Partly allowed

AAAR/AP/01(GST)/2022 of M/s Bharat Dynamics Limited

GST AAAR20 Jan 2022AAAR/AP/01(GST)/2022

Case brief

AI extract

What is this about?

Appeal against Advance Ruling classifying Submarine Fired Decoy System at 18% GST. Appellate Authority held system is integral part of submarine, classifiable under Ch 8906, allowing 5% tax rate under Schedule I Entry 252.

What did the court decide?

Modified Advance Ruling holding SFDS classifiable as parts of submarine under Chapter 8906 attracting 5% GST under Entry No. 252.

AAAR/AP/01(GST)/2022 of M/s Bharat Dynamics Limited — GST and Indirect Tax | GST AAAR (2022)

¶1

BEFORE THE APPELLATE AUTHORITY FOR ADVANCE RULING for the State of Andhra Pradesh^(Goods and Service Tax)

¶2

(Offlce at O/o Chief Commissioner of State Tax, Govt. of A.P., D NO 5-56, Block B, R.K. Spring Valley Apartment, Bunder Road, Edupugallu, Vijayawada,

¶3

Andhra Pradesh - 521151)

¶4

Present:

¶5

sri suresh Kishnani (Member) (central Tax)

¶6

Sri S. Ravi Shankar Narayan (Member)^(State Tax)

¶7

The 20th day of.lanuary, 2022 Order /AAAR/AP/0 1^(csT ) / 2022

¶8

ameandaddress ppellant ofthe	/s.^{BharatDynamics Limited} Block,Autonagar,FakirTakya, ajuwaka,Visakhapatnam,Andhra radesh-530049
STIN	7AAACB788ON123
ofFormGST ateof	6.O3.202t
earing(Virtual)	t4.1.2.2021
uthorizedRepresentatives	riKrupasinduSatpathy^(DGM,Finance-BDL) riSivarajanKalyanaraman (Tax-Consultant)
urisdictionalAuthority	istantCommissioner (ST)Gajuwaka Lc!e,^{Vr_9qth?pq!!9q}

¶9

(Under Section 1O1 of the Central Goods and Servace Tax Act and the Andhra Pradesh Goods and service Tax Act).

¶10

At the outset, we would like to make it clear that the^provisions of both the CGST Act and the APGST 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^APGSTAct.

¶11

The^present appeal has been flled under section 100 of the Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017 Ihereinafter^{referred to as "the CGSTAct andAPGST Act"] by M/s. Bharat Dynamics} Limited (herein after referred to as the "Appellant") against the Advance Ruling No. AAR No.l UAPIGST 12021 dated lO.O2.2O2l issued by the Authority for Advance Ruling, Andhra Pradesh.

¶12

1, Background of the Case:

¶13

1.1 The appellant, Nl/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.

¶14

1.2 The clarification sought by the appellant relates to supplies to be^effected against a supply Order No. XXXXX from the^{Governmentof India, N4inistryof} Defence (!lOD), AAKANKSHA, New Delhi, lndia^{for supply of Submarine FiredDecoy}

¶15

¶16

System (hereinafter referred to as'SFDS,) along with associated services. The aforesaid supply shall be executed at the applicant,s unit in Andhra pradesh with principal place of business at Autonagar, Gajuwaka, Visakhapatnam, Andhra Pradesh.

¶17

1.3 The SFDS in question is a component proposed to be fltted to the submarines operated by the Indian Navy for protection/safety of the submarines against incoming torpedoes/missiles.

¶18

The Appellant had filed an application for Advance Ruling before the Authority for Advance Ruling on the following questions:

¶19

Whether the Submarine Fired Decoy System (SFDS) supplied by the applicant is classifiable as 'parts of submarine' under Chapter Heading 8906 and, therefore, attract a GST rate of five (5olo) by virtue of entry no. 252 of Schedule I in Notification No. 1/2017-lntegrated Tax (Rate) dated 28.07.2017 ?

