In re Parker Hannifin India Pvt Ltd, (GST AAAR Karnataka)
The appellate authority for advance ruling uphold the ruling passed under section 98(4) of the CGST Act 2017 vide NO. KAR ADRG 54/2019 dated 19-09-2019 i.e. Contention of the appeallant is dismissed on all accounts.
Filters manufactured by the Appellant solely and principally for use by the Indian Railways and supplied directly to the Indian Railways are classifiable under Chapter Heading 84.21 of the Customs Tariff. The classification of the subject goods will not change if the same are supplied to a distributor instead of Indian Railways and the distributor in turn affects the supply to the Indian Railways.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, KARNATAKA
PROCEEDINGS
(Under Section 101 of the CGST Act, 2017 and the KGST Act, 2017)
At the outset, we would like to make it clear that the provisions of both the Central Goods and Services Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act, 2017 and KGST Act, 2017) 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 corresponding similar provisions under the KGST Act.
The present appeal has been filed under Section 100 of the CGST Act, 2017 and the KGST Act, 2017 by M/s Parker Hannifin India Pvt Ltd, Plot No 320 P2, Near APC Circle, Bommasandra Jigani Link Road, Industrial Area, Jigani Hobli, Anekal Taluk, Karnataka 560105 (hereinafter referred to as ‘Appellant’) against the Advance Ruling No KAR ADRG 54/2019 dated 19.09.2019 pronounced by the Karnataka Authority for Advance Ruling.
Brief facts of the case:
1. Parker Hannifin India Pvt. Ltd. is engaged in the manufacture of oil/ fuel/ air filters for various industrial sectors such as Railways, automobiles etc. One of the products manufactured by the Appellant is oil/ fuel/ air filters whichare tailor-made for the Indian Railways based on the specifications provided by the Indian Railways. In certain cases, the purchase order for the filters is placed on the Appellant by an intermediary who may then further supply the same to the Indian Railways.
2. The Appellant sought an advance ruling before the Karnataka Authority for Advance Ruling in respect of the following questions:
a) Whether filters manufactured solely and principally for use by / in Indian Railways and supplied directly to Indian Railways are classifiable under HSN Heading 8421 or under HSN Heading 8607 of the Customs Tariff?
b) Whether the aforementioned classification of filter will change if the identical goods are supplied to a distributor instead of Indian Railways directly, and the distributor in turn effects supply to Indian Railways?
3. The Karnataka Authority for Advance Ruling vide its order No KAR ADRG 54/2019 dated 19th September 2019 examined the issue in the light of the Section Notes to Section XVI and XVII and upon applying the rules of interpretation in the Section Notes, held that the Filters are classifiable under HSN Heading 8421 and that the classification of the goods shall not alter on account of supply by distributor to Railways.
4. Being aggrieved by the above order of the Karnataka Authority for Advance Ruling, the Appellant has preferred this appeal before us on the following grounds:
4.1. They submitted that the AAR has ignored the directions contained in Circular no. 17/90-CX.4 dated 9 July 1990.The said circular refers to the discussions that took place in the South Zone Tariff-cum-General Conference of Collectors held in the year 1990, wherein in the context of certain transmission elements, it was clarified that where goods have been specifically designed for use with vehicles of Section XVII, they would be covered as parts of vehicles under the appropriate Headings 8607 or 8708 or 8714. Applying the analogy to the Subject Filters, the Appellant submits that since these goods have been specifically designed for use in railway locomotives of Section XVII, they would be appropriately covered under Heading 86.07; that Circulars issued by the Board are binding on the revenue authorities. This has been emphasized time and time again by the Supreme Court in various decisions, including in State of Kerala vs. Kurian Abraham Private Limited [2008 (224) ELT 354 (SC)]. The Appellant further submits that the AAR, in the Impugned Advance Ruling, has not discussed the Circular and the directions flowing from it.
