IN RE: JOTUN INDIA PRIVATE LIMITED
GST
2018 (9) TMI 1105 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2018 (17) G. S. T. L. 659 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 19-5-2018
GST-ARA-29/2017-18/B-35
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 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 MGST Act”] by JOTUN INDIA PRIVATE LIMITED, the applicant, seeking an advance ruling in respect of the following issues.
1. Whether marine paints supplied by the applicant, would be considered to be part of ship and accordingly be then classified under SI no 252 of Schedule I of Notification No 1/2017 of Central Tax (Rates) dated June 28, 2017?
A
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rized in Solvent based paints and Water based paints. One of the major supplies by Applicant are marine paints, Composition of such marine paint being manufactured by Applicant makes it suitable for ships during building stage and even during maintenance. Details of such products along with its description are enclosed as Annexure 4
* In the erstwhile Indirect Tax regime, Applicant has been discharging applicable Indirect taxes on supply of such paints and availing exemptions when granted under respective legislation. Since July 2017, new Indirect Tax regime – Goods and Service Tax (GST) has been introduced in India by way of introduction of following legislation:
* Central Goods and Service Tax Act, 2017 (CGST)
* State wise Goods and Service Tax Legislation (SGST)
* Integrated Goods and Service Tax Act, 2017 (IGST)
* With the introduction of GST, Applicant has analysed classification and applicability of CGST, SGST and IGST in light of new legislation. For classificatio
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ing 8907 i.e. part of ships. Since, marine paints supplied by Applicant are suitable for use by ships, Applicant wishes to understand Whether the said marine paints could get classifiable under Schedule I.
Accordingly, Applicant is making detailed submission herein below to demonstrate eligibility of marine paint to be classified under Schedule I and requests a ruling be pronounced in this regard.
A. Marine paints to qualify as part Ship in order to get covered under Schedule I of IGST Rate Notification liable to 5%
A1. In order to deliberate on the question being sought, it is pertinent to analyse the classification of marine paints supplied by Applicant in detail. Technical features of marine paints are relevant for such analysis.
A2. Accordingly, Applicant submits 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 op
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id notification, it has been specified that section notes, chapter notes and General explanatory notes mentioned under Customs Tariff Act, 1975 shall apply to the goods classified therein under GST.
* Since the notification refers to the classification of goods under The Customs Tariff Act, 1975, we have to refer to classification adopted therein.
CLASSIFICATION UNDER CUSTOMS TARIFF ACT
* As regards classification of the marine paints under Customs Tariff Act, it would be pertinent to refer to extract of description of goods falling under Customs Heading 3208:
Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically 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
* Thus 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 S
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Schedule II
12%
3
Schedule III
18%
4
Schedule IV
28%
5
Schedule V
3%
6
Schedule VI
0.25%
A4. As IGST Rate Notification directs to adopt classification in terms of Customs Tariff Act, 1975, Applicant has adopted classification of paints under heading 3208 to determine applicable rate. Entry number 20 of Schedule IV of IGST Rate Notification reads as under:
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 a non-aqueous medium; solutions as defined in Note 4 to this Chapter
However, marine paints are suitable for principally use of ships and hence, it is also pertinent to analyse Entry 252 to Schedule I of Notification No 1/2017 Integrated Tax (Rates) dated June 28, 2017 liable to 5% IGST:
Sr.No.
Chapter/Heading/ Sub-heading/ Tariff item
Description of Goods
252.
Any Chapter
Parts of
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along with its parts (covered under entry 252) would be taxed at the rate of 5%.
A5. Applicant wishes to draw your kind attention to the fact 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 5% IGST.
A6. 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 – CESTAT, MUMBAI wherein it was held that we also note that the recent Circular No. 839/16/06-CX dated 16-11-2006 issued by the Board has clarified that inasmuch as Notification No. 6/2002 exempts parts, falling under any Chapter used within factory of production for manufactur
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of the term 'parts of goods', could then be adopted from its meaning in common parlance. Consequently, we have referred to the definition of the term 'Part', legal jurisprudence on the term 'Parts / Components' under erstwhile Indirect Tax regime, the Merchant Shipping Act, 1958 and UK VAT Guidelines.
B.2 Meaning of 'PART'
* 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'.
B3. From the above, it could be understood that anything which is an integral element and is
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usive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976) or any other law for the time being in force.