¶20

The Authority for Advance Ruling. Andhra pradesh in its orders in AAR No.11lAPlGST/2O21 dated 10.O2.2O21 hetd:

¶21

"The proposed supply in question falls under Sl.No.434 under Chapter/Heading/Subheading/ Tariff Item 9306 under Schedule III of Notincation No. 1/2017 - Central Tax (Rate) dt 2a.06.2017 attracting tax rate of 18o/o as amended from time to time".

¶22

Aggrieved by the impugned order dated tO.O2.2O2t, the appellant has filed the present appeal, on the following grounds.

¶23

2, crounds of Appeal:

¶24

The Appellant prefers the present appeal before this Authority on the following grounds, amongst others, each of which is taken in the alternative and without prejudice to each other:

¶25

2,1 The appellant claims that the Ld. Designated authority passed a non speaking order, without consadering the submissions and declarations submitted by email sent on 07.07.2027 claiming 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.

¶26

The appellant claims that appropriate justification for usage of the classification rule has not been provided by the Ld, Designated authority.

¶27

2,2 The appellant submits that SFD System qualifies as a 'part.of Submarine on the grounds mentioned below:

¶28

¶29

Usage of SFDS system in Subma rine/Warship:

¶30

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 inteqral part of the warship,

¶31

In order to protect submarines against such enemy attacks using torpedoes, submarines come equipped with a decoy system, which deploys stationary Jammers & Decoys during the course of^{pre-determined} evasive counter manoeuvres, to maximize the submarine survivability against modern torpedo attacks, thus making SFDS a very important part of submarines.

¶32

Submarine Fired Decoy System^(SFDS) is an integral^part of Advanced Torpedo Defense System (ATDS) suit, which is effective against modern and vintage torpedo fired against a ship or submarine.

¶33

Submarines are warships that can travel both above and below the surface of the sea. Apart from surveillance, these are usually built and used for warfare and armed with torpedoes or guided missiles. A submarine is equipped with a torpedo launching system as well as a decoy system.

¶34

As mentioned in the above^paras, certain essential components are required in a warship to protect the warship and the defence forces. Therefore, in case of warships, systems/ parts required for protecting the warship are an essential and requisite system of warship. The appellant submits that one such^part is the decoy system (SFDS) which is to be integrally incorporated in the submarines i.e., warships for effective functioning of the submarine.

¶35

SFDS launches decoys as an anti-torpedo countermeasure^{systemfor submarines,} designed to counter the attacks of acoustic^{homing torpedoes,active/passive,} liqhtweight and heavyweight, wire and non- wire-^guided, by deploying the expendable, light-weight, high-performance stationary^jammers and stationary decoys. An SFDS encompasses Launcher Assembly, Jammers and Decoys Reaction Managed Firing (R[4F)^panel.

¶36

The Jammer part of SFDS is an underwater broadband noase^generator that^is launched in the water by means of a dedicated system installed on^onboard submarines. The unit is an expendable device to be launched^{againstan attacking} torpedo in order to mask the submarine echo by increasing the^{noiselevel received} by the torpedo acoustic homing system.

¶37

The decoy is an underwater echo repeater. It is an expendable device^launched against an attacking torpedo in order to simulate^{false target echoes, seducingthe} torpedo acoustic system. When the appellant refers to a decoy system,^{the decoy} system is an anti-torpedo countermeasure system^{for submarines. Thus,theSFDSis} an amportant^part of the submarine.

¶38

2,3 The appellant while^quoting the relevant^{provisions of the GST law, under the} said Schedule-I of the Rate Notification^{01/2017 CentralTax (Rate) dt: 28.06.2017} refers to serial no. 246 to 251 wherein^{given group} of items falling under chapter 89

¶39

¶40

are^placed in the 5olo cateqory and then Entry^{no.252 i.e.,parts of headings of 8901,} 8902, 8904, 8906, 8907 as^presented below:

¶41

S.No.	Chapt€r/Headi Sub-heading/T n9l 'ariff	DescriptionofGoods
246	901	CruiseShips, Excursion boats,ferryboats, cargo ships, barges andsamilar vesselsfor the transportation of^personsor^goods
247	1902	Fishingvessels;factoryships andother vesselsforprocessingor^preservingfishery products
244	]904
249		90 5
2s0	906	Other vessels, including warshipsand lifeboatsother than rowingboats
251	907	Otherfloating structures (for example, rafts, tanks,cofferdams,landing stages,buoys and beacons)
252	Chapter	Partsofgoodsofheadings8901, 8902,8904, 8905,8906,8907

