GST Rate on Ship Parts Raw Materials and Consumables Clarified
The Maharashtra AAR ruled that raw materials and consumables used in shipbuilding do not qualify as ship parts for 5% GST.
- Ruling
- NO.GST-ARA- 28/2017-18/B- 64 Mumbai, dt. 11/7/2018
- Dated
- 11 Jul 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Mazagon Dock asked if raw materials and consumables qualify for 5% GST.
- Authority ruled only essential functional components count as vessel parts.
- Raw materials like steel plates and consumables like gases pay standard GST.
- Authority rejected queries on vendor procedures and claiming input tax credit.
In short
Shipbuilders purchase raw materials, specialized components, and consumables to construct vessels. Under GST Notification No. 01/2017-Integrated Tax (Rate) Entry 252, parts of ships attract a lower 5% GST rate. Mazagon Dock Shipbuilders Limited asked whether general raw materials like steel plates and consumables like welding electrodes count as ship parts under this entry.
What has changed
How it worked before
Before Maharashtra AAR order NO.GST-ARA- 28/2017-18/B- 64, many shipbuilders assumed all raw supplies, steel sections, and consumables bought specifically for ship construction qualified for the 5% concessional GST rate. Vendors were often uncertain whether to charge standard GST or the reduced 5% rate on these supplies.
What has changed
The Authority for Advance Ruling clarified that only finished, distinct components essential to making a vessel complete and functional qualify as parts for 5% GST. Raw materials consumed during construction, such as steel plates, lose their separate identity and must be taxed at their standard GST rates. Consumables like welding gases and electrodes also do not qualify for the 5% concessional rate. The authority refused to address vendor invoicing processes and input tax credit eligibility for excess taxes paid.
Who this affects
Shipbuilders, boat manufacturers, defence contractors, and marine engineering companies purchasing raw materials, tools, and components in India.
An example
A private shipyard in Goa contracts to build commercial tugboats. The shipyard orders steel angles, welding electrodes, and navigation radar systems from various suppliers. Based on this ruling, the supplier of navigation radar systems can charge 5% GST because it is an essential functional component of the vessel. However, the suppliers of steel angles and welding electrodes must charge their standard GST rates, as raw materials and consumables do not qualify as ship parts.
What you should do
Businesses in vessel manufacturing should ensure suppliers bill raw materials and consumables at standard GST rates rather than 5%. Note that an advance ruling binds only the applicant, Mazagon Dock Shipbuilders Limited, and its specific tax officer. Other shipbuilders cannot automatically rely on this decision as law and should consult a tax professional or apply for their own advance ruling.
If you do nothing
If a shipbuilder incorrectly pays a 5% GST rate on raw materials and consumables, tax officers can demand the unpaid tax difference along with interest and penalties. Assuming an advance ruling issued to another company covers your operations will not protect you during a audit. Additionally, claiming input tax credit on incorrectly billed taxes can result in tax credit reversals and additional fines.
The terms explained
- input tax credit
- A mechanism under GST allowing businesses to reduce the tax they owe on sales by the tax amount already paid on purchase invoices.
- advance ruling
- An official written decision by tax authorities explaining how GST law applies to a specific legal entity and transaction.
- consumables
- Goods that are used up, worn out, or consumed entirely during the manufacturing process, such as gases or chemicals.
The ruling in detail
Authority for Advance Ruling
Mazagon Dock Shipbuilders Limited
NO.GST-ARA- 28/2017-18/B- 64 Mumbai, dt. 11/7/2018 · Maharashtra
Questions before the authority
- Whether the expression "Parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907" in entry number 252 of the schedule 1 of the Notification No 01/2017-Integrated Tax (Rate) covers specific list of goods attached herewith (Refer Annexure B)?
- Also, what will be the rate of tax for the specific list of inputs raw materials, parts and consumables etc., purchased or imported for use in manufacture of warship?
- What procedure is required to be followed with Vendors if rate of tax applicable is as per entry no. 252 of the Schedule 1.
- If the rate of tax applicable to all or any of these items is 5% and if the vendor has charged higher rate of tax, whether the Company would be eligible for input tax credit at 5% or the actual tax paid to the Vendors?
Facts
The applicant, a defence public sector undertaking shipyard under the Ministry of Defence, is engaged in constructing state-of-the-art warships and submarines for the Indian Navy. It procures and imports raw materials, components, equipment, consumables, and tools, or outsources blocks of ships to vendors. It sought an advance ruling on whether its procured items qualify as parts under Entry No. 252 of Schedule I to Notification No. 01/2017-Integrated Tax (Rate) and attract the concessional 5% GST rate.
Ruling
| Question | What the authority ruled |
|---|---|
| Coverage of Annexure B items under Entry 252 (parts of heading 8906) | Covered only for items not specifically excluded in the discussions Excludes consumables, raw materials consumed in construction, and non-essential/statutory equipment |
| Applicable GST rate for inputs, raw materials, parts, and consumables | 5% GST for qualifying parts; respective scheduled entry rates for all other items 5% IGST or 2.5% CGST + 2.5% SGST under entry no. 252 |
| Procedure to be followed with vendors under Entry 252 | Outside the purview of this Authority |
| ITC eligibility if vendor charged higher tax instead of 5% | Outside the purview of this Authority |
The Authority held that only essential equipment and components without which a warship or submarine cannot be complete or functional qualify as **parts under Entry No. 252**. Raw materials consumed in construction (such as steel plates, angles, and sections) and consumables (such as welding electrodes and gases) are **not parts** and cannot avail the 5% concessional rate. The Authority declined to answer queries regarding vendor procedures and input tax credit on taxes paid at higher rates as being outside its statutory jurisdiction.
Reasoning
Relying on the Supreme Court judgments in Saraswati Sugar Mills and Kores (India) Ltd., the Authority reasoned that an item constitutes a 'part' or 'component' only if it is an integral constituent without which the finished product cannot be conceived, completed, or function. Raw materials like steel plates and angles are consumed in the construction process, cannot be removed for repairs, and therefore do not retain identity as distinct parts. Similarly, consumables, general passenger comfort items, and auxiliary safety equipment do not constitute essential parts of a vessel.
Provisions relied on
- Entry No. 250 of Schedule I of Notification No. 01/2017-Integrated Tax (Rate)
- Entry No. 252 of Schedule I of Notification No. 01/2017-Integrated Tax (Rate)
- Notification No. 01/2017-Central Tax (Rate)
- Section 97 of the Central Goods and Services Tax Act, 2017
- Section 98 of the Central Goods and Services Tax Act, 2017
- Heading 8906 of the Customs Tariff Act, 1975
For the practitioner
This ruling establishes that **raw materials and consumables do not qualify as parts** for the concessional 5% GST rate under Entry 252 of Schedule I. Only distinct, identifiable, and essential components integral to the functioning and completion of a vessel are eligible. Taxpayers cannot use the advance ruling mechanism to resolve vendor billing disputes or seek approval to claim input tax credit on wrongly charged excess taxes.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/maha-gst-ara-28-b-64_dt.11.07.18_mdsl.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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