TaxTMI 
2026 (11) TMI 417
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....nst the Appellant. BRIEF FACTS OF THE CASE 2. The factual matrix of the case, briefly stated, is that the Appellant is a Private Limited firm registered under State Goods and Service Tax Act, 2017 under GSTIN-02AAACV6291P1ZX and engaged in the business of manufacturing and supply of PP Non-Wovens fabric Bags and PP Non-Wovens fabric. The dispute originated when the department initiated the proceedings by issuing a show cause notice dated 25.11.2021 proposing to re-classify the subject goods from Tariff Heading 6305 (attracting the lower GST Rate of 5%) to Tariff Heading 3923 (attracting higher GST rate of 18%), on the ground that the primary raw material used in manufacturing of PP Non-woven bags is PP granules which is a plastic polymer. The adjudicating authority confirmed the proposed re-classification along-with the demand of differential tax, interest and penalty vide order in original dated 16.07.2022. Aggrieved by the order of adjudicating authority, the Appellant preferred an appeal before the Commissioner (Appeals), who vide the impugned order rejected the Appellant's appeal and upheld the findings of Adjudicating authority, thus necessitating the filling of present ....
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....ore unsustainable in law. ii)The appellant further contended that the learned Commissioner (Appeals) further compounded this illegality by failing to comply with Section 107 (12) of the CGST/SGST Act, 2017. The statute explicitly mandates that the First Appellate Authority shall pass a reasoned and speaking order, stating the points for determination, the decision thereon, and the reasons for such decision. However, the impugned order contains no such structured identification of the dispute, nor does it disclose any cogent reasoning or legal analysis demonstrating how the authority arrived at the conclusion to shift the classification of the subject goods from Tariff Heading 6305 to Tariff Heading 3923; that instead of undertaking a proper examination of the rival classification entries, the relevant statutory provisions, and the material placed on record, the lower authority appears to have proceeded directly towards a pre-determined conclusion regarding the classification of the goods. The impugned order, therefore, fails to disclose the essential reasoning process by which the classification was altered and does not adequately demonstrate how the conclusion reached is suppor....
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....nsistent stand within the very same jurisdiction. ii) The appellant placed on record categorical evidence demonstrating that, in the case of a similarly placed manufacturer, namely M/s. JPD Precision Fasteners Pvt. Ltd. operating within the same jurisdictional boundaries, the department has accepted and permitted the classification of identical nonwoven fabric bags under Tariff Heading 6305; that the department cannot be permitted to selectively apply different standards to similarly placed taxpayers, thereby creating an uneven and discriminatory tax regime. iii) It was emphatically submitted that, while the appellant has been subjected to a higher GST rate of 18% by classifying the goods under Chapter 39, its direct competitor operating in the same jurisdiction and dealing in identical products have been permitted to clear the very same goods under Chapter 6305 at the corresponding lower rate of 5%; that such differential treatment, in the absence of any rational basis or intelligible differentia amounts to hostile discrimination and fails the constitutional test of equality under Article 14 of the Constitution of India; that the impugned order, being founded upon inconsiste....
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....way arrived at the conclusion that the finished goods, i.e. the PP non-woven bags, were classifiable under Tariff Heading 3923 as articles of plastics; that the department, while reaching such conclusion, failed to examine the actual manufacturing process whereby the polypropylene granules undergo various stages of conversion process and ultimately emerge as nonwoven fabric and finished bags; that the classification proposed in the show cause notice was founded merely on assumptions and presumptions rather than on concrete and verifiable factual evidence. The learned Counsel emphasised that where the language and substance of the show cause notice disclose that the authority has already formed a conclusive opinion on the issue, the very purpose of issuing a show cause notice and granting an effective opportunity of defence is defeated; that such a notice seriously prejudices the right of the notice to a fair and meaningful opportunity of being heard and reduces the subsequent proceedings, including personal hearing and adjudication, to a mere formality. The learned Counsel accordingly submitted that the proceedings stand vitiated on account of violation of the principles of natu....
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....fundamental test of manufacture, holding that manufacture takes place when a new and distinct article emerges from the original material, having a different name, character or use. b) Hon'ble Supreme Court in case of Decorative Items India Pvt. Ltd. v. CCE [1996 (86) ELT 186 (SC)] held that the application of phenolic resin/chemical coating on duty-paid plywood under heat and pressure amounts to manufacture, as the process resulted in the emergence of a commercially distinct and identifiable product known as decorative plywood. 9. The learned counsel emphasised that both these above judicial pronouncements reinforce the settled principle that, where a manufacturing process brings into existence a new product having a distinct commercial identity, the resultant product must be examined with reference to the material and processes that actually give rise to such new product; that applying the aforesaid principle to the present case, both the adjudicating and appellate authorities failed to appreciate the transformation undergone by PP granules through the intervening textile manufacturing processes, resulting in the emergence of PP non-woven fabric as a distinct intermedi....
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....icted to traditional woven cotton or woollen yarns. The learned Counsel further submitted that the Hon'ble Apex Court, in the above case observed that when a material undergoes an integrated manufacturing process and is converted into a fabric structure, it acquires the essential character of a "textile"; that the Ministry of Textile Government of India officially recognised and categorised polypropylene non-woven material as a "technical textile"; that it is completely contradictory for one organ of Government (Ministry of Textile) to promote and classify man-made spunbond material as an advanced structure textile fabric, while another organ (Ministry of Finance) seeks to treat it as plastic under Chapter 39. Therefore, keeping in view the binding judicial test laid down by Hon'ble Supreme Court and official industrial classification by nodal Ministry the product must be held to be textile articles classifiable under Heading 6305. 14. Laboratory certifications and TUFs benefits. The learned Counsel for the appellant also highlighted the factual and fiscal treatment accorded to the subject material by State-recognised institutions and executive schemes; that multiple ....
