In re M/s Bharat Electronics Limited. (GST AAR Karnataka)
Whether the various systems, sub-systems and onboard spares supplied by the applicant for use in the Warships, Vessels and Submarines meant for Indian Navy and Shipbuilders, attracts 5% GST?
Various systems, sub-systems and onboard spares supplied by the applicant for use in the Warships, Vessels and Submarines meant for Indian Navy and Shipbuilders (excluding consumables and raw materials) are appropriately covered under sl.no.252 of Notification No.01/2017-Central Tax(Rate) dated 28.06.2017, and accordingly attracts 5% GST.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING,KARNATAKA
M/s Bharat Electronics Ltd, (called as the ‘Applicant’ hereinafter), Jalahalli, Bengaluru – 560013, having GSTIN number 29AAACB5985C1ZL, have filed an application for Advance Ruling under Section 97 of CGST Act,2017, KGST Act, 2017 read with Rule 104 of CGST Rules 2017 86 KGST Rules 2017, in form GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is a Public Sector Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:
Whether the various systems, sub-systems and onboard spares supplied by the applicant for use in the Warships, Vessels and Submarines meant for Indian Navy and Shipbuilders, attracts 5% GST?
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant states that they are a Government of India Enterprise under the Ministry of Defence, seeking an advance ruling on the applicability of SI.No. 252 of Schedule I of Notification No. 1/2017- Central tax (Rate) and No. 1/2017 issued by the Government of Karnataka, both dated 29.06.2017, for the supplies effected or to be effected by them for construction of, or use in, vessels, warships and sub-marines meant for deployment in the Indian Navy.
b. The applicant states that the present application is maintainable under section 97 of the KGST Act as the application is in respect of the applicability of a notification issued under the provisions of the GST Act.
c. The applicant states that they are having manufacturing units at various places across India and are mainly engaged in the manufacture and supply of various defence related equipment/ machinery/ systems. The said goods are supplied to all the three forces guarding the frontiers of the country.
d. The applicant states that the subject matter of the present application relates to supplies effected against Purchase Orders received from various Ship Building Industries, namely, Mazagaon Dock Limited, Garden Reach Shipbuilders and Engineers, Hindustan Shipyard Limited, Larsen and Toubro etc., and directly to Indian Navy.
e. The Purchase orders or contracts are usually placed by the customers for supply of ‘systems’ such as Color Tactical Display systems, Missile System, Radar systems (for surveillance and threat alert, Navigation and attack, Weather surveillance). Electro Optical Fire Control System, Gun Fire Control System, Optical Director System, etc. All such systems are meant for use ‘ON BOARD SHIPS” of the Indian Navy. The Purchase Orders/ Contracts generally refer to the name of the Ship/ the project/ the yard or the respective Depot of Indian Navy. It is pertinent to note that each system by itself is not a separate product, but comprises of various parts/ assemblies. The applicant has provided an illustration of the contract that has been agreed upon by the applicant and the President of Republic of India, wherein the applicant is identified as the seller party and the Government of India is identified as the buyer party and the description of the item to be supplied is XXXX for in ships for a total value of Rs. 1,674.10 Crores. XXXX is a weapon control system designed to provide air defence with guns and the purpose of the equipment is to locate a hostile target by means of a radar, acting on search information and to track its approach with high accuracy, in order to obtain reliable target data. The tracking data are further processed and used to control the weapons by placing it into an exact ballistic firing position for eventual destruction of the target. The Price Breakup for the system set annexed to the purchase order read with technical specifications would show that the supply includes various items such as Tracker mount, Antenna, Radar Transmitter, Radar Receiver, TV Camera System, Thermal Imager, Gun Control Panel and Support systems, amongst other things.
f. The applicant submitted that apart from supply of the systems, the contract also requires BEL to provide services for installation, commissioning, Training including for rehosting of test programmes as indicated in the Annexures to the contract.
g. The Applicant furnishes another illustration of a Purchase Order placed by Hindustan Shipyard Limited, on the applicant for supply of “Advance Composite Communication System” dated 15.09.2014 for a total consideration of Rs. 51,00,81,780/-. The Advance Composite Communication System is an IP based integrated communication system designed to provide quick and reliable communication over VLF, HF bands onboard Naval Ships for facilitating ship to ship, ship to shore and ship to air communications. This contract entails supply of the systems along with services inter alia of development and engineering, training. The applicant is also in charge of installation and commissioning of such systems by deputing their service engineers as per the requirements of the Buyer Party.
h. The applicant submits that the various systems are to be integrally connected with each other for effective functioning of warships, Vessels and Submarines. For example, the Fire Control System and the Missile System are to stay interlinked with the radar system and the CTD system is essential for monitoring and handling all such systems.
i. In the backdrop of the above factual and technically involved in supplies of various items required for use in a Warship, Vessels, and submarines for the purpose of discharging GST liability, the applicant is required to determine the classification of the subject supplies and the rate of tax applicable for the same.
j. The applicant submits that in terms of section 2(30) of the CGST Act “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply” and as per section 2(74) of the CGST Act “a mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.”
Admittedly, the supply of systems against each Purchase Order consists of a combination of goods and services with supply of goods apparently being the principal supply.
k. The applicant submits that the entry 252 reads as under