¶42

2.4 It is pertinent to note that although entry no. 252 under the first schedule of the Notification uses the expression 'parts of goods of headings.... .8906, neither the schedule nor the GST Act define the term 'parts of goods'. Therefore, reliance needs to be placed on the case laws under the erstwhile regime and dictionary meanings to understand the true purport of the term 'parts of goods,.

¶43

The dictionary meanings of the term 'parts'are as below;

¶44

"Cambridge Dictionary: 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.,,

¶45

Basis the above general dictionary meanings, it can be inferred that anything can be considered as a part of other if it forms an essential component or assists in performing a functionality of the main product.

¶46

Chapter 89 does not have a separate heading for parts and accessories, The headings in the chapter, from 8901 to 8908, do not include sub-heading/items for 'parts and accessories'.ln the absence of separate heading of classification for parts

¶47

¶48

of ships, the expression 'any chapter' in Column 2 of the Schedule assumes significance.

¶49

The appellant submits that the column 2 of the Schedules in the^{CGST Rate} Notification refers to^{"Chapter/Heading/Sub-heading/Tariffitem". Whereas for every} Sl.No, the respective chapter/Heading number has been^mentioned, in^respectof Sl.No.252 of the said notification, in the said column² the^{expression"Any chapter"} is used which signifies that irrespective of classification of the^particular product/item/goods, the rate of tax applicable would be 5olo only.

¶50

It is to be noted here that Entry No.252 referred supra covers^parts of^{goods of} headings 8901,8902,8904,8905,8906,8907. There is no^{questionin the current} case on the fact and understanding that the submarines are classified under 8906. Thus, the appellant wishes to submit that the^parts of such^goods are eligible to be covered under Entry no.252 referred above. SFDS, being a^part of^{submarines,is} covered under such entry and hence liable to GST^at the^{rate of 59o.}

¶51

2.5 The appellant submits that submarine fired Decoy Systems^(SFDS) is required to protect submarines against enemy attacks using torpedoes. If a warship is attacked by an enemy torpedo, it loses it capacity to function to^{its potential. Thus, the very} existence or functionality of a warship will be^jeopardized if^{it is notprotected} against enemy attack. One such^protection is to equip the^{warshipwith a counter} measure to an attacking torpedo and this counter measuTe is SFDS.^{This establishes} that the SFDS is an integral and essential system of a warship^{in the} absence^of which the warship's capability is compromised. Therefore, SFDS is an essential^part of the submarines and hence^qualifies to be "part of Submarines"^{and,therefore,} attract GST at the rate of 5olo vide entry no.252^{of Schedule} I^{of the CGSTRate} Notification.

¶52

2,6 Reference can be drawn in case of GE Industrial lndia^Ltd, v.^CCE &^CE, Bangalore-1 2019⁽⁵⁾ TMI 205 under the erstwhile^{laws, wherein} it^{has beenheld} that once the^goods are supplied for specified use^{and have beencertifiedto be so} used by the Naval Authorities, the exemption is applicable^arrespective of^the classification of^goods.

¶53

The appellant submits that all the systems^proposed to^{be suppliedby them are} meant for use in warships, vessels and submarines^{as evidencedby} the^supply orders. Hence, irrespective of the classification of the subject^{goods,the rate of tax} applicable would be 5olo in terms of Sl.No.^{252 of scheduleI.}

¶54

2.7 ludicial^precedents under the^{pre-GST regime can also assist in understanding} the meaning of the term 'part' of a^{goods. ln G.S. Auto International Limited v.}

¶55

¶56

collectorofcentralExcise,chandigarh,2oo3-Tlol.92-sc.cx,thesupremecourt observed as below:

¶57

"For the purposes of classification^{under chapterHeading87 08' the test to be} applied is^{whetherthe goodsare suitable for use solely or primarily with articles of} chapter heading^{Nos. 87.01to 87.05 if theanswer is in the affirmative' the goods be} classifiable^{under chapterheading 87.08 but if the answeris in the negative' they} wouldhavetobectassifiedunderchapterheadingno.T3.TS.Havingregardtothe finding that the^goods in^{questioncannotbutbe regardedas parts of automobiles'it} has to be held^{that they are suitabte for useprimarilywitharticles of chapter} heading nos 87.01^{to 87,05. it follows that the goodsin question cannot be treated} as fallinq under^{chapter headingno. 73.18 and that they canproperly be classified} under chapter^{headingno. 87.09 of the CentralExciseTariff Act, 1985 "}

¶58

2,8 Having observed^{thus, the SupremeCourt held the parts in questionto be} classifiable as^{parts of automobile.Accordingto the Supreme Court'the test to be} applied whether^{the goodsare suitable for usesolelyor primarily with articles of the} said chapter. If the^{answer to this questionis in the affirmative,the goodswill be} classifiable as^part of^{anygood, In the instant case, SFDS is solely or primarily} useful in the warships/submarines,^{and hencethesameought to be classified under} s.no. 252 of^5olo schedule^{of theNotification.}

¶59

2.g In CCE, Chennai v.^{BesmakComponents (P) Ltd , 2007 (3) TMI 50 GE,the} Chennai Bench of the^{Hon'bleCESTAT had to decide upon theclassificationof plastic} parts used in automobiles. Following the decision^{in GS Auto International Limitedon} ascertaining the^plastic aoods^{in question designed for use in motoT vehicles, the} Tribunal sustained the classification of^{these goods as parts of motorvehiclesand} not parts of general use. The relevant extract^{of thedecisionis as hereunder:} "6. We have carefully considered the facts of the case and^{the groundsof appeal.} The first two categories of^goods are^{partsof gadgets used in cars. As persection} note 1 (k) to Section XVI, as^{parts falling under Section XVU. In the instant case} they are classifiabte as automobile^{parts of chapter87. Thethird category of goods} is designed for use in automobiles and^{is of high degree of precision'They have to} be classified under the related^{heading for partsof vehiclesetc. of section XV .in} this connection we also rely on the^{observation of the apex courtin thecaseof G.S.} Auto International Ltd. v. ccE, Chandigarh^{reported in MANU/SC/oo31/2003,} wherein the apex Couft had observed as follows....."

¶60

2.10 Courts/Tribunals have consistently^reiterated the^{principles in the aforesaid} decisions. Therefore, despite not being case laws of^{the GST regime, the} principles/ratio laid down thereunder should be adopted for the^{purpose of} classification of SFDS in^question.

¶61

¶62

2.11The SFDS system in question is designed for use in the submarines. 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.The system in question does not have any independent use other than in a submarine, is by itself should be a sulfcient reason for it to be classifiable as'part' of a submarine,

¶63

2.12 The role of SFDS in safeguarding the submarines from incoming torpedo attacks is also well acknowledged in the market. The defense market recognazes, which is the relevant market, recognizes the SFDS as a system necessary for antitorpedo attacks. The market identity of the SFDS as a system connected to a submarine for anti-torpedo measures supports the argument of the appellant that SFDS^qualifies as^part of a submarine.

¶64

Basis the above, the appellant submits that the SFDS system qualifies as'parts of submarine'and therefore, the proposed supply ought to attract a tax rate of 5olo.

¶65

2.13 The appellant places reliance on the case of Mehra Brothers v. Joint Commercial Officer 1990 (11) TMI 144. The Apex court in this case, held that a part or accessory need not necessarily mean an item which is essential for the effective use of a vehicle but also would include any item which adds to the comfort or enjoyment of the vehicle.

¶66

Further, the appellant submits that each of the systems are essential for the overall functioning of the warships and submarines and therefore the expression "parts" in the subject entry of the Notification(s) should be construed to include all such systems / assemblies.

¶67

2.14 The appellant submitted that in view of the^{judicial pronouncements,} which though have been rendered in the context of Central Excise law, the fact that they enumerated the scope of'part' of automobiles, which is broadly the subject matter in this application, it is submitted that the understanding of the appellant that the systems attract 5olo GST only is appropriate.