Section 356Q(a) MS Act – Definition 'anti-fouling system'
“anti-fouling system” means a coating, paint, surface treatment, surface, or device that is used on a ship to control or prevent attachment of unwanted organisms
* Section 356R of MS Act – Control of Anti-fouling system
1. Every Indian ship and other ships which are not entitled to fly Indian flag but operating under the authority of India, shall comply with the requirements set forth in this Part, including the applicable standards and requirements as prescribed front time to time as well as effective measures to ensure that such ships comply with the requirements, as may be prescribed from time to time.
2. All other vessels to which this Part applies shall comply with requirements of the anti-fouling systems as prescribed from time to time.
* Section 356X of MS Act – Information regarding contraven
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des, and deck but not the masts, superstructure, rigging, engines, and other fittings
B5. Furthermore, if any Indian ship fails to comply with the provisions of this chapter, the Director – General or any officer authorised by him in his behalf can detain the ship until the causes of such contravention are removed or levy a penalty on such ship. Consequently, it could be construed that ships must have a layer of coating or paint on its hull, thereby making it very essential for a ship to operate and thus be marketable.
B6. Considering the fact that all ships are mandatorily required to apply paint makes it evident that paint is essential element for any ship to operate. Accordingly, such marine paint has to be considered as part of ship and should get covered under 5% IGST Rate schedule.
C. A product which is essential to complete the product and make it marketable then the same would construed as part
C1. In order to understand coverage of term 'parts', it is relevant
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article. Applying this test in the instant case, the plastic spools over which the adhesive plaster tapes are wrapped have to be considered as one of the component parts of the goods marketed, i.e., adhesive plaster tapes. It is not disputed that adhesive plaster tapes can be marketed only after wrapping them on plastic spools. Therefore, plastic spools are to be held component part of the adhesive plaster tapes, that is, the goods marketed. Hence plastic spools cease to be packing material.
C4. The Apex Court, in case of Collector of Central Excise, Calcutta-II Vs. Eastend Paper Industries Ltd. [1990] 77 STC 203 (SC) held that to be able to be marketed or to be marketable, it appears to us, in the light of facts in the appeals, that it was an essential requirement to be goods, to be wrapped in paper. 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.
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considered as 'part of that ship'
C8. Thus, it could be contended that marine paints so supplied for vessels, would be considered as 'Parts of vessel' and thus would fall under the ambit of entry 252 of Schedule I of the classification wherein tax would be levied at the rate of 5%.
D. If paint is considered as part of aeroplane helicopter then the same should be considered as part of ship
D1. Under erstwhile Central Excise regime, similar benefit was introduced for the parts (irrespective of their classification) of aeroplanes or helicopters required for manufacture or servicing of aeroplanes or helicopter Vide notification 6/2002 -Central Excise dated March 1, 2002. while deciding on whether 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, AHMED
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g similar analogy, paint when supplied for manufacture of ship should be considered as part of ship.
E. Under erstwhile Indirect Tax regime, Central Excise exemptions were granted to marine paints supplied to ship.
Hence. intention of legislators appears to provide indirect tax concession to this product.
E1. In order to evaluate whether marine paint would be eligible for lower rate of GST, it is also relevant to understand history of indirect tax rate and exemptions, if any, under erstwhile Indirect Tax regime.
E2. Under Central Excise Act, 1944, Notification 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 2002). Said notification inserted following entry for prescribing effective rate of excise for goods mentioned therein.
Sr. No.
Chapter or heading or sub-heading tariff item or of the First Schedule
Description of excisable goods
Rate
Condition No.
306C
Any
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all the products meant for use in manufacture of vessels. Keeping this in view, it can be contended that legislators would wish to continue extending such benefits to all products used in manufacture of vessel. Hence, paint which is meant for use in manufacture of vessel should fall within the purview of entry 252 of Schedule I of IGST rate schedule and would attract 5% IGST.
E5. The goods falling under chapter 8901 to 8907 are covered under schedule 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.
F.
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for the time being so specified.
b. Group 8 of Schedule 8 of Value Added Tax Act 1994
The supply of parts and equipment, of a kind ordinarily installed or incorporated in, and to be installed, or incorporated in,-
a. the propulsion, navigation or communication systems, or
b. the general structure,
of a qualifying ship or, as the Case may be, aircraft
c. VAT Notice 744C ships, aircraft and associated services published on July 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
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qualifying ship.