4.2. They also submitted that explanation (iii) to Notification no. 1/2017-Central Tax (Rate) dated 28 June 2017, provides for classification of goods in terms of the First Schedule of the Customs Tariff Act, 1975 (“hereinafter referred to as “CTA”). Further, by way of explanation (iv) to the said notification, it has been clarified that the rules for the interpretation of the First Schedule to the CTA, including the Section and Chapter Notes and the General Explanatory Notes, shall apply for the purpose of classification under GST. It is also submitted that erstwhile Central Excise Tariff (“hereinafter referred to as “CET”) was aligned with the Customs Tariff and that there was no difference in the respective description of Tariffs entries i.e. Heading 84.21 and Heading 86.07 under the CTA and CET, or any Section or Chapter Notes applicable thereto. Thus, classification interpretation provided under the Circular under the erstwhile CET remains equally applicable under the GST.
4.3. The Appellant reiterated that the Subject Filters are manufactured strictly as per the designs provided by the Indian Railways; that the filters are meant either for fuel-based locomotives or those which are electrically operated. The manufacturing process for the subject filters is based upon design and specification received from the Indian Railways; that they are customized for form, fitment and function, and consequently cannot be used by any other entity. They relied on Section Note 3 to Section XVII of the First Schedule to the CTA which deals with Vehicles, Aircraft. Vessels and Associated Transport Equipment, wherein it is clear that an article cannot be classified as a part of an article covered under Section XVII (Chapters 86 to 88), unless the same is designed to be used ‘solely’ or ‘principally’ for articles of chapters falling under the said Section; that all other articles, being ‘parts’ or ‘accessories’ would merit classification under other chapters of the tariff, but not in Section XVII (Chapters 86 to 88).
4.4. The Appellant referred to the Harmonized System of Nomenclature (hereinafter referred to as “HSN”) Explanatory Notes to Section XVII to argue that in case a part appears to prima fade fall under one or more Sections and also under Section XVII, the final classification is to be determined based on its principal use. Therefore, the subject filters, being designed to be used solely and principally for locomotives falling under Chapter 86, satisfy the test of Section Note 3 to Section XVII, and are thus required to be classified under the said Chapter itself, specifically under Heading 86.07 covering Parts of Railway Locomotives. This is notwithstanding the fact that the subject filters may have a prima fade probable classification elsewhere in the tariff. The Appellant submitted that the AAR has erred by not according primacy to Section Note 3 of Section XVII and consequently not classifying the Subject Filters according to their sole or principal use.
4.5. The Appellant submitted that the proposition that goods meant solely or principally for use in railway locomotives are to be classified under Chapter 86, specifically under Heading 86.07 as Parts of Railway Locomotives, has been affirmed time and time again by numerous Tribunals. The Appellant submits that Tribunals have consistently held that in case an article, being a part of railway locomotive, appears to be prima facie covered under any other heading of the tariff, the test of ‘sole or principal use’ is to be applied and classification of the said article is to be made under Chapter 86, specifically under Heading 86.07. The Appellant relied upon the decision of the CESTATin the case ofRail Tech vs. Commissioner of Central Excise Chandigarh[2000 (120) E.L.T. 393 (Tribunal)], the facts of which are identical to the present case. In the said case, the CESTAT held that the aluminum doors and windows manufactured by the assessee according to the design and specifications provided by the Railways would merit classification under Heading 86.07 and not under any other heading, based on their sole use in railway locomotives. The aforesaid decision was followed in the case of Hindustan Welding Engineers vs. CCE, Cakutta[2001 (133) ELT 770 (Tri.-Kolkata)] wherein it was held that doors, windows and frames of iron, steel and aluminum are correctly classifiable under Heading 86.07 and not under any other heading in Chapters 73 or 76, owing to their sole and principal use in railway locomotives.
4.6. The Appellant also relied on the following decisions wherein classification under Heading 86:07 was held to be applicable when the goods in question were meant solely and principally for use in railway locomotives:
a) Chief Workshop Manager, Central Railway vs. Commissioner of Central Eveise, Nashik [2018-TIOL-3398-CESTAT-MUM], wherein C. I. Rollers and Separators used by the Railways were sought to be classified under Chapter 84 by the revenue authorities. However, owing to the fact that the goods were specifically used by the railways and the same were fitted to specially designed wagons, the CESTAT held that the goods were correctly classifiable under Chapter 86.
