2020 (6) TMI 741 - AAR - GST

Debark eucalyptus and poplar wood waste to paper mills taxable at 5% GST, not exempt as wood waste

The AAR-UP ruled that debark/bark eucalyptus, suabool, and poplar wood waste (2 meter length, 15-60 cm girth) supplied to paper mills for pulping does not ... Classification of goods - Debark/Bark Eucalyptus wood waste, debark/Bark Suabool wood waste, Debark/Bark poplar wood waste (lenght about 2 meter and its girth between 15 to 60 centimeter) to be supplied to paper mills for pulping only - HELD THAT:- These goods will not come under wood waste and scrap - Wood waste and scrap would get covered under N/N. 1/2017-Central Tax (Rate) dated 28-06-2017 with KA.NI.-2-836/XI-9(47)/17-U.P Act-1-2017-order-(06)-2017 dated 30-06-2017 vide schedule I, numbered 198 and will be taxable at 5%. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered by the Authority for Advance Ruling (AAR) was the appropriate classification and applicable GST rate for the supply of debark/bark eucalyptus wood waste, debark/bark subabool wood waste, and debark/bark poplar wood waste supplied to paper mills for pulping. The applicant sought clarification on whether these products fall under HSN code 4401, attracting a GST rate of 5%, or under HSN code 4403, attracting a GST rate of 18%.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents: The classification of goods under the GST regime follows the Customs Tariff Act. The relevant entries for classification were HSN code 4401, which covers wood waste and scrap, and HSN code 4403, which covers wood in the rough form.Court's interpretation and reasoning: The AAR focused on whether the wood supplied by the applicant could be classified as 'wood waste and scrap' under HSN code 4401. The AAR examined the characteristics and intended use of the wood, noting that it was not suitable for making furniture, veneer, or other products typically associated with wood classified under HSN code 4403.Key evidence and findings: The applicant provided photographs, purchase orders from paper mills, and a previous tribunal decision to support their claim that the wood was primarily used for pulping in paper mills. The Deputy Commissioner of Central GST, Raebareli Division, confirmed that the wood was in cut form, not suitable for furniture or similar uses, and was primarily used as fuel wood or for pulping.Application of law to facts: The AAR applied the explanatory notes of the Customs Tariff Act, which describe wood waste and scrap as materials not usable as timber and primarily used for pulping or as fuel. The AAR found that the wood supplied by the applicant met these criteria, as it was not suitable for uses described under HSN code 4403.Treatment of competing arguments: The applicant argued that their product should be classified under HSN code 4401 due to its use and characteristics. The AAR considered the department's contention that some units imposed an 18% GST rate but found no specific evidence supporting this classification under HSN code 4403.Conclusions: The AAR concluded that the wood supplied by the applicant falls under HSN code 4401 as wood waste and scrap, attracting a GST rate of 5% (2.5% CGST and 2.5% SGST).3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'Wood waste and scrap, not usable as timber... Such waste and scrap includes, saw mill or planning mill rejects; manufacturing waste; broken planks; old crates unusable as such; bark and shaving...'Core principles established: The classification of goods under GST should consider the intended use and characteristics of the goods. Goods not suitable for primary uses associated with higher GST rates should be classified under categories reflecting their actual use.Final determinations on each issue: The AAR determined that the wood supplied by the applicant is classified under HSN code 4401, attracting a GST rate of 5%. This classification aligns with the intended use of the wood for pulping in paper mills and its characteristics as wood waste and scrap.