's Revenue and Customs (HMRC). HMRC has published several No
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
20, 2011
7.5. Which parts and equipment are excluded from zero rating?
Any raw or bulk materials, partly processed parts or equipment and also non-specialist goods or appliances are excluded from zero rating. The list below gives examples of other parts and equipment which are not zero-rated. It is not exhaustive.
* Binoculars
* catering equipment (domestic)
* crockery
* cutlery
* diving equipment
* furniture (unfixed)
* laundering equipment (domestic)
* missiles, shells etc
* ship's stores
* soft furnishings
* phones
* televisions
* tools
* underwater cameras
* videotapes/disks, electronic games and similar entertainment equipment
* crockery and cutlery
* raw materials such as: fibre board, plastics, and specialist metals
* bulk materials such as: adhesives, chemicals, fabrics, inhibitors, metals, oils, paints, solvents and thinners etc
* aircraft ground equipment
* flight simulators or their parts, and
* tooling and equipment used for manu
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
d be considered to be parts and equipment of a ship. Therefore under VAT Notice 744C, the UK government has prescribed a non-exhaustive list of parts and equipments which are not zero-rated. The said non-exhaustive list of parts and equipments includes paints, solvent and thinners.
43. It is submitted that from the above it is clear that paints, solvent and thinners have been considered to be parts and equipments of a ship since it is reported under a non-exhaustive list of parts and equipments.
VIOLATION OF PRINCIPLES OF NATURAL JUSTICE.
44. In support of its contentions, the Appellant replied upon the various cases. At the time of the passing of the impugned advance ruling, the Ld. AAR, relied upon various case laws different that the cases referred by the Appellant. However, the Appellant was not given chance of representing its case in light of those decisions referred by the Ld. AAR. Such act of the Ld. AAR is clearly violation of the principles of natural justice.
45. It is s
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Marine paints is classified under schedule entry E-1, Powder coating chemicals are classified under schedule entry C-54 i.e Industrial inputs @ 5%
5) Under Excise the goods are classified under Chapter-32, The rate of tax is 12 %
6) Under GST the goods are classified under schedule – IV @ 14+14=28 %(SGST+CGST)
7) Going by the principle of RNR i.e VAT+ Excise =13.5+12=25.5 hence the goods are classified @ 28 %.
8) Dealer's contention is to classify the goods under SCH-I, serial no.252 parts of goods of heading-89
9) In the ARA Maharashtra application, the dealer has contended the above claims of 5% on following grounds
i) Section 356 of Merchant shipping Act, 1958 – Anti-fouling paints just because it is mandatory under some law to be applied to ships does not essentially make it a part. On this issue, ARA Maharashtra has clearly clarified that paints can be consumables and not parts. As per this law although application of paints is mandatory but that doesn't mean that it can
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
the meaning of an expression (Part) as defined in the dictionary and adopted by the courts mentioned above besides common parlance test, it can be safely concluded that Marine Paint is not a component part of Ship. This conclusion which we have drawn as above gets support from the facts stated by the appellant and detailed discussions above as per which marine paints are clearly consumable items and not parts.
v) Thus we would be stretching the definition of 'part' greatly, if we intend to treat paints as parts of ship in view of the above discussions.
vi) Basis 30(2) of UK VAT Act, the ARA has mentioned that the statutory provisions, conditions are in different context and therefore not relevant in the facts of the case in present matter.
DISCUSSION AND FINDINGS
47. We have perused the record of the file and gone through the facts of the case and the submission made by the appellant and the department. The appellant have submitted that they are manufacturers and exporters of pai
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
, the question raised by the appellant before the AAR is as follows:-
“Whether marine paints, supplied by the appellant, would be considered to be a part of ship and accordingly be then classified under Sr.No.252 of Schedule-I of the Notification No.1 of 2017 of Central Tax (Rates) dt.28.06.2017.”