b) Sunflex Auto Parts vs. CCE, Mumbai — 1/[2004 (171) ELT 188 (Tri. —Mumbai)], wherein rubber metal silent block was sought to be classified under Heading 40.16 by the revenue authorities. However, owing to the fact that the same was manufactured solely and exclusively for its usage in the railways, the same was held by the CESTAT to be classifiable under Heading 86.07.
c) Uni Deritend ltd vs. CCE, Mumbai-1142014 (313) ELT 423 (Tri. — Mumbai)], wherein castings of nickel and nickel-based alloys were sought to be classified under Heading 75.08 by the assessee.However, owing to its usage in the railway and failure on the part of the assessee to prove any alternative usage, the same were held by the CESTAT to be classifiable under Heading 86.07.
d) Nagpur Engg. Co. Ltd CCE[1993 (63) ELT 699 (Tribunal)], wherein the CESTAT observed that a`brake block’ is fixed to a brake glove and together it is used as a brake in the locomotive. Accordingly, the CESTAT held that brake block was more appropriately classifiable under the Heading 86.07,
4.7. The Appellant submitted that, the AAR has erred in not following settled judicial positions, while issuing the impugned Advance Ruling.
4.8. The Appellant further submitted that the AAR, in the impugned Advance Ruling, has heavily relied upon Section Note 2(e) to Section XVII in order to justify classification of the subject filters under Heading 84.21. They submitted that the provisions of Section Note 2(e) to Section XVII are ostensibly generic in nature and is required to be read in conjunction with the specific test laid down in Section Note 3. As such, the two provisions [Section Note 2(e) and Section Note 3] seem to contradict each other, and a reconciliation could be attempted on the basis of the following observations:
a) Note 3 lays down a specific test of ‘sole or principal use’, and therefore cannot be superseded by generic Note 2;
b) Note 2 appears to exclude parts and accessories which may have multiple applications and uses, other than their application or use with articles of Section XVII;
c) Articles of Section XVII (inter alia covering Heading 86.07) are excluded from Section XVI (inter alio covering Heading 84.21) by Section Note 1(1) to Section XVI, which states as follows:
“I. This Section does not cover:
(1) articles of Section XVII:”
4.9. In view of the above, they contended that where, by virtue of specific provisions, if goods are covered in Section XVII (i.e. Chapter 86; Heading 86.07) their coverage under Section XVI (i.e. Chapter 84; Heading 84.21) is automatically ruled out; that they had already factually established that the principal use of the subject filters is with articles of Chapter 86 i.e. as parts thereof and also that the goods are so custom made that they cannot be put to an alternate use at all. Accordingly, the correct classification of the subject filters should be under the heading that covers parts of locomotives i.e. under Heading 86.07. They further submitted that the provisions of Note 2(e) are rendered inapplicable where the goods are squarely covered by operation of Note 3 of Section XVII i.e. owing to their sole and principal use; that the AAR, in the impugned Advance Ruling, has erred in overlooking the specific test laid down in Section Note 3 in favour of generic provisions of Section Note 2(e) to Section XVII. They relied on the decision of the CESTAT in the case of Diesel Components Works vs. CCE, Chandigarh[2000 (120) ELT 648] wherein, articles of Heading 84.09 were proposed to be classified under Heading 86.07 by relying upon Section Note 3 to Section XVII owing to their sole and principal usage in the railways. However, the revenue authorities sought to invoke provisions of Note 2(e) to Section XVII to disallow the said classification and instead sought to classify the goods under Headings 84.09 or 84.83.However, the CESTAT took cognizance of the provisions of both, Section Note 2(e) as well as Section Note 3 to Section XVII and held that articles in question attract classification under Heading 86.07 in view of the collective reading of the Section Notes and more importantly, the test of ‘sole or principal use’. In view of the above, they submitted that Section Note 2(e) fails to exclude the subject filters from the coverage of Section XVII and owing to their sole and principal usage with railway locomotives and the said filters can appropriately be classified under Heading 86.07 and not under Heading 84.21 as ruled by the AAR.
4.10. The Appellant referred to the Advance Ruling issued by the Authority for Advance Rulings, Uttar Pradesh in the case of M/s G. S. Products [Order no. 31 dated 3 June 2019]. The assessee therein is also engaged in manufacture and supply of filters to Indian Railways. The Authority for Advance Ruling, Uttar Pradesh, relying upon Note 3 to Section XVII, affirmed classification of the filters manufactured by the assessee therein under Heading 86.07. The Appellant submits that the facts of the aforesaid case are exactly the same as the Appellant’s present case and therefore, the aforesaid decision further strengthens the argument that the subject filters are most appropriately classifiable under Heading 86.07.