¶68

The appellant further submitted that S.No. 252 of Schedule I of the GST Rate Notification is applicable so long as the^goods are used in warships, vessels and submarines, whether for construction or repair or replacements.

¶69

2.15 It was held by the Maharashtra Appellate Authority^{for Advance Rulingin the} case of A.S.Moloobhoy Pvt Ltd. that

¶70

"35. we aqree with the contention of the appellant that if EPIRB which is a critical element of GMDSS is classified as^part of the ship under SR.no.252 then there^{is no} reason to exclude SART, NAWEX and AIS from it.

¶71

GMDSS includes the following systems:(a) Communicationequipment (b) Positioning and localization system

¶72

¶73

¶74

EPIRB on SART are a part of the positioning and localization system and NAVITEX is a part of maritime and safety information."

¶75

It is submitted that even in appellant's case the purpose of warship would get defeated if the safety of warships is not kept in mind. Hence, SFD system is an integral part of the warships,

¶76

3. Additional Submissions:

¶77

The appellant submits that the present appeal has been filed against the order issued vide ll/APlGSfl2O2l dt 10.02.2021 by the Andhra Pradesh Advance Ruling Authority. In this regard, the appellant was granted a personal hearing dated 29.O7.2021 through Virtual mode. The appellant reiterated various grounds and submissions made vide the appeal memorandum submitted before the Hon'ble AAAR followed by the additional submissions attached vide email dated 29.07.2021 (date of personal hearing).

¶78

During the said hearing the then Hon'ble AAAR bench had requested the appellant to submit a letter describing the key functionalities of the SFDS and also a clarification in relation to the supply of Jammer & Decoys under the subject supply order. The appellant had submitted the said letter to the Hon'ble AAAR on 04.08.2021.

¶79

In addition to the appeal memorandum and the additional submissions made before the Hon'ble AAAR during the personal hearing scheduled on 29.07.2021, the Appellant presented the recent developments as below:

¶80

Inspection note for supply of submarine fired decoy systems (SFDS)

¶81

3.1. The appellant submitted that, the Factory Acceptance Trial (FAT) for SFDS has been conducted in November 2027 and an Inspection Note and the Certificate of Acceptance has been issued by the Ministry of Defence to be supplied under the subject order. The inspection note was issued by appropriate authortty designated by Ministry of Defence.

¶82

3.2. With regard to requirement of the test, the appellant submitted that the Factory Acceptance Trials (FAT) of the product was conducted at the supplier,s premises in order to check their compliance with the specifications. The purpose of FAT is to ensure that all equipment to be delivered is fully functional and all faults have been eliminated prior to dispatch and installation. Based on the FAT report, the Inspection Note will be submitted by the Inspection Agency to the appellant for onward dispatch of material to the consignee (Ministry of Defence).

¶83

¶84

3,3. Therefore, the appellant further submitted that the SFDS is an integral^part of the warships and the FAT is carried out to ensure that it complies with all the necessary technical specifications, A copy of the Certificate of Acceptance and the Inspection Note were submitted.

¶85

3.4. The appellant^placed reliance on the below rulings wherein it was held that any system/sub-system or article or^product, that is fitted to the ship or boat or a floating structure becomes a part or accessory of the said ship, irrespective of its classification and merits classification under sl.no.252 of the Schedule I of Notification No.U2017 Central Tax (Rate) dt:28.06.2017.

¶86

Advance Rulings	Parts involved	RelevantPara
Bharat Limited Electronics [201s^(2e)	ascolor Systemssuch tacticaldisplaysystem,	(c)Submarines Warshipsarerequired
G.S.T.L. 178(A.A.R.	Radar system (for	to beflttedwith
-GSr)l	surveillance andthreatalert,	certainsystems/sub-
	Navigationandattack,	systemssuchas
	weather surveillance),Missile system,ElectroOpticalfire controlsystem,optical director system,etc.	radar, sonaretc meantfor"OnBoard Ships"oftheIndian Navy.Thesesystems are meantfor warships, more specificallywarships. Without these systems,thewarshaPs cannotfunctionin required,proper& eFfective manner, Therefore,itcanbe consideredthatthese systemsareessential parts/accessoriesof thewarships.
Engineering Pvt.Ltd (26) Alekton Industries [²⁰¹⁹	Triplescrew partsused application, pumpsandits formarine i.e., onboard	rubrication&Ecrew Pumpstobetreated aspartsofvessels/
(AAR G.S.T,1,143	vesselsand warships	warships oftheIndian
GST)]	suppliedtoIndian Navy.	Navy. Lubrication&screw pumpssuppliedfor

