2018 (12) TMI 1749 - AAR - GST

Non-laminated HDPE/PP woven bags for food grains classified under Tariff Heading 6305, liable for 5% GST

In re: Hariom Enterprises

In re: Hariom Enterprises - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Authority for Advance Rulings (AAR) were:(i) Whether the non-laminated HDPE/PP woven bags manufactured by the applicant, made from strips of width not exceeding 5 mm and used for packing sugar, flour, food grains, and similar products, are classifiable under Tariff Heading 6305 (sacks and bags of textile materials) or under Tariff Heading 3923 (articles of plastics) of the Customs Tariff Act.(ii) What is the applicable rate of Goods and Services Tax (GST) on such non-laminated bags manufactured by the applicant.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Classification of Non-Laminated HDPE/PP Woven Bags under Customs Tariff ActRelevant Legal Framework and Precedents: The classification of goods under the Customs Tariff Act is governed by the Harmonized System of Nomenclature (HSN) and the explanatory notes thereto. The relevant chapters considered were Chapter 39 (Plastics and articles thereof) and Chapter 63 (Textiles and textile articles). Section XI of the Tariff Act covers textiles and textile articles (chapters 50 to 63). Key tariff headings under consideration were 6305 (sacks and bags, of a kind used for packing goods) and 3923 (articles of plastics). The interpretation rules of the Customs Tariff Act are also applicable for GST tariff classification. The Court also referred to the decision of the Hon'ble CESTAT Mumbai in TPI India Ltd., which dealt with classification of similar goods.Section XI notes were crucial, particularly:Note 1(g) excludes monofilament or strips of apparent width exceeding 5 mm from textiles (Chapter 46),Note 1(h) excludes woven, knitted, crocheted fabrics, felt or non-wovens impregnated, coated, covered or laminated with plastics (Chapter 39) from textiles,Note 2(p) to Chapter 39 excludes goods of Section XI from Chapter 39.Court's Interpretation and Reasoning: The applicant's non-laminated bags are manufactured from HDPE/PP strips of width not exceeding 5 mm, woven into fabric and then cut and stitched into bags. The woven fabric is neither impregnated, coated, covered, nor laminated with plastics. Therefore, the goods do not fall under the exclusions of Notes 1(g) and 1(h) to Section XI, which exclude strips wider than 5 mm or plastics-impregnated textiles from Chapter 63.Note 2(p) to Chapter 39 excludes textile goods from Chapter 39, thus the bags cannot be classified under Chapter 39 (plastics). The Court emphasized that the goods are textile articles as per Section XI and fall under Chapter 63.The Court also relied on the BIS specifications confirming the width of the HDPE/PP strips does not exceed 5 mm, supporting the classification under heading 6305 rather than 3923.Further, the Court referred to the explanatory notes to subheading 63053200, which specifically include flexible intermediate bulk containers as textile articles, strengthening the argument that woven bags from HDPE/PP strips are textile articles.The Tribunal in TPI India Ltd. was cited, which supported classification of similar woven bags under Chapter 63 rather than Chapter 39.Key Evidence and Findings: The manufacturing process described by the applicant, the technical specifications from BIS, and the absence of any coating or lamination on the woven fabric were critical factual findings.Application of Law to Facts: Applying the tariff notes and exclusions to the facts, the woven bags made from HDPE/PP strips of width not exceeding 5 mm, without lamination or coating, qualify as textile articles under Chapter 63, heading 6305, specifically subheading 63053300.Treatment of Competing Arguments: The rival classification under heading 3923 (plastics) was rejected on the basis of Section XI exclusions and Chapter 39 notes. The applicant's argument that the bags are textile articles was accepted based on the width of strips and absence of lamination/coating, consistent with tariff notes and prior tribunal decision.Conclusions: The non-laminated HDPE/PP woven bags are classifiable under Tariff Heading 6305, subheading 63053300, as textile articles used for packing goods.Issue 2: Applicable GST Rate on Non-Laminated HDPE/PP Woven BagsRelevant Legal Framework: GST rates are aligned with the HSN classification. The rate applicable to goods classified under Chapter 63 (textiles and textile articles) is relevant here. The applicant sought clarity on the GST rate applicable to non-laminated bags classified under heading 6305.Court's Interpretation and Reasoning: Since the bags are classified under heading 6305, the GST rate prescribed for such textile articles is applicable. The Court noted that the CGST and SGST rates for these goods are each 2.5%, totaling 5% GST.Application of Law to Facts: Given the classification under heading 6305, the GST rate of 2.5% CGST and 2.5% SGST applies.Conclusions: The applicant is liable to pay CGST 2.5% and SGST 2.5% on the non-laminated HDPE/PP woven bags.3. SIGNIFICANT HOLDINGSThe Authority for Advance Rulings held:'Non-Laminated Bags manufactured by the Applicant from HDPE/PP Strips of width not exceeding 5 mm, used for packing Sugar (Sugar bag), Flour (flour Bag), Food Grain (Grain Bag) and other similar bags are to be classified under Tariff Heading 6305 of the Customs Tariff Act.'The ruling further clarified:'The Applicant is liable to pay CGST 2.5% and SGST 2.5% on the subject goods.'Core principles established include:Classification under Customs Tariff must consider the nature of the raw materials, manufacturing process, and applicable tariff notes and exclusions.Woven bags made from HDPE/PP strips of width not exceeding 5 mm, without lamination or coating, are textile articles under Chapter 63 and not articles of plastics under Chapter 39.Section XI exclusions and Chapter 39 notes must be read harmoniously to determine classification.GST rates correspond to the HSN classification, and correct classification ensures correct GST liability.