Steel Mugs with Plastic Outer Body Classified under 6% CGST Ruling

The Authority for Advance Ruling (AAR) ruled in favor of the applicant, determining that the Steel Mugs with a plastic outer body should be classified under Sl. No. 184 of Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017. The applicable tax rate for the product was set at 6% CGST, as the essential character of the mugs was found to be derived from the steel component, which constituted the majority of the product's value and functionality.

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Issues Involved:
1. Classification of Steel Mugs with a plastic outer body under GST.
2. Determination of the applicable tax rate for the product.

Issue-wise Detailed Analysis:

1. Classification of Steel Mugs with a plastic outer body under GST:

The applicant, a manufacturer and exporter of various products including specially designed Steel Mugs with a plastic outer body, sought an advance ruling on whether these mugs should be classified under Sl. No. 184 of Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017, which pertains to "Table, kitchen or other household articles of iron & steel; Utensils" under Chapter Heading 7323.

The applicant argued that the mugs should be classified under Chapter Heading 7323 because:
- The manufacturing process involves a predominant use of steel (75%) with plastic forming only 25% of the total composition.
- The product is perceived and used as a steel mug by consumers, with the plastic outer body serving mainly aesthetic and functional purposes such as insulation.
- The essential character of the product is derived from the steel component, which is crucial for its durability and utility.

The applicant supported their claim with various judicial precedents and interpretations of the term "utensils," emphasizing the common parlance and commercial understanding of the product as a household article made primarily of steel.

2. Determination of the applicable tax rate for the product:

The Authority for Advance Ruling (AAR) examined the classification under both Chapter Heading 7323 (which attracts a 6% CGST rate) and Chapter Heading 3924 (which pertains to "Tableware, kitchenware, other household articles & hygienic or toilet articles, of plastics" and attracts a 9% CGST rate).

The AAR applied the General Rules for the Interpretation of the First Schedule to the Customs Tariff Act, 1975, particularly Rule 3(b), which states that composite goods should be classified based on the material or component that gives them their essential character. The AAR found that:
- The essential character of the Steel Mugs with a plastic outer body is provided by the steel component, which constitutes 75% of the product's value and composition.
- The steel component is crucial for the product's functionality, especially for handling hot beverages, while the plastic serves primarily for insulation and aesthetic purposes.

Based on these findings, the AAR concluded that the product should be classified under Chapter Heading 7323, as it is primarily a steel utensil. Consequently, the applicable tax rate for the product is 6% CGST under Sl. No. 184 of Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017.

Judgment:

The AAR ruled in favor of the applicant, confirming that the Steel Mugs with a plastic outer body should be classified under Sl. No. 184 of Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017, and are subject to a 6% CGST rate.

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