¶87

¶88

		useinwarshipsshall
		attractGSTatthe rateof5oloasPer entryatsl.no. 252 of scheduleI of Notification No.01/2017CT (Rate).
3 Diese	Engine,Gear Boxand	Engines,GearBox&
EngineeringPVtLtd	Generator	Generatoraretobe
[2019^(26)G.s.r.L. 506^(AAARGST)]		treatedaspartsof ships/vesselsandto beclassifiedunder sl.no.252of the Notification no OU20l7-CT⁽Rate) when suppliedtoship buildingcompaniesor IndianNavyforusein manufactureofships vessels boatsetc.
4 Exide Industries	SubmarineBatteries,Spare	Batteriesbetreated
Limited(2o2t(9)	parts &interconnectinglinks	as keyparts&
TMr909(AAR-		specificallydesigned
lYaharashtra)		andmanufacturedfor useonlyinwarships moreparticularlyin submarines. Batteriessupplied exclusivelyand directlytothelndian Navyforuseinthe
		manufactureof
		submarinestobe classifiedunder
		Sl.No.252ofthe
		Notificationno.
		1/2017-CT(Rate).
5 Man Energy Solutions	Two stroke&Fourstroke	llarineenginestobe
IndiaPrivateLimited	Marinedieselenginesand	consideredas parts of
2021(8)TN,II49	partsthereof	the ships/vessels
(AAAR-Maharashtra)		without whichthe

¶89

	11	iniplveisei sail. lYarinediesel tobeclassifie sl.no.252o Notiflcation no -CT(Rate suppliedto buildingcomp IndianNavyfo manufacture o vessels, boats	iannoi engines dunder f the .Ll2017 ),when ship anies or rusein fships, etc.
South Indian	MarineEngines&itsparts	Themarine	engine
Federation of	thereof	anditsspa	reparts
FishermenSocaeties		suppliedfor	usein
(2021(7)TMrs33		vesselsshal	lattract
(AAAR-Kerala)		GSTat therat	eof5qo
		as pere SL.No.252ofs	ntryat chedule
		Iof Not	ification
		No.1/2017	Central
		Tax(Rate).

¶90

In view of the grounds of appeal and the additional submissions, the appellant reiterated that the submarine Fired Decoy System supplied by the appellant to the Ministry of Defence is classifiable as^parts of submarine falling under heading chapter Heading 8906 and therefore, attract a GST rate of Five^(50/o) by virtue of entry no 252 of Schedule I in CGST Rate Notification.

¶91

3.4.1 SFDS is an essential^part of a warship: The appellant submitted^{that thegoods} in^question i.e., SFDS are integral and essential^part of a warship.

¶92

A reterence can also be made to the HSN explanatory notes of the^{Tariff Heading} 8906, where the warships are classified, which states that^{"This headingincludes} Warships of all kinds including ships designed for^warfare, fitted with^various offensive and defensive weapons and incorporating^{protective shieldsagainst} projectiles (e.g., armour-platin9, or multiple watertight bulkheads), or with underwater devices^{(anti-magneticm} ine-detectors).^{They are also generallyfitted} with detection and listening devices such as radar, sonar,^{infra-red detection} apparatus and scrambling equipment for^{radio transmissions".The said tariff} heading also includes submarines which are used as^Warships.

