In re Bharat Dynamics Limited (GST AAAR Andhra Pradesh)
AAAR differed with the ruling of the Advance Ruling Authority and hereby modify the same and hold that the SFDS is classifiable as ‘parts of Submarine’ falling under Chapter 8906 and consequently attract a GST rate of five (5) percent, by virtue of entry No.252 of Schedule I in Notification No. 1/2017 – Central Tax (Rate) dt: 28.06.2017 .
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH
(Under Section 101 of the Central Goods and Service Tax Act and the Andhra Pradesh Goods and Service Tax Act).
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 APGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and APGST Act”] by M/s. Bharat Dynamics Limited (herein after referred to as the “Appellant”) against the Advance Ruling No. AAR No.11/AP/GST/2021 dated 10.02.2021 issued by the Authority for Advance Ruling, Andhra Pradesh.
1. Background of the Case:
1.1 The appellant, M/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.
1.2 The clarification sought by the appellant relates to supplies to be effected against a supply Order No. XXXXX from the Government of India, Ministry of Defence (MOD), AAKANKSHA, New Delhi, India for supply of Submarine Fired Decoy 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.
1.3 The SFDS in question is a component proposed to be fitted to the submarines operated by the Indian Navy for protection/safety of the submarines against incoming torpedoes/missiles.
The Appellant had filed an application for Advance Ruling before the Authority for Advance Ruling on the following questions:
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 (5%) by virtue of entry no. 252 of Schedule I in Notification No. 1/2017-Integrated Tax (Rate) dated 28.07.2017 ?
The Authority for Advance Ruling, Andhra Pradesh in its orders in Advance Ruling No. AAR No.11/AP/GST/2021 dated 10.02.2021 held:
“The proposed supply in question falls under SI.No.434 under Chapter/Heading/Sub-heading/ Tariff Item 9306 under Schedule III of Notification No. 1/2017 – Central Tax (Rate) dt: 28.06.2017 attracting tax rate of 18% as amended from time to time”.
Aggrieved by the impugned order dated 10.02.2021, the appellant has filed the present appeal, on the following grounds.
2. Grounds of Appeal:
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:
2.1 The appellant claims that the Ld. Designated authority passed a non speaking order, without considering the submissions and declarations submitted by email sent on 07.01.2021 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.
The appellant claims that appropriate justification for usage of the classification rule has not been provided by the Ld. Designated authority.
2.2 The appellant submits that SFD System qualifies as a ‘part’ of Submarine on the grounds mentioned below:
Usage of SFDS system in Submarine/Warship:
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 integral part of the warship.
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.
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.
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.
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.
SFDS launches decoys as an anti-torpedo countermeasure system for submarines, designed to counter the attacks of acoustic homing torpedoes, active/ passive, lightweight 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 (RMF) panel.
The Jammer part of SFDS is an underwater broadband noise 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 against an attacking torpedo in order to mask the submarine echo by increasing the noise level received by the torpedo acoustic homing system.
The decoy is an underwater echo repeater. It is an expendable device launched against an attacking torpedo in order to simulate false target echoes, seducing the torpedo acoustic system. When the appellant refers to a decoy system, the decoy system is an anti-torpedo countermeasure system for submarines. Thus, the SFDS is an important part of the submarine.
2.3 The appellant while quoting the relevant provisions of the GST law, under the said Schedule-I of the Rate Notification No. 1/2017 – Central Tax (Rate) dt: 28.06.2017 refers to serial no. 246 to 251 wherein given group of items falling under chapter 89 are placed in the 5% category and then Entry no.252 i.e., parts of headings of 8901, 8902, 8904, 8906, 8907 as presented below:
