GST Caselaw

#GSTCase-43-Supply of Goods to Railways under HSN 8607: Dilemma for Suppliers

#GSTCase-43-Supply of Goods to Railways under HSN 8607: Dilemma for Suppliers

 

Abhishek Tibrewal (HUF), [2019] 101 taxmann.com 480 (AAR-WEST BENGAL)

 

  1. Query:

 What would be the appropriate classification for Springs of Iron and Steel supplied to Railways i.e. HSN 8607 i.e. or 7320?

 

  1. Facts

 Applicant is manufacturer and supplier of Springs of Iron and Steel to Railways.

The relevant Entry falling under HSN 8607 at 5% is as follows: Parts of railway or tramway locomotives or rolling-stock; such as Bogies, bissel-bogies, axles and wheels, and parts thereof

The relevant Entry falling under HSN 7320 at 18% is as follows: Springs and leaves for springs, of iron and steel

 

  1. Observation by AAR:

The two Chapters under which classification of Springs of Iron and Steel for supply to Railways are being considered, fall under two different Sections of the Tariff Act. Section XVII, which covers “Vehicles. Aircraft, Vessels and Associated Transport Equipment”, is relevant to items classified under Chapters 86 to 89. Section XV, which covers “Base Metals and Articles of Base Metal”, is relevant to items classified under Chapters 72 to 83.

  • Why Springs of Iron and Steel do not fall in 8607 (Section XVII) and fall in 7320 (Section XV):-

Heading 8607 (Section XVII) covers Parts of Railway or Tramway Locomotives or Rolling-Stock and refers to parts of railway (such as bogies, bissel-bogies, axels and wheels and parts thereof) in a general way.  Note 2 to Section XVII states that “parts” and “parts and accessories” do not apply to parts of general use as defined in Note 2 of Section XV, of base metal whether or not they are identifiable as for the goods of Section XVII. HSN 8607 does not anywhere clearly classify Springs of Iron and Steel.

Note 2(b) to Section XV defines the expression “parts of general use” to mean ‘”springs and leaves for springs, of base metal, other than clocks or watch springs” and Chapter Heading 7320 clearly classifies springs of Iron and Steel for Railways. “Leaf-springs for Railways” are classified under Tariff Item No. 73201012 and “Coil-springs for Railways” are classified under Tariff Item No. 73209010.

  • Specific description would prevail over General description

In terms of Rule 3(a) of the Rules for Interpretation of Customs Tariff, as applicable to the GST Tariff, “the heading which provides the most specific description shall be preferred to headings providing a more general description”. Therefore, in this case as Springs of Iron and Steel, are specifically classifiable under Chapter Heading 7320, the general description under Chapter Heading 8607 is not applicable.

 

  1. Held

 Springs of Iron and Steel for Railways are classifiable under HSN Code no. 7320 (taxable @ 18%) under Serial No. 234 of Schedule III of Notification No. 1/2017- CT (Rate) dated 28.06.2017.

 

  1. Comment:

Tax Rate on Goods supplied to Railways has been a bone of contention for the suppliers to the Railways. There have been Two Circulars and Three Judgements (Including This Judgement) on this issue since 1st July 2017. The brief gist of the Circulars and the Judgements are as follows:

  • Circular No. 30/4/2018-Dated 25th January 2018: – Clarification on supplies made to the Indian Railways classifiable under any chapter, other than Chapter 86

Accordingly, it is hereby clarified that

  1. only the goods classified under Chapter 86, supplied to the railways attract 5% GST rate with no refund of unutilised input tax credit and
  2. other goods [falling in any other chapter], would attract the general applicable GST rates to such goods, under the aforesaid notifications, even if supplied to the railways.