48. There is no dispute that the product is covered by Chapter heading 3208 and 3209 but the dispute pertains to the claim of the appellant that they are covered by Entry no.252 of Schedule I Notification No. 1 of 2017 dt.28.06.2017, which covers parts (classifiable under any chapter) of goods, falling under heading 8901,8902,8904, 8905,8906 and 8907 i.e. 'parts of ships'. The appellant has submitted that the impugned product sold by them i.e. Marine Paint is a specific type of paint suitable for use principally for ship during the building stage and during maintenance. The ship needs protection from the corrosive environment in which they operate and the marine coatings are a special funct
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
t can be considered to be a part of headings 8901, 8902, 8904, 8905, 8906, 8907 which are all various types of water vessels. In common parlance, paints generally means any liquid which is commonly applied to a number of surfaces and is used to provide texture to an object as well as protect the surfaces. The paint supplied by the appellant is 'anti fouling paint' which is generally applied to hulls of ships. In order to address the contention of the appellant, it is to be seen as what is understood by the meaning of the term 'parts'. The terms 'parts' has not been defined under CGST Act. It has been defined under the Black's Law Dictionary as an 'integral portion, something essentially belonging to a larger whole which together with another or others makes of a whole. In the Cambridge English Dictionary 'part' is defined as a separate piece of something or a piece that combines with other piece to form something. Thus, what we understand from the term 'part' is that it should be ident
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ally required but it will be a little farfetched to say that the ship would be unable to sail without it. A marine paint adds to the life, convenience and efficiency but is certainly not a part of it. Paints have an identity of their own and are not perceived as a part of a setting on which they are applied and this would apply even to the special category of 'Marine paints'.
52. The main contention of the appellant is that as per the provisions of the Merchant Shipping Act, paints are mandatorily required on all ships and therefore they should be considered as part of ships. This may be mandatory requirement for the sail worthiness of the ship but that does not indicate that they are parts of the ship. The mandatory requirement under some other law cannot be an adequate ground for classifying a product as 'part'.
53. The Appellant has placed reliance on the Supreme Court decision in the case of Star Paper Mills v. Collector of Central Excise (1990) 76 STC 317 (SC) = 1989 (8) TMI 78
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
hich makes whole marketable product is held to be a 'part'. Therefore, they are not applicable to the instant case.
54. The appellant also referred to the Gujarat High Court Judgment in the case of Surgichem (1992) 87 STC 40 (Guj) = 1991 (7) TMI 303 – GUJARAT HIGH COURT where it was observed that, anything that goes into the product till the product become marketable such things becomes part and parcel of that article. Applying this test, the plastic pools over which plastic tapes are wrapped were considered as part of the goods marketed. A plastic tape could never have become marketable without a plastic pool and therefore the decision. The same cannot be said about paints.
55. The Bombay High Court in the case of Commissioner of Sales Tax Vs. Jayanand Khira & Co. Private Ltd. (36 STC 242 Bom) = 1975 (2) TMI 97 – BOMBAY HIGH COURT had to decide whether an oil tanker is a part of a motor vehicle. The Court observed ,”
“…We find some difficulty in accepting the test laid down in th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
f being put as found by the Tribunal, has both an independent existence and an independent use, apart from being a part of a complete motor oil-tanker. It is, therefore, not possible to hold on the facts as found by the Tribunal that the oil-tank sold by the respondents was a component part of a motor vehicles.
56. In the case of Commissioner, Sales Tax v. Free India Cycle Industries [1970] 26 STC 428 = 1970 (2) TMI 107 – ALLAHABAD HIGH COURT the Allahabad High Court was concerned with an entry “bicycles, tricycles, cycle rickshaws and perambulators and parts and accessories thereof other than tyres and tubes”. The assessee was a dealer in cycle and cycle goods and the question arose whether rexine saddle covers manufactured and sold by it would fall within that entry. It was observed by the Division Bench that the expression “parts and accessories” qualified the word “bicycles, tricycles, etc.” The entry was regarded as referring to parts and accessories of the vehicles and did not i
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
therefore, would fall under Schedule Entry C-ll-126 which was a residuary entry for electronic items. The Commissioner in determination order inter alia held that the impugned product was specifically required for Cable TV and therefore, it was covered by Schedule Entry No.C-II-124 as an accessory of the Cable TV. Thus, having regard to the functional utility of the product, the Commissioner held that the Hybrid Amplifiers were covered by Schedule Entry
No.C-II-124 and liable to tax at 13%.
Schedule Entry C-ll-124 read thus :-
Entry Description of the goods Television sets, television cameras, television receivers, to date television monitors, antennas and components, parts and accessories of any of them.
The Court observed,”
. 'From all these facts, what becomes clear is that the Hybrid Amplifier basically boosts the signal, be it for the purpose of transmission of Cable TV or for several other purposes as set out by us earlier. This being the position, we agree with the finding
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =