M/S. HYVA India Private Limited- (AAR-Maharashtra) 2019 ITL(GST) 725

What is the appropriate classification and rate of GST on the supply of "Hydraulic Kit" cleared to dealers/ distributors or OEMs cleared as such, which comprises of the Hydraulic cylinder and wet kit (with or without pump)

Facts of the case:-

• M/s. Hyva India Pvt. Ltd. ('Applicant) is engaged in the manufacture and supply of hydraulic kits, tippers, compactors, cranes, tail lifts, hook loaders, control valves etc. Hydraulic Kit is a combination of various items including Hydraulic front end cylinder, Gasket, washers, MTG Kit valves, hose, pipes, Oil tanks, cables, etc. along with other parts which are used for the fixing / mounting on a motor vehicle chassis. The hydraulic kit is of a kind used to fixed on a motor vehicle chassis can be used to lift the body of truck, tipper, etc. Further, the “Hydraulic Kit” is used in bodies/platform, detaching sides, tipper bodies falling under Chapter Heading No.87.09 as well as for other trailers for transport of goods such as agricultural, public works etc., trailer (whether or not tipper) falling under Heading No.87.16. All the aforesaid items of Hydraulic Kit (except Hydraulic cylinder and Valve which are manufactured by the applicant) are commonly known as “wet kit” by the applicant. The front-end hydraulics are the best choice for front-end tippers and tipping trailers.

• All the items of wet kit except Valve, are purchased and received from various vendors and are classified under different headings of the Customs Tariff which is adopted for the specification of GST rates in the notification issued under the CGST Act, The applicant supplies the “Hydraulic Kit” which comprise of Hydraulic cylinder along with wet kit. The Hydraulic cylinder and Valve are manufactured by the applicant at its factory/workshop duly registered under GST law. It is submitted that bulk packs of wet kit parts are received from various vendors. The applicant is then undertaking the activity of repacking of wet kit items in sets from the bulk pack to small pack. It means all the parts of Hydraulic kit complete in itself are dispatched in loose sets. Thus, the Hydraulic system in unassembled form are supplied by the applicant from its premises comprising of Hydraulic cylinder, wet kits in loose forms.

• It is to be noted that Hydraulic Kit (cylinder + wet kit) when fitted on the chassis of motor vehicle delivers higher transport efficiency and safer operating at lower cost in the Construction, Transportation and Mining market segments.

• Hydraulic Kit is supplied in two modes:
  (i) Supply to dealers / distributors / body builders
  (ii) Supply to OEMs (namely Tata Motors, Eicher Motors, etc) alongwith body fitted on the chassis received from OEMs

• The dealers / distributors who purchase the Hydrulic Kit from the applicant, further sell the Hydraulic Kit to end customers; whereas body builder to whom the applicant sells the Hydraulic Kit uses the Hydraulic Kit in its factory/ premises, to be fitted on the chassis of the vehicle. In some case, the Hydraulic Kit is cleared with or without pump to the dealers / distributors or OEMS.

• In case of sale of Hydraulic Kits to OEMs, the applicant receives chassis from the OEMs for fitting of body along with Hydraulic kit. In such cases, applicant supplies the body with Hydraulic Kit as a complete product/solution to the customers (OEMs) and clears the resultant product i.e. Body + Hydraulic Kit under Chapter Heading No.87.07 of the First Schedule of the Customs Tariff Act attracting GST @28%. In some instances, the applicant also clears/supplies the body alone to the OEMs under Chapter Heading No.87.07 of the First Schedule of the Customs. Tariff Act attracting GST @ 28%.

• In the present application, the applicant is seeking the clarification regarding the correct classification of Hydraulic Kit supplied to Dealers / Distributors or body builders as such from the factory of the applicant.

• As per the understanding of the applicant, there is an ambiguity regarding the correct classification of Hydraulic kit' supplied as such to dealers / distributors or body builders cleared as such, as it comprises of multiple parts classifiable under various Tariff Headings, whereas, the Chapter Heading No 84.12 of the Customs Tariff covers “Hydraulic Systems” within its purview.

Observations of Authority:-

• Chapter Heading No. 84.12 of the Customs Tariff covers 'Other Engines and Machines'. This Chapter covers 'Hydraulic Power Engines and Motors'.

• Sl. No. 317 of Schedule - III to Notification No. 1/2017- Central Tax (Rate) dated 30.06.2017 reads as under:

Therefore, Hydraulic Power engines and motors of Heading No. 84.12 are covered by Sl. No. 317 of Schedule III and attract CGST @ 9%.

• The present ambiguity regarding the Hydraulic Kit cleared to dealers / distributors or body builders cleared as such, arises due to absence of such type/category of product in Customs Tariff. The Customs Tariff mentions 'Hydraulic power engines and motors' under Chapter Heading NO. 84.12. However, the applicant's query arises from the fact that whether “Hydraulic kits” can be held to be synonymous to the term 'Hydraulic power engines and motors' as covered under Heading No.84.12 of the Customs Tariff.

• Further, we are in agreement with the applicant's submission that the Hydraulic Kit is specifically excluded by Note 2(e) to Section 17 which provides that the expression “parts” and “parts and accessories” do not apply to machines or apparatus of heading 8401 to 8479 or parts thereof, other than radiators or articles of Section 8481 or 8482 or provide constituting integral parts for engines or articles of Heading 8483, whether or not they are identifiable as goods as per the goods of this section. In the present case, the product in question 'hydraulic cylinders/hydraulic kits' is squarely/specifically covered under Heading No.84.12 and hence the condition (a) mentioned above stands not satisfied in the present case.

• As discussed above, it is clear that Hydraulic Kit is more specifically included in Heading No.84.12 and is more specifically covered under said heading. Thus, the Hydraulic Kit does not satisfy the condition (c) mentioned above.

• Therefore, we clearly find that all the 3 conditions mentioned in Heading No.8708, 8714 and 8716 are not satisfied in the present case and hence, the product in question i.e. Hydraulic Kit will not be covered under Headings No. 8708, 8714 and 8716.

• In view of the foregoing the hydraulic kits are appropriately classifiable under heading 8412 by application of HSN Explanatory Notes to headings 8412, 8708, 8714 and 8716 and Section Note 4 to Section XVI and Exclusion Note 2 to Section XVII.

Ruling by Authority:-

Question :- What is the appropriate classification and rate of GST on the supply of such “Hydraulic Kit” cleared to dealers / distributors or OEMs cleared as such, which comprises of the Hydraulic cylinder and wet kit (with or without pump).

Answer :- Hydraulic Kits are appropriately classifiable as 'other engines and motors' under heading 8412 and the rate of GST would as applicable to that heading in the Schedule at the relevant time.