Tax Ruling: Different Rates for Cotton vs. Non-Woven Carry Bags

The court ruled that non-woven carry bags are classified under CTH 4202 22 10, and cotton carry bags under CTH 4202 22 20. Until 14.11.2017, both types of bags were taxed at 9% CGST and 9% SGST. From 15.11.2017, the tax rate for cotton carry bags/shopping bags was reduced to 6% under both CGST and SGST, while non-woven carry bags remained taxable at 9% under both CGST and SGST.

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Issues Involved: Classification of bags made of Non-Woven Fabrics of Polypropylene / 100% Cotton (Grey Fabrics) and the applicable rate of tax under the GST Act 2017.

Detailed Analysis:

1. Classification of Bags:

The applicant manufactures various types of bags, including Stick-Bags, Wedding Gift Bags, Packing Bags, Re-usable Shopping Bags, Draw-String Gift Bags, and Garment Bags, made from Non-woven Fabrics of Polypropylene and 100% Cotton (Grey Fabrics). The primary raw materials for these bags fall under heading 5603 (Non-woven Fabrics) and heading 5208 (Woven Fabrics of 100% Cotton) of the Customs Tariff Act 1975.

The classification of Non-Woven Fabrics of Polypropylene is guided by Chapter 56 of the Customs Tariff Act, which includes non-wovens impregnated, coated, covered, or laminated with plastics or rubber. The bags made from these materials are classified under Tariff item No. 6305 33 00 as "Sacks and Bags, of a kind used for packing of goods, of man-made textile materials, of Polypropylene strip or the like." Bags made of cotton are classified under Tariff Item No. 6305 20 00.

During the hearing, the applicant demonstrated the manufacturing process, which involves converting Non-woven Fabric rolls into sheets, printing, and stitching them into bags used by various commercial outlets for packing their products. The Authority examined the samples and records, noting that the bags are used for carrying goods and are referred to as Re-usable Shopping Bags, Drawstring Gift Bags, and Garment Bags.

2. Applicability of Actual Rate / Heading:

The classification under Chapter 6305 covers textile sacks and bags used for packing goods for transport, storage, or sale. However, the applicant’s bags, which are used as carry bags or shopping bags, do not fit this category. Instead, they fall under Chapter Heading 4202, which includes items like trunks, suitcases, vanity cases, and shopping bags. Specifically, shopping bags made of cotton are classified under CTH 4202 22 20, and those made of non-woven fabrics under CTH 4202 22 10.

3. Applicable Rate of Tax:

Initially, Non-woven and Cotton Carry Bags were taxable at 9% CGST and 9% SGST as per SI Nos. 126 and 127 of Schedule III of Notification No. 01/2017-CT (Rate) dated 28.06.2017. However, from 15.11.2017, the tax rate for Cotton Carry Bags/Shopping Bags was reduced to 6% under CGST and 6% under SGST as per SI No. 89 of Schedule II. Non-woven Carry Bags continued to be taxed at 9% under CGST and 9% under SGST as per SI No. 124 of Schedule III.

Ruling:

1. Non-Woven carry bags are classifiable under CTH 4202 22 10, and cotton carry bags under CTH 4202 22 20.
2. Up to 14.11.2017, Non-woven and Cotton Carry Bags/Shopping Bags were taxable at 9% under CGST and 9% under SGST.
3. From 15.11.2017 onwards, Cotton Carry Bags/Shopping Bags are taxable at 6% under CGST and 6% under SGST, while Non-woven Carry Bags remain taxable at 9% under CGST and 9% under SGST.

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