F4. Thus as per section 30(2) read along with Schedule 8 of VATA, supply of parts and equipment of installed or incorporated in the propulsion, navigation or communication systems or the general structure of a qualifying ship would be considered as zero-rated supplies and accordingly no tax would be liable thereon. However in order to avail the benefit of above provisions, it would be pertinent to identify what would 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.
F5. Thus from 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.
CONCLUSION
1. In our view, marine paints so supplied by applicant, would be c
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rudence it is said that anything which is required for making goods marketed or to be marketable, would be form component part of that end products and hence paints would form part of the ship.
6. In addition to the above, we have also scrutinized the concerned issue under UK VAT, wherein paints is mentioned under the list of 'Parts and equipments of ship' which are excluded from zero rated goods.
However in absence of any such specific provisions in India, it could be said that paints are 'parts of the ship' and therefore would fall under Sr No 252 of Schedule I of IGST Act 2017 and hence be taxed at 5%”
On the basis of the above, the questions as reproduced above have been raised.
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
“M/S. Jotun India Pvt. Ltd., GSTIN:- 27AABCj6665jZ6, who is assigned to this office under case allocation, has applied for advance ruling under section 97 of CGST/MGST Act, 2017
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hen Sh. Nitin S Shah, Advocate, duly authorized, appeared and made oral submissions for admission of application as per details in their written submissions.
During hearing, the jurisdictional officer, Sh. Rajesh Gaikwad, Dy.Commr., State GST, stated that they have made written submissions objecting to admission of their application stating that when there is a specific entry for any commodity the said commodity cannot be classified differently.
The application was admitted and during the Final Hearing on 11.04.2018, Sh. Nitin S Shah, Advocate, duly authorized, appeared and made oral and written submissions along with case laws. Ms Shweta Patni, Chartered Accountant was also present.
The jurisdictional officer, Sh. Rajesh Gaikwad, Dy, Commr., State GST, also appeared and orally reiterated that the goods were having a specific entry and should be classified accordingly.
05. OBSERVATIONS
We have perused the records on file and gone through the facts of the case and the submissions
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of Notification 1/2017 of Integrated Tax (Rates) dated 28.06.2017 and would be liable to IGST @ 5% as they are parts of goods of Headings 8901, 8902, 8904, 8905, 8906 and 8907.
Further we find that the jurisdictional officer, in his submissions has stated that under CTH-3208 and 3209 of the GST Tariff, there are specific entries for paints and varnishes and therefore the applicant's contention that marine paints be treated as parts of ship cannot be accepted.
From the above contentions of the applicant and the department, it is apparent that there is no dispute with regard to classification of the subject goods under CTH 3208 and 3209. The difference of opinion is only with respect to the claim of the applicant that the goods are parts of ship and therefore would be eligible for concessional rate of IGST @ 5% as given under Sr. No. 252 of Schedule -I of Notification No. 1/2017 of Integrated Tax (Rates), as discussed above.
To arrive at the correct position we need to examine all
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d to hulls of ships. They prevent barnacles and other marine organisms from adhering to the hulls of ships. Thus it is the contention of the applicant that such types of paints sold by them should be treated as parts of a ship.
First of all we refer to the exact body of the Sr.No. 252 of Notification No. 1/2017 of Integrated tax, the benefit of which the applicant is claiming.
Sl. 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'
We find that as per above details, the benefit of concessional rate of IGST @5% is available to parts of goods of headings 8901, 8902, 8904,8905,8906 and 8907.
Thus it is very apparent that parts of goods of Heading 8901, 8902, 8904, 8905, 8906 and 8907 are eligible for concessional rate of IGST @ 5%.
In view of the above, we first of all require to ascertain as to what are the goods that are covered under the above Tariff Headings. We find that thes
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ine as to what are “Parts”. We find that the word “Part/Parts” has not been defined in GST nor was it defined in Central Excise earlier. In view of this first we are required to understand the general meaning of the word 'Part/ Parts' which is of relevance to us in the present case.
We find that as per Cambridge English Dictionary:
Part as a noun – a separate piece of something or a piece that combines with other pieces to form the whole of something
One of the pieces that together form a machine or some type of equipment.
It has other meanings also in other context which are not of relevance in present context like:
-a single broadcast of a series of television or radio programme or Division of a story.
-one of two or more equal or almost equal measures of something etc.
Further, we also find the definition of 'Spare Part' as per Wikipedia
A spare part, spare, service part, repair part or replacement part is an interchangeable part that is kept in an inventory
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measures such as Walkie-talkie, Binoculars, Life Jackets, Lifeboats, etc. Though these are also to be compulsorily made available on a vessel and ship but cannot be taken to be parts of a ship as per general understanding but are rather additional equipments on a ship..