4.11. The Appellant submitted that even if for the sake of argument; the Section Note 2(e) and Section Note 3 to Section XVII merit equal consideration leading to a state of indecision, for classification of goods, the general rules of interpretation of the Harmonized System of Nomenclature prescribe that goods should be classifiable under the heading occurring last in the numerical order. The above is in terms of rule 3(c) of the General Rules for the Interpretation of Import Tariff’. Further, even if for the sake of argument, Section Note 2(e) and Section Note 3 to Section XVII are seen competing and irreconcilable, and hence, repugnant to each taxguru.in other, settled rules of statutory interpretation also suggest that the last provision (i.e. Section Note 3) must prevail over the other (i.e. Section Note 2(e)). The principle finds absolute support in the case of KM. Nanavati vs. State of Bombay [AIR 1961 SC 112]. The Supreme Court has repeatedly approved the said principle and held that the last provision stands later in the enactment and thus, speaks the last intention of the makers of the statute and therefore, must be given effect to. Therefore, applying the aforesaid principles in the present case, the Appellant contended that the subject filters should be classified according to Note 3 of Section XVII i.e. under Heading 86.07 by applying the test of ‘sole or principal use’. The Appellant submits that the AAR has erred in not according due credence to the aforesaid settled principles of interpretation, as well as to rule 3(c) of the General Rules for the Interpretation of Import Tariff.
PERSONAL HEARING:
5. The Appellant were called for a personal hearing on 3″I December 2019 and were represented by their consultant Shri. Abhishek Naik. He submitted that the Appellant is a subsidiary of US Company; that they are engaged in the manufacture of a wide range of products for the industrial and aerospace markets. One of their products is `Filters’ which is manufactured as a generic product for the domestic market and manufactured specifically for the Indian Railways as a customized product. Their contention is that the classification of the `filters; manufactured specifically and solely for Indian Railways is under Heading 86.07 as against the view taken by the AAR that the said product merits classification under Heading 84.21. The Consultant drew reference to the provisions of the relevant Section Notes which were mentioned in the impugned order and also took support of the various decisions of the Supreme Court and the Tribunal to buttress their case that the said ‘filters’ are rightly classifiable under Heading 86.07. He also made a reference to the ruling dated 3n1 June 2019, passed by the UP Authority for Advance Ruling in the case of M/s G.S Products (a direct competitor of the Appellant), wherein the Filter Elements and Air Filter Assembly manufactured for the India Railways has been classified under 86.07 as parts of Diesel Electric Locomotive. In view of the aforesaid he pleaded that the ruling passed by the Karnataka Authority for Advance Ruling in their case may be set aside and the classification of the filters be held as under Heading 86.07.
DISCUSSION & FINDINGS:
6. We have gone through the records of the case and taken into consideration the submissions made by the Appellant in their grounds of appeal and at the time of the personal hearing.The Appellant manufactures different types of filters including Air Filters for Electric locomotive, Air Filters for Diesel locomotive, Carbody filter, Lube oil and fuel filters which are manufactured exclusively for use by the Indian Railways (hereinafter referred to as ‘subject Filters’.). We have gone through the technical literature furnished by the Appellant regarding the use of the subject Filters in railway locomotives. The products, manufactured are filtering apparatus which are customized specifically to filter the air/fuel in electric/diesel locomotives thereby preventing malfunction of the railway locomotives. The subject Filters are manufactured strictly as per the technical specifications, drawings and designs provided by the Indian Railways and are peculiar products meant for the exclusive use in locomotive engines of Railways and has no other application / function and cannot be used elsewhere.
7. The dispute in the present case is whether the subject filters manufactured by the Appellant exclusively for use by the Indian Railways would merit classification under Heading 84.21 — as filtering or purifying machinery/apparatus or under Heading 86.07 — as parts of railway locomotives. For ease of reference, it would be beneficial to refer to both these Chapter headings of the Customs Tariff.
