GST at 5% confirmed for imitation zari yarn under HSN 56050020, with concessional rate continuity ensured

The AAR held that imitation zari thread or yarn, also known as metallic yarn or zari badla, manufactured from metallized polyester film/plastic film, is classifiable under HSN 56050020. Applying the relevant rate notifications and subsequent clarifications, the Authority determined that such goods fall under the specified entry attracting GST at 5%. It further noted that, upon supersession of the earlier notification by a later one effective 22.09.2025, the same classification and concessional GST rate of 5% would continue under the new entry, ensuring rate continuity for the applicant's supplies of imitation zari thread or yarn.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Classification issue: Whether imitation zari thread or yarn (also known as metallic yarn, Zari Badla or any other name in trade parlance) made from plastic film/lacquered coated polyester film with aluminium metal is classifiable under heading 5605, specifically tariff item 56050020.

1.2 Rate of tax issue (post-amendment): What GST rate is applicable on such imitation zari thread or yarn after insertion of serial no. 218AA in Schedule I to the rate notification dated 28.06.2017 and corresponding amendment to serial no. 137 in Schedule II.

1.3 Continuity of rate under superseding notification: Whether the same goods continue to attract GST at 5% under the subsequent rate notification effective from 22.09.2025.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Classification of imitation zari thread/yarn made from metallised plastic/polyester film

Legal framework:

2.1.1 The Court referred to heading 5605 of the Customs Tariff Act, 1975 and its HSN explanatory notes, which cover metallised yarn, whether or not gimped, being textile yarn or strip of heading 5404 or 5405 combined with metal in the form of thread, strip or powder, or covered with metal. The heading specifically includes products consisting of a core of metal foil or of a core of plastic film coated with metal dust, sandwiched between layers of plastic film.

2.1.2 The specific tariff break-up for heading 5605 was noted: 56050010 (real zari thread), 56050020 (imitation zari thread), and 56050090 (other).

2.1.3 Circular No. 205/17/2023-GST dated 31.10.2023 clarified, on recommendation of the GST Council (52nd Meeting), that imitation zari thread or yarn made from metallised polyester film/plastic film falling under HS 5605 is covered by serial no. 218AA of Schedule I (5% GST) and that no refund will be permitted on metallised polyester/plastic film on account of inversion.

Interpretation and reasoning:

2.1.4 The Court noted the trade description and manufacturing process: aluminium coating on plastic/polyester film, colour lacquer coating, subsequent cutting/slitting of lacquer-coated film into small threads known as "Zari Badla"/metallic yarn, and its use in textile fabrics as imitation zari.

2.1.5 Relying on the HSN explanatory notes, the Court held that goods made from metallised polyester/plastic film in the manner described fall squarely within heading 5605, as they are metallised yarn comprising plastic film coated with metal dust and used as metallic yarn in textile manufacture.

2.1.6 The Court observed that the Customs Tariff specifically earmarks tariff item 56050020 for "Imitation zari thread", and that the goods in question, being imitation zari/metallic yarn made from metallised plastic/polyester film, match this statutory description and trade parlance understanding of imitation/metallic zari.

2.1.7 The Court considered the Minutes of the 15th and 52nd GST Council Meetings, which showed a consistent policy concern regarding taxation of zari and a specific recommendation that imitation zari thread or yarn made from metallised polyester/plastic film is covered under heading 5605.

Conclusions:

2.1.8 Imitation zari thread or yarn (also known as metallic yarn or Zari Badla) made from plastic film/lacquered coated polyester film with aluminium metal merits classification under tariff item 56050020 of heading 5605.

2.2 Applicable GST rate under Notification No. 1/2017-CT (Rate) and subsequent amendments

Legal framework:

2.2.1 Under Notification No. 1/2017-CT (Rate) dated 28.06.2017, prior to 26.07.2023, serial no. 137 of Schedule II (12%) covered "Metallised yarn ... such as Real zari thread (gold) and silver thread, combined with textile thread), Imitation zari thread".

2.2.2 Notification No. 09/2023-CT (Rate) dated 26.07.2023 amended the rate structure by:

(a) inserting serial no. 218AA in Schedule I (2.5%) for "56050020 - Imitation zari thread or yarn known by any name in trade parlance"; and

(b) amending serial no. 137 of Schedule II to exclude "(i) real zari thread (gold) and silver thread combined with textile thread; (ii) imitation zari thread or yarn known by any name in trade parlance".

2.2.3 Circular No. 205/17/2023-GST dated 31.10.2023, based on the 52nd GST Council Meeting, clarified that imitation zari thread or yarn made from metallised polyester/plastic film falling under HS 5605 is covered by serial no. 218AA of Schedule I attracting 5% GST.

Interpretation and reasoning:

2.2.4 The Court identified the source of confusion as the shift of imitation zari thread from a generic metallised yarn entry at 12% (serial no. 137, Schedule II) to a specific 5% entry (serial no. 218AA, Schedule I) with effect from 26.07.2023, and the simultaneous exclusion of imitation zari from the 12% entry.

2.2.5 Reading heading 5605, the specific tariff item 56050020, the amended rate entries, the circular, and the GST Council minutes together, the Court found clear legislative and policy intent that all imitation zari thread or yarn known by any name in trade parlance, including that made from metallised polyester/plastic film, be taxed at 5% under serial no. 218AA from 27.07.2023 onwards.

2.2.6 The Court observed that the applicant's goods, being imitation/metallic zari thread made from metallised polyester/plastic film, match the description "Imitation zari thread or yarn known by any name in trade parlance" in serial no. 218AA and therefore cannot remain within the residual metallised yarn entry at 12% after its explicit exclusion of imitation zari.

Conclusions:

2.2.7 For the period from 27.07.2023 to 21.09.2025, supply of imitation zari thread or yarn (metallic yarn/Zari Badla) made from plastic film/lacquered coated polyester film with aluminium metal, classifiable under 56050020, is leviable to GST at 5% under serial no. 218AA of Schedule I to Notification No. 1/2017-CT (Rate) as amended by Notification No. 09/2023-CT (Rate).

2.3 Continuity of 5% rate under superseding Notification No. 9/2025-CT (Rate)

Legal framework:

2.3.1 Notification No. 1/2017-CT (Rate) was superseded by Notification No. 9/2025-CT (Rate) dated 17.09.2025, effective from 22.09.2025.

2.3.2 Under Notification No. 9/2025-CT (Rate), serial no. 353 of Schedule I covers: "Metallised yarn, whether or not gimped, being textile yarn, or strip or the like of heading 5404 or 5405, combined with metal in the form of thread, strip or powder or covered with metal, including real zari thread (gold) and silver thread combined with textile thread, imitation zari thread or yarn known by any name in trade parlance", attracting GST at 5%.

Interpretation and reasoning:

2.3.3 The Court noted that the new notification consolidates metallised yarn, including both real zari and imitation zari, into a single 5% entry, thereby maintaining the concessional rate for imitation zari thread or yarn.

2.3.4 As the applicant's product remains classifiable under heading 5605 and squarely falls within "imitation zari thread or yarn known by any name in trade parlance", it continues to be covered under serial no. 353 of Schedule I of the new notification at the same rate.

Conclusions:

2.3.5 With effect from 22.09.2025, imitation zari thread or yarn (metallic yarn/Zari Badla) made from metallised polyester/plastic film and classifiable under 56050020 is leviable to GST at 5% under serial no. 353 of Schedule I to Notification No. 9/2025-CT (Rate).

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