In addition to the above there are other essential items like furniture, fans, air-conditioners, television, etc which are very essential for comfort of officers and crew of the ship but do not come under essential parts or equipments of a vessel/ship.
In continuation of the same we find that the issue to be decided in the present case is whether marine paints can be considered as parts of a ship.
We find that the items that are discussed as essential parts of a ship/ vessel are such essential components of a vessel/ ship without which the ship would not be complete and would not exist. These are very integral for the functioning of the ship and can be separated from the ship for repair/replacement. There are various
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h other pieces to form the whole of something. In this regard we find that marine paints are in no way piece of ship that would in any way form the whole ship. They are just consumables for the essential parts of ship.
Similarly the second definition of part also defines 'part' as one of the pieces that together form a machine or some type of equipment. We find that marine paints are not covered in this definition also.
In the same way we find that marine paints are not covered within the definition of spare part also as given in discussions above.
The applicant has contended that marine paints are mandatorily required to be applied on all ships as per Merchant Shipping Act, 1958 and therefore should be considered as parts of ship. Just because it is mandatory, under some law, to be applied on ships, does not essentially make it, its part.
The applicant has claimed that under the erstwhile indirect tax regime, Central Excise exemptions were granted to marine paints supplied
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al Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction that such goods are cleared for the intended use.
In fact the said notification gave exemption to all raw materials and parts for use in the manufacture of certain specified ships/vessels, subject to actual user conditions.
While interpreting the issues like the one at hand, we may refer to certain judgements which throw light on the disputed issue.
In case of Saraswati Sugar Mills Vs Commissioner of Central Excise Civil Appeal No.5295 of 2003 decided on 2nd Aug 2011 Hon. Supreme Court of India = 2011 (8) TMI 4 – SUPREME COURT OF INDIA observed :
12. In order to determine whether a particular article is a component part of another article, the correct test would be to look both at the article which is said to be component part and the completed article and then come to a conclusion whether the first article is a component part of the whole or not. One must first look at the article
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made by this Court :-
“… paper core would also be constituent part of paper and would thus fall within the term “component parts” used in the Notification in so far as manufacture of paper in rolls is concerned. Paper core, however, cannot be said to be used in the manufacture of paper in sheets as component part. We are conscious that the relevant tariff item uses the word “paper” but since paper in rolls and paper in sheets are nothing but different forms of paper, both of them would be excisable goods as paper under the relevant tariff item.”
15. In Modi Rubber Ltd. v. Union of India, (1997) 7 SCC 13, = 1997 (8) TMI 75 – SUPREME COURT OF INDIA the appellant had set up tyre and tube manufacturing plant and imported various plants and machineries. While using the plants and machineries, PPLF (Polypropylene Liner Fabric) was used as a device in the form of liner components to various machinery units to protect the rubber-coated tyre fabric from atmospheric moisture a
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since the notification itself does not contain any definition of the expression.
In the State of Uttar Pradesh vs M/S. Kores (India) Ltd on 18 October, 1976, Equivalent citations: 1977 AIR 132, 1977 SCR (1) 837. = 1976 (10) TMI 131 – SUPREME COURT OF INDIA
In this case the appellant contended before the Hon SC that carbon paper does not lose its character as paper in spite of being subjected to chemical processes, and that ribbon is not an accessory but an essential part of the typewriter.
While dismissing the appeal Court held that “A word which is not defined in an enactment has to be understood in its popular and commercial sense with reference to the context in which it occurs. It has to be understood according to the well-established canon of construction in the sense in which persons dealing in and using the article understand it.”
The Hon. SC further observed that “Bearing in mind the ratio of the above mentioned decisions, it is quite clear that the mere fact that the wor
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tate of Mysore v. Kores (India) Ltd. 26 STC 87). = 1970 (3) TMI 126 – MYSORE HIGH COURT (1) where it was held:
“Whether a typewriter ribbon is a part of a typewriter is to be considered in the light of what is meant by a typewriter in the commercial sense. Typewriters are being sold in the market without the typewriter ribbons and therefore typewriter ribbon is not an essential part of a typewriter so as to attract tax as per entry 18 of the Second Schedule to the Mysore Sales Tax Act, 1957.”
Considering 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.
Thus we would be stretching the definition of 'part' greatly, if w
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