¶93

3,4.2 Classification under Central^Exciselaw:

¶94

The appellant submitted that even under the^{CentralExcise Regime and the} customs, whenever the exemption was^provided to^goods meant for ships, etc^falling

¶95

¶96

under chapter 89 either for manufacture of ships or for repairs or for specified purposes such as under by lndian Navy, such exemption has been provided to all the goods falling under any chapter. Thus, the intention was to exempt all the goods meant for ships falling under chapter 89.

¶97

3.4.3 In the regard, the appellant submitted that they have been claiming exemption on the supply of torpedo decoy system to the Naval Authorities for use in the construction of the warships under the Notification No.64l95CE dated 16.03.1995 as amended by Notification No.2512002 - CE dated 11.O4.2002 which was also certified by the Rear Admiral, Chief Technical Officer. The said exemption was never questioned or challenged under the earlier regime. The extract of the Notification and a sample invoice issued along with the certiRcate from Headquarters of Western Naval Command were submitted.

¶98

Exemption has been allowed based on the certificate for Naval Officer in the following cases:

¶99

GE Industrial India Ltd 2016 (1) Tl'41 1138 - CESTAT Bangalore L3 communications India Pvt Ltd 2019 (5) TN,ll 205- CESTAT Bangalore.

¶100

3,5. The appellant had filed the following additional submissions on 04.08.2021 with reference to the clarification sought by this authority at the time of Virtual Hearing regarding the scope of the contract and the functionality of the SFDS system:

¶101

3.5.1. The SFDS system is permanently fitted on the designated space of the submarine for fitment of the system. The said system is having life equivalent to the submarine and overhauled/maintained periodically. Earlier supplied similar systems to the Indian Navy are being maintained at monthly routine check-up and overhauling.

¶102

3.5.2. The SFDS consists of following sub-systems:

¶103

a) Launching system: Mounted externally on the pressure hull of the submarine and below the submarine superstructure.

¶104

b) Control Panel: A man machine interface fitted in CIC room of submarine which controls the launching of the Decoys and lammers.

¶105

c) lammers/Decoys: Fired from the launching system and not recoverable, i.e., expendable/consumable.

¶106

3.5.3. Clarification with regards to supply order No.XXXXX:

¶107

The order is for supply of the SFDS System (including the launching system and control panel, interface and loading platform etc.), while lammers and Decoys are not part of the supplies under this supply order, Jammers and Decoys are

¶108

expendable devaces and are generally supplied against separate orders from Indian Navy.

¶109

3.5.4. In view of the grounds of appeal and the additional submissions, the appellant reiterates that the submarine Fired Decoy System (SFDS) supplied by the appellant to the Manistry of Defence is classifiable as^parts of submarine falling under heading chapter Heading 8906 and, therefore, attract a GST rate of (50/o) by virtue of entry No.252 of Schedule I in CGST Rate Notification.

¶110

4. virtual Hearing:

¶111

The proceedings of Hearing were conducted through video conference on 14th December 2021, fot which the authorized representatives, Sri Krupasindu Satpathy, DG14 - Finance, BDL and Sri Sivarajan Kalyanaraman, Tax-Consultant attended and presented f urther additional submissions.

¶112

5. Discussion and Findings;

¶113

We have gone through the entire records of the appeal, facts of the case, and also considered the written and oral submissions made at length by the appellant in light of the Ruling^pronounced by the AAR.

¶114

It is observed that the main issue to be decided is the classification and the relevant HSN code of the^proposed supply of^goods i,e.,the Submarine Fired Decoy System (SFDS) supplied by the appellant.

¶115

It is the contention of the appellant that the^proposed supply of Submarine Fired Decoy System (SFDS) is classifiable as'parts of submarine' under Chapter Heading 8906 and, therefore, attract a GST rate of five^(5olo) by virtue of entry no. 252 of Schedule I in Notification No. 1/2017-Integ rated Tax^(Rate) dated 28.07.2017. But the lower authority has taken up a different view classifying itunder Sl.No.434 under Chapter/Heading/Sub-heading/ Tarlff Item 9306 under Schedule III of Notification No. 1/2017 - Central Tax (Rate) dt: 28.06.201,7 attracting tax rate of 18qo.

¶116

Before we consider the key details of the SFDS system, that is supposed to be fit into the submarine, 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^{basicallyusedfor} 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.

