Appellate Authority Upholds GST Classification for Tufted Product

The Appellate Authority affirmed the decision of the AAR Kerala, classifying the product under HSN 5703 90 90 and subjecting it to a 12% GST rate. The appeal was rejected, confirming that the manufacturing process constitutes tufting and the product cannot be classified as simple coir mats under HSN 5705.

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Issues Involved:
1. Classification of the manufacturing process as "Tufting" or otherwise.
2. Determination of whether the product falls under the description "coir mats, matting, and floor covering."
3. Appropriate classification under Customs Tariff Heading 5705 and applicable GST rate.

Issue-wise Detailed Analysis:

1. Classification of the Manufacturing Process:
The appellant sought clarity on whether embedding coir yarn into vinyl (PVC) compound and curing by heating/cooling constitutes "Tufting" as per Heading 5703 of the Customs Tariff and HSN Explanatory Notes to Chapter 57. The Authority for Advance Ruling (AAR) Kerala ruled that the manufacturing process indeed involves tufting, classifying the product under HSN 5703 90 90, attracting a GST rate of 12%. The appellant contended that the process does not involve tufting as defined by HSN Explanatory Notes, which describe tufting as inserting textile yarn into a pre-existing backing using needles and hooks. However, the Appellate Authority found that the process employed by the appellant, involving sophisticated machinery and the embedding of coir yarn into PVC, aligns with the broader definition of tufting, including the use of a tufting gun or hand methods. Therefore, the ruling that the process is tufting was upheld.

2. Description Under "Coir Mats, Matting, and Floor Covering":
The appellant argued that the product should be classified as "coir mats, matting, and floor covering" under HSN 5705, as the exposed surface is coir, and it is marketed and sold as a coir product. They cited various clarifications and test reports, including those from the Central Board of Excise Customs, Coir Board, and Textile Committee, supporting the classification under HSN 5705. However, the Appellate Authority noted that the product involves significant use of PVC and other materials, making it more complex than simple coir mats. The presence of PVC backing distinguishes it from products solely made of coir. Consequently, the product cannot be classified under HSN 5705 as simple coir mats.

3. Appropriate Classification and GST Rate:
The appellant claimed the product should fall under Sl.No. 219 of Schedule I of Notification No. 1/2017-CT (Rate), attracting a 5% GST rate. However, the Appellate Authority concluded that the product, being a tufted coir mat with PVC backing, is appropriately classified under HSN 5703 90 90. As per Sl.No. 144 of Schedule II of Notification No. 1/2017-CT (Rate), such products attract a 12% GST rate. The classification and applicable GST rate are based on the manufacturing process, which involves tufting and the use of PVC backing.

Conclusion:
The Appellate Authority upheld the AAR Kerala's decision, classifying the product under HSN 5703 90 90 and subjecting it to a 12% GST rate. The appeal was rejected, affirming that the manufacturing process constitutes tufting, and the product cannot be classified as simple coir mats under HSN 5705.

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