2026 (3) TMI 966 - AAR - GST

Biodegradability determination: concessional GST for biodegradable bags applies only if the goods are demonstrably biodegradable.

Bio compostable carry bags made of polymer materials (including PBAT and PLA) are classifiable as articles for packing under Chapter 39, heading 3923, ... Classification of goods - Manufacture and supply of biodegradable and compostable carry bags at its manufacturing facility - Benefit of Notification No. 9/2025-Central Tax (Rate) - Advance Ruling Authority lacks jurisdiction to determine technical biodegradability Or compostability - admissibility of input tax credit, liability to pay tax, requirement for registration - Whether an activity amounts to supply. Classification of goods - HELD THAT:- The Authority found that the bags are made of polymer materials (including PBAT and PLA) and, on that basis, fall within Chapter 39 as articles for the conveyance or packing of goods. This classification is a matter of tariff determination and is not contingent upon whether the material is biodegradable; the material composition places the goods within the plastics chapter. [Paras 7] The bags are classifiable under Chapter 39, heading 3923, sub heading 39232990 as recorded in paragraph 7. Applicability of concessional notification conditional on biodegradability - Advance Ruling Authority lacks jurisdiction to determine technical biodegradability or compostability - HELD THAT:- The Authority observed that Entry No. 319 provides a concessional rate for 'Paper Sacks/Bags and bio degradable bags' and that the concessional rate is conditional on the goods being biodegradable as understood in the context of that entry. The Authority also recorded that it cannot make scientific, technical or environmental determinations about whether a product is biodegradable or compostable, as such determinations fall within the remit of environmental/technical authorities rather than the Advance Ruling Authority (paras 4-6, 8). Consequently, the Authority held that it cannot itself decide the factual/technical question of biodegradability, but that if the bags supplied are in fact biodegradable then Entry No. 319 would apply and GST at 5% would be payable; if they are not biodegradable, the general rate applicable to plastic articles under Chapter 39 would apply (paras 8-9). [Paras 4, 5, 6, 8, 9] The Authority cannot determine biodegradability; if the bags are biodegradable, Entry No. 319 applies and GST is 5%, otherwise the general Chapter 39 rate applies, as stated in paragraphs 8-9. Final Conclusion: The Authority ruled that the bags are classifiable under Chapter 39, heading 3923, sub heading 39232990; it declined to decide the scientific question of biodegradability, and held that the concessional 5% rate under Entry No. 319 applies only if the goods are in fact biodegradable, otherwise the general rate for Chapter 39 applies. Issues: (i) Whether the bio compostable carry bags manufactured from compostable polymer materials are classifiable under Chapter 39, heading 3923, sub heading 39232990; (ii) Whether the supply of such biodegradable/compostable carry bags is covered by Entry No. 319 of Schedule I to Notification No. 9/2025 Central Tax (Rate) dated 17 09 2025, attracting GST @ 5%.Issue (i): Whether the bio compostable carry bags are classifiable under Chapter 39, heading 3923, sub heading 39232990.Analysis: The goods are articles for the conveyance or packing of goods made of polymer materials including PBAT and PLA. Classification under the Harmonised System depends on the physical character and composition of the goods as described in the relevant chapter and headings. The Authority does not undertake scientific or technical determinations of biodegradability for classification purposes; classification is based on the nature of the material and the relevant tariff headings.Conclusion: The bio compostable carry bags are classifiable under Chapter 39, heading 3923, sub heading 39232990.Issue (ii): Whether the supply of such biodegradable/compostable carry bags is covered by Entry No. 319 of Schedule I to Notification No. 9/2025 Central Tax (Rate) dated 17 09 2025, attracting GST @ 5%.Analysis: Entry No. 319 of Schedule I grants a concessional rate of 5% for 'paper sacks/bags and bio degradable bags' under Chapters 39 and 48. The concessional rate is conditional on the goods being biodegradable as understood in the context of the notification. Determination of actual biodegradability or compostability is a scientific and technical matter within the competence of environmental authorities and not within the jurisdiction of this Authority under Section 97(2) of the CGST Act. Therefore, the applicability of Entry No. 319 depends on whether the specific goods supplied are biodegradable.Conclusion: If the bags supplied are biodegradable, Entry No. 319 of Schedule I to Notification No. 9/2025 Central Tax (Rate) dated 17 09 2025 applies and GST shall be payable at 5% (2.5% CGST + 2.5% SGST). If the bags are not biodegradable, the concessional rate does not apply and the general rate applicable to plastic articles under Chapter 39 shall apply.Final Conclusion: The advance ruling confirms classification of the goods under Chapter 39 heading 3923 sub heading 39232990 and rules that the concessional 5% rate under Entry No. 319 is available only where the supplied bags are biodegradable; the Authority cannot itself adjudicate the scientific question of biodegradability.Ratio Decidendi: A concessional rate notification granted for 'bio degradable bags' under the GST rate schedule applies only where the goods supplied are demonstrably biodegradable, and an advance ruling authority lacks jurisdiction to make independent scientific determinations of biodegradability; classification is based on the goods' tariff description while applicability of the concessional entry is conditional on biodegradability.