2024 (5) TMI 38 - AAR - GST

Paper Cups Taxed at 18% Under HSN Code 4823 40 00, Higher Rate Upheld for Disposable Packaging Supplies

In Re: Sekandar Sardar

The SC ruled that disposable paper cups are classified under HSN Code 4823 40 00, attracting 18% tax instead of the applicant's claimed 5%. The court ... Classification of goods - paper cups - to be classified under HSN Code 48236900 or not - SGST @ 2.5% rate is rightly charged or not - refund of excess input accumulated in credit ledger due to rate difference of input and outward supply - HELD THAT:- A disposable paper cup is made out of paper and often coated with plastic or wax to prevent liquid from leaking out or soaking through the paper. It may be made of recycled paper. It is known that paper cups consist of approximately 95% high-degree cellulose paper board. Generally, disposable paper cups are composed of 5% inner polyethylene (PE) coatings to prevent leakage. It is found that goods under following description falling under Chapter / Heading / Sub-heading / Tariff item 4823 is specified in entry serial number 157 of Schedule-III of Notification No. 1/2017-Central Tax (Rate) dated 28-6-2017 (as amended) and corresponding W.B. State Tax Notification No. 1125 F.T. dated 28.06.2017(as amended) and therefore would attract tax @ 18%. ISSUES PRESENTED AND CONSIDERED 1. Whether the manufactured disposable paper cups fall under HSN 4823 69 00 or HSN 4823 40 00 (classification of goods for supply). 2. Whether the applicable tax rate on the supply of the manufactured disposable paper cups is 2.5% SGST (combined 5% GST) or 18% (combined rate), having regard to their classification and composition. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification under HSN (HSN 4823 69 00 v. 4823 40 00) Legal framework: Chapter 48 of the First Schedule to the Customs Tariff Act, 1975 (articles of paper, paper pulp or paperboard) and Tariff item 4823 dealing with 'OTHER PAPER, PAPERBOARD, CELLULOSE WADDING AND WEBS OF CELLULOSE FIBERS, CUT TO SIZE OR SHAPE; OTHER ARTICLES...' including 'Trays, dishes, plates, cups and the like, of paper or paperboard' (tariff item 4823 40 00). Precedent treatment: No specific judicial or administrative precedents were cited or relied upon in the record; the Authority proceeded on statutory tariff headings and the notification schedule for GST rates. Interpretation and reasoning: The Authority considered the manufacturing process and composition: disposable paper cups produced from paper sheets and bobbin, often with an inner plastic (polyethylene) coating or lamination to prevent leakage (approx. 95% paperboard and ~5% PE coating). The description and scope of tariff item 4823, and specifically the subheading covering 'Trays, dishes, plates, cups and the like, of paper or paperboard' (4823 40 00), were applied to the product as produced by the applicant. The Authority also examined the invoice placed on record and found it not to be issued by the applicant and to bear an unrelated HSN (7114 11 00), reinforcing reliance on statutory headings rather than the applicant's supplied invoice. Ratio vs. Obiter: Ratio - the product's composition and function place it within tariff item 4823 40 00 as 'cups' of paper or paperboard. Obiter - general observations on typical composition percentages of paper cups (e.g., 95% paperboard, 5% PE) used to inform classification. Conclusion: The manufactured disposable paper cups are classifiable under HSN 4823 40 00 rather than HSN 4823 69 00. Issue 2 - Applicable GST Rate (2.5% SGST v. 18%) Legal framework: Entry serial number in Schedule-III of Notification No. 1/2017-Central Tax (Rate) (as amended) and corresponding state notifications determine GST rates for goods falling under tariff headings; goods described under tariff item 4823 (other articles of paper/paperboard including cups) are specified to attract tax at 18% under the notification schedule. Precedent treatment: No prior rulings or case law were cited. The Authority relied on the Notification schedule entries identifying goods under Chapter/Heading/Sub-heading/Tariff item 4823 as attracting 18% tax. Interpretation and reasoning: Having classified the product under 4823 40 00, the Authority cross-referenced the applicable entries in the GST rate notification (Schedule-III) and observed that goods under the description covering 'Other paper, paperboard...; other articles of paper pulp, paper, paperboard...' (with specified exclusions) are taxable at 18%. The Authority noted that the applicant had been charging output tax at 5% (SGST 2.5% stated), but that such charging is inconsistent with the classification and the notification entry. The Authority also noted the applicant's invoice evidence was inapplicable (not issued by the applicant and bearing an unrelated HSN), and the revenue officer contended for 18% which aligned with the statutory notification. Ratio vs. Obiter: Ratio - once classified under 4823 40 00, the statutory notification prescribes an 18% GST rate for such goods; therefore 18% is applicable. Obiter - observations on the applicant's invoicing practices and the invoice discrepancy. Conclusion: Supply of the manufactured disposable paper cups is taxable at 18% (i.e., classification under 4823 40 00 attracts 18% under the relevant GST notification), and the applicant's charging of SGST at 2.5% (combined 5%) is not supported by the classification and notification. Cross-reference Classification (Issue 1) determines the applicable rate (Issue 2): the finding that the goods are 'cups' of paper or paperboard under 4823 40 00 directly leads to the conclusion that the rate specified in the GST notification for goods under tariff item 4823 applies (18%).