Fusible interlining fabric with visible plastic coating must be classified under Chapters 50-55 not Heading 5903

Gujarat HC ruled that fusible interlining fabric of cotton was incorrectly classified under Heading 5903 of Chapter 59. The court held that Heading 5903 applies only to fabrics where impregnation, coating, or covering cannot be seen with naked eye. Since the fabric was partially coated with plastic pattern visible on one side, it fell under exclusion clause and should be classified under Chapters 50-55, 58, or 60 instead of Chapter 59. The appellate authority's order dated 08.04.2021 was quashed and petition allowed.

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Issues Involved:
1. Classification of fusible interlining cloth under GST.
2. Validity of the order passed by the Gujarat Appellate Authority for Advance Ruling.
3. Consideration of test reports and previous judicial precedents.

Detailed Analysis:

Issue 1: Classification of Fusible Interlining Cloth under GST
The petitioner, engaged in the manufacturing of fusible interlining cloth, challenged the classification under Chapter 59, Heading 5903, as determined by the Advance Ruling Authority and confirmed by the Appellate Authority. The petitioner contended that the fabric should be classified under Chapters 52, 54, or 55, based on the qualitative analysis from ATIRA, which indicated that the coating on the cloth is non-continuous and not visible with the naked eye. The Court observed that the product being partially coated does not fall under Chapter 59 but under Chapters 52 to 55 as per the exclusion clause in Chapter Note 2(a) of Chapter 59.

Issue 2: Validity of the Order Passed by the Gujarat Appellate Authority for Advance Ruling
The Court found that the Appellate Authority erroneously relied on the criteria for classification under Chapter 5903 without considering the actual test report from ATIRA. The comparison made by the Appellate Authority was flawed as it did not accurately interpret the Chapter Note 2(a) of Chapter 59. The Court highlighted that the film coating visible with the naked eye mentioned in the test report does not align with the criteria in Chapter Note 2(a), which refers to coatings not visible with the naked eye. Consequently, the Court quashed the impugned order dated 08.04.2021 by the Gujarat Appellate Authority for Advance Ruling.

Issue 3: Consideration of Test Reports and Previous Judicial Precedents
The petitioner argued that the authorities ignored the binding precedent set by the Madras High Court in the case of M/s. Madura Coats, which held that partially coated fabrics should be classified under Chapters 52, 54, and 55. The Court agreed, noting that the Appellate Authority failed to consider the clarification issued by ATIRA and the precedent set by the Madras High Court. The Court emphasized that once a circular is quashed by a higher court, it cannot be relied upon for classification purposes.

Conclusion:
The Court allowed the petition, quashing the order dated 08.04.2021 by the Gujarat Appellate Authority for Advance Ruling. It directed the Advance Ruling Authority to reconsider the classification de novo, taking into account the test report from ATIRA and the precedent set by the Madras High Court. The Court concluded that the product manufactured by the petitioner, being partially coated, falls under Chapters 50 to 55, 58, or 60 of the GST Tariff, not under Chapter 59, Heading 5903. Rule was made absolute to this extent, with no order as to costs.

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