Customs Authority Classification Ruling on "Rakhi" for GST

The Authority ruled that the Applicant must classify "Rakhi" based on its constituent materials in accordance with Rule 3(c) of the Interpretation Rules of the Customs Tariff Act, 1975. "Rakhi" will attract GST based on its classification. Exemption under Notification No. 2/2017-Central Tax (Rate) dated 28/06/2017 is not applicable for "Rakhi."

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Issues Involved:
1. Classification of "Rakhi".
2. Applicability of GST exemption under Notification No. 2/2017-Central Tax (Rate) dated 28/06/2017.
3. Taxability of "Rakhi" if not exempt.

Issue-wise Detailed Analysis:

1. Classification of "Rakhi"
The Applicant, a manufacturer of "Rakhi," seeks a ruling on its classification. The "Rakhi" is described as consisting of various materials like cotton thread, silk thread, nylon thread, glass beads, plastic beads, colored stones, metal pendants, and Rudraksha. The manufacturing process involves both in-house production and job-work, employing economically weaker sections, including housewives and widows. Traditionally, "Rakhi" is considered a handicraft item involving skillful pasting or attaching decorative items to threads.

The Authority noted that "Rakhi" does not feature in the list of articles considered as "handicraft goods" under Notification No. 32/2017-Central Tax dated 15.09.2017, amended by Notification No. 38/2017-Central Tax dated 13.10.2017. Therefore, "Rakhi" cannot be classified as a handicraft for GST purposes.

The Applicant suggested that if "Rakhi" is not exempt, it may be classifiable under Serial No. 224 of Schedule I and Serial No. 171 of Schedule II of Notification No. 1/2017-CT(Rate) dated 28.06.2017. The Authority referred to Rule 1 of the Interpretation Rules, which states that classification should be determined according to the terms of the headings and any relative Section or Chapter Notes.

2. Applicability of GST Exemption
The Applicant argued that "Rakhi" should be exempt from GST as it was traditionally considered a handicraft item and was exempt from VAT and Central Excise duty under the earlier tax structure. The Exemption Notification exempts Kalava (raksha sutra) from GST as it is listed as "puja samagri." However, the Authority noted that "Rakhi" is not listed as "puja samagri" under Serial No. 148 of the Exemption Notification and cannot attract NIL rate of duty under Serial No. 92(1) of the TRU Clarification.

The Authority further clarified that "Rakhi" is not an essential part of any Puja or religious ceremony involving deities. The inclusion of "Rakhi" in a Puja Thali at the discretion of the customer or supplier does not make it an integral part of Puja Samagri.

3. Taxability of "Rakhi"
The Authority examined the applicability of Rule 3(b) of the Interpretation Rules, which states that mixtures, composite goods, and goods put up in sets for retail sale should be classified based on the material or component that gives them their essential character. However, "Rakhi" is an independently identifiable item and not a mixture or composite good.

The Authority emphasized that "Rakhi" is a symbol of a bond involving the potential care of the sister by the brother and retains its specific identity despite being made up of various materials. The classification of "Rakhi" should be based on its constituent materials in accordance with Rule 3(c) of the Interpretation Rules, which states that when goods cannot be classified by reference to 3(a) or 3(b), they should be classified under the heading that occurs last in numerical order among those which equally merit consideration.

For example, a "Rakhi" with constituent materials like glass beads, stone, cotton thread, and plastic beads would be classified under Chapter 70/71, depending on the nature of the stone, and attract GST accordingly.

Ruling:
The Authority ruled that the Applicant must classify "Rakhi" based on its constituent materials in accordance with Rule 3(c) of the Interpretation Rules of the Customs Tariff Act, 1975. "Rakhi" will attract GST based on its classification. Exemption under Notification No. 2/2017-Central Tax (Rate) dated 28/06/2017 is not applicable for "Rakhi." This ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.

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