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The Applicant, situated in Pathderi, Haryana, had been supplying un-assembled sub-assembles of railway components, to its additional place of business located in Chennai. The sub-assemblies were then being assembled completely and finally supplied to the Integral Coach Factory, Chennai (‘ICF Chennai’). Accordingly, the Chennai unit of the Applicant, would bill to its parent unit in Pathderi and ship the assemblies directly to ICF Chennai.
In view of the afore-stated background, the Applicant sought an Advance Ruling before the Haryana AAR to ascertain the tariff classification of sub-assemblies supplied from Pathredi unit to Chennai unit as well as the IGST rate applicable.
Upon perusal of the invoice, the AAR observed by the AAR that the items supplied by Pathredi unit to the Chennai unit were in fact parts and sub-parts of sub-assemblies. It was further observed that fabrication of sub-parts was to be done at the Chennai unit. The AAR remarked that fabrication is generally defined as the process of making something from semi-finished or raw materials rather than from ready-made components, hence, the process done at Chennai unit amounted to work process or manufacturing.
The AAR further referred to the Explanatory Notes and the General Rules of interpretation, which provides that incomplete or unfinished articles presented unassembled or disassembled are to be treated as finished goods. However, it had been observed that in the instant case, parts which will are to be assembled in Chennai, are being assembled by adding some other components procured from other suppliers.
It was further observed that the Applicant would be undertaking the process involving in-house inspection, fabrication, welding, painting, leakage testing and final inspection. Accordingly, it can be said that assembly operation as well as addition of components was being undertaken to prepare the parent assembly in Chennai unit.
The AAR further referred to Para 4 of Circular No. 30/4/2018-GST dated 25 January 2018, wherein it has been clarified that only the goods classified under chapter 86 supplied to the railways would attract GST at 5% with no refund of unutilized ITC and other goods would attract the general rates even if supplied to railways.
Basis the above observations, the AAR held that the goods supplied from Pathredi unit of the Applicant to Chennai unit cannot be classified under chapter 86 and would therefore attract the general rate applicable as per the classification of each item in their respective chapters.
JSL India Private Limited [Advance Ruling No. HAR/HAAR/R/2018-19/51]
Even after more than 45 years of the introduction of Tariff in India, the classification of parts of railway goods is still a major subject of dispute. Although the Haryana AAR has not touched upon the Section Notes to the Tariff, it would be pertinent to note that the instant dispute is majorly on account of two rather contradictory Notes. While Note 2 to Section XVII of the Tariff Act (which covers railway goods) provides that parts of general use, even if being used in railways, shall be classified in respective chapters other than 86, Note 3 provides that parts, being used solely and principally with Railways shall be remain classifiable under Chapter 86.
It would be pertinent to note that the matter relating to classification of goods, where assembly occurs at the site of supply, has been majorly litigated in the excise regime as well. In the case of Bharat Heavy Electricals Limited [2018 (14) G.S.T.L. J74], it had been held that boiler parts cleared in unassembled form as incomplete boiler and assembled at site, are classifiable under sub-heading 8402 as boiler and not the sub-heading as parts. Taking note of the SC judgement, it seems that the instant AAR seems to have taken a different approach in this case.
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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