The Agenda for the GST Council Meeting contained following background for the Circular Issued:

  1. Prior to 1.7.2017, goods of chapter 86 attracted 2% excise duty [without ITC] or 6% excise duty [with ITC].
  2. In Central Excise regime, there was no provision for refund of accumulated credit.
  3. Lowest possible rate of 5% GST was extended to goods, falling under chapter 86, to ensure that the value addition in manufacturing these products is not subjected to 18% GST rate.
  4. Providing for refund of unutilised ITC will result in refund of input taxes, which has not been the intent behind present rate of 5% GST with no refund of unutilised ITC. 5. The Fitment Committee recommends that a clarification may be issued stating that only the goods falling under chapter 86 attract 5% GST rate with no refund of unutilised ITC, and goods [falling in any other chapter] will attract applicable GST rate under the respective chapters.

 

  • Circular No. /4/2018-Dated 25th January 2018: Applicability of GST on Turbo Charger Supplied to Railways:

12.2. The turbocharger is a turbine-driven forced induction device that increases an internal combustion engine’s efficiency and power output by forcing extra compressed air into the combustion chamber. It has the compressor powered by a turbine. The turbine is driven by the exhaust gas from the engine.

 12.3 Turbo charger is specifically classified under chapter HS code 8414 80 30. It continues to remain classified under this code irrespective of its use by Railways. Therefore, it is clarified that the turbo charger is classified under heading 8414 and attracts 18% GST.

 

  • Pew Engineering (P.) Ltd. -[2018] 100 taxmann.com 450 (AAR-WEST BENGAL)- Twin Pipe Air Brake System supplied to Railways classifiable under Head No 8607 21 00

Twin Pipe Air Brake System is classifiable under Tariff Head 8607 21 00 [Parts of Railway….Air Brakes and part thereof] which is taxable @ 5% under Serial No. 241 of Schedule I of Notification No. 01/2017 – CT (Rate) dated 28/06/2017 with no benefit of refund of the unutilized input tax credit (as per TRU Clarification issued under F.No.354/1/2018-TRU dated 25/01/2018).

 

  • Blackstone Diesels, [2019] 102 taxmann.com 32 (AAR- RAJASTHAN)-Supply of Air Dryer complete with final filter for use in breaking system of Locomotives to Railways

Air Dyer complete with final filter for use in breaking system of locomotive’ is classifiable under Chapter 8421 of GST Tariff Act 2017 attracting GST at rate of 18 per cent (CGST 9 per cent+ IGST 9 per cent)

 

  • Abhishek Tibrewal (HUF), [2019] 101 taxmann.com 480 (AAR-WEST BENGAL): Supply of Springs of Iron and Steel to Railways

Springs of Iron and Steel, are specifically classifiable under Chapter Heading 7320, the general description under Chapter Heading 8607 is not applicable and therefore Springs of Iron and Steel for Railways are taxable @ 18% under Serial No. 234 of Schedule III of Notification No. 1/2017- CT (Rate) dated 28.06.2017.

 

Conclusion: The dilemma gets bigger since the Rate Chart available in the public domain only contains brief about the entry as “Parts of Railway” which leads most of the suppliers treating all supplies made to Railways as liable to tax at 5%. However, at the end of the Rate Chart Notification No. 01-2017-Central Tax (Rate) and 02-2017-Central Tax (Rate) it has been provided that

(1) In this Schedule, “tariff item”, “heading”, “sub-heading” and “Chapter” shall mean respectively a tariff item, heading, sub-heading and Chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

(2) The rules for the interpretation of the First Schedule to the said Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.

Rate Chart Notification refers to First Schedule to Customs Tariff Act, 1975 along with Rules of Interpretation to Customs Tariff Act, 1975, including the Section and Chapter Notes and General Explanatory Notes of the First Schedule.

Hon’ble Benches of AAR would be able to refer to these documents while interpreting the entry but a common tax payer who has to levy the tax rate would only believe on the rate chart as available on the portal is the final document.

It’s the responsibility of the Government to provide all the links to which Rate Chart Notification making it a final and comprehensive document for reference just as the same was provided in the Excise Regime. Can’t Expect a Taxpayer to keep Rules of Interpretation and General Explanatory to Tariff with them.

There is a dire need to publish a comprehensive First Schedule to Customs Tariff Act, 1975 for Rate applicable on Goods along with Rules of Interpretation to Customs Tariff Act, 1975, including the Section and Chapter Notes and General Explanatory Notes of the First Schedule.

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