¶117

further j;ubmitted that, there is a designated space allocatedⁱⁿ "TFe. -4ppellant the submarine foJ_ the fitrpent of the SFDS system and it is^permanently fittedⁱⁿ

¶118

¶119

that space. The said system^{has life equivalentto the submarineand} overhauled/maintained^{periodically.}

¶120

Moreover, the SFDS system in^{question is tailor made/customizedfor use in the} submarines by the Indian^{Navy.Apartfrom their usage in a submarine for} countering torpedoes,^{it does not have any independent use for it to be soldin the} market. Thus it deserves^{to be classifiable as'part'of a submarine.}

¶121

Even the defence market^{recognizes theSFDS as a system necessary for anti-} torpedo attacks. The^{market identityof theSFDSas a system connectedtoa} submarine for anti-torpedo^{measuresqualifiesthe argument that it is'part of} submarine' in commercial^{parlance too.}

¶122

From the above and as^{per the detailed write up on the usageof SFDS in the Appeal} (vide paras 10 to 17), it appears that, SFDS^{is a defenseMechanismand without} which the very existence of the^{submarine is at stake. This in itself is an irrevocable} proof/evidence that this is an essential^part of^{thesaid submarine.}

¶123

Similarly, in case of^{Bharat Electronics Limited} [2019^{(29) G.S.T.1 178 (A'AR -} GST)], the systems^{like "color tactical displaysystem,Radarsystem,Electro Optical} fire control system, optical director^{system", etc, are ruled as'parts of submarine'.} Now in the^present case, SFDS^{system is a similar system,as is in the case of} Bharat Electronics Ltd. Further,^{following the spirit of the advancerulings} pronounced by various Advance Ruling Authorities^(on which^{the appellantplaced} reliance), we differ with the rulinq of the^{lowerAuthoritythat,SFDS is not a part of} 'submarine', but an additional feature that falls under the^{categoryof 'armsand} ammunition"

¶124

It is our considered view that SFDS is a^part of submarine falling under^Section xVlI Chapter 8906 of the Customs Tariff Act, 1975. In light of the above findings, the following order is^passed.

¶125

ORDER

¶126

We differ with the ruling of the Advance Ruling Authority and^{hereby modify the} same and hold that the SFDS is classifiable as^'parts of^{Submarine'fallingunder} Chapter 8906 and consequently attract a GST rate of five^{(5) percent,} by^virtueof entry No.252 of Schedule I in Notification No.72l2ol7 - Central^{Tax (Rate)Dated} 24.06.2017.

¶127

Sd/-Suresh Kishnani Sd/- S. Ravi Shankar Narayan Chief Commassioner^(Central Tax) Chief Commissioner^(State Tax) 14ember 14e m ber //^{t.c.f .b.o} ,. _ .Y<2a Deputy Commissioner (ST) DE|UTY COMMISSIOiIEi^(sl) O o, chilt Ca milsionar al Slalr ' t, ---./L--^{Govarnmnr.t A,t. vir.y.w.a.} P

¶128

¶129

¶130

1. M/s. Bharat Dynamics Limited, G Block, Autonagar, Fakir Takya, Gajuwaka, Visakhapatnam, Andhra Pradesh-5 30049⁽ By Registered Post).

¶131

Copy to

¶132

The Assistant Commissioner of State Tax, Gajuwaka Circle, Visakhapatnam Division. (By Registered Post)

¶133

2, The Superintendent, Central Tax, CGST Sheelanagar Range, Visakhapatnam Division, (By Registered Post)

¶134

Copy submitted to

¶135

The Chief Commissioner (State Tax), O/o Chief Commissioner of State Tax, Eedupugallu, Vijayawada, (A.P).

¶136

The Chief Commissioner^(central Tax), o/o Chief commissioner of central Tax & Customs, Visakhapatnam Zone, GST Bhavan, Port area, Visakhapatnam 530035( By Registered Post).

AAAR/AP/01(GST)/2022 of M/s Bharat Dynamics Limited

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AAAR/AP/01(GST)/2022 of M/s Bharat Dynamics Limited

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