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....y bars the entry of textile materials into the plastic chapter; that a circular cannot supplant statutory law or enhance a tax liability. To support of above contention, he heavily placed reliance on the following decisions of judicial Fora: (1) Orient Craft Ltd. v. Commissioner Income Tax in civil appeal no. 7564/26 / SC (2). Commercial Tax Officer v. M/s. Bombay Machinery Stores civil appeal no. 2217 of 2011. The appellant submits that reliance placed by the revenue on a miss-read administrative circular to supersede the structural arrangements of the Tariff is entirely illegal and ultra virus and the enforcement of higher rate based on such circular is liable to be quashed. 17. General rules of interpretation The counsel further argued that without prejudice to the primary submissions and assuming arguendo, though not conceding, that the subject goods could simultaneously fall under both tariff headings 6305 and heading 3923, the learned counsel for the appellant submitted that the disputes must be resolved by invoking the statutory interpretation rules; that rule 3(a) of the general rules of interpretation of the First schedule to the Customs Tariff Act,....
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....adhya Pradesh High Court's decision in case of M/s. Raj Pack Well vs Union of India 1989 (Madhya Pradesh). iii) AAR in case of the state of West Bengal in M/s. Mega Flex Plastics Ltd. iv) AAR in case of the state of Gujrat in M/s. Rotex and Girivarya Non-Woven Pvt. Ltd. 21. In the above cases Non-Woven Fabric bags have been classified under Chapter heading 3923. He further heavily relied upon the circular no. 80/54/2018 dated 31.12.2018, issued by CBIC, wherein it was clarified that PP woven / non-woven bags are classifiable under chapter heading 3923, attracting 18% of GST rate. 22. In view of the above arguments, he prayed that the appeal may be dismissed. Records of personal hearings 23. Hearings in the subject appeal were held on 01.07.2026, 17.08.2026, 01.09.2026 and 15.09.2026. The learned counsel Sh. Gaurav Gupta, appeared on behalf of the appellant on 15.09.2026 and reiterated the contentions set forth in their written memo of appeal and supplementary submissions. He heavily emphasised the nonspeaking and unreasoned nature of the orders passed by the lower authorities, the jurisdictional inconsistency under article 14 of the Constitution of India and the s....
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.... the learned Commissioner (Appeals) has merely recorded a few submissions of the appellant in one paragraph and in the very next paragraph dismissed them in a single sweeping stroke in agreement with the original authority. We further find that the impugned order contains no independent analysis and findings of the various contentions raised by the appellant in his ground of appeal, no formulation of core points for determination, and total silence regarding, various technical reports and binding judicial precedence cited by the appellant. It is a well settled principle of law that the recording of clear, analysing and giving reasoned findings on each contention of the appellant, cogent and independent reasons is not a mere procedural formality but it is vital in any quasi-judicial orders. It ensures transparency, prevents administrative arbitrariness and enables this higher appellate forum to understand the exact mental path the lower authority traverse to arrive on its conclusion. A mechanical affirmation that glosses over the core controversy and leaves the taxpayer's contentions entirely unanswered reduces the statutory right of appeal to an empty formality and inflicts a fatal....
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....imilarly situated Taxpayer without an organic differentia renders the order discriminatory and invalid under Article 14 of the Constitution of India. 34. We find that the lower authorities refusal to maintain jurisdictional uniformity introduces structural arbitrariness into the tax administration which is non-permissible under the law. Therefore, we find substantial force in the contention of the appellant regarding violation of Article 14 of the Constitution of India and we are in agreement with the contention of the appellant on this point. 35. We find form the records placed before us that the entire edifice of revenue's re-classification exercise is based on the fundamental factual error regarding the actual input material utilised by the appellant. The authorities below have gravely erred in holding that the subject bags are manufactured directly from raw plastic PP granules thereby mechanically treating the manufacturing facility as plastic unit under Chapter 39. This finding is completely contrary to the evidences placed on record by the appellant during the course of proceedings of the case and is also diverse from industrial realities. We further find from the....
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....orm an independent marketable product i.e. polypropylene non-woven fabric. Applying the well settled principle "character name, and marketability" test laid down by the Hon'ble Supreme Court in Union of India v. Delhi Cotton and General Mills Company Ltd., (Supra) a distinct manufacturing activity takes place in the above process. We further find from the manufacturing process that the raw plastic granules lose their original identity and emerge as a recognised intermediate textile sheet, classifiable under tariff heading 5603, which revenue is allowing for its clearance on applicable GST rates. We further find that note 1 and note 2(p) to chapter 39 explicitly state that chapter 39 does not cover textile and textile article falling under Section XI. We further find that chapter heading 5603 resides un-disputedly within Section XI (Textile) and the statutory mechanism completely bars the department from dragging this material back into the plastic chapter. Once the intermediate fabric is statutory recognised as textile material, any finished item made exclusively by cutting and sealing this fabric must logically be classified as made-up textile article under Tariff heading 6305 ("s....
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....lene fabric sheets, what comes into existence is an undisputable textile material. 40. We also find that because the intermediate material permanently crosses into Section XI (Textile), the absolute exclusion under Chapter Notes 1 and 2(p) of Chapter 39 trigger automatically, a statutory dynamic that was entirely absent in Raj Pack Well. In view of the above discussions, we find that the revenue's attempt to apply the Raj Pack Well and Mega Flex ratios to technically distinct non-woven fabric is completely misplaced and bad in law. 41. We find that the revenue has heavily relied on CBIC circular No. 80/54/2018 - GST dated 31.12.2018 to justify the 18% levy under Heading 3923. Upon a careful reading of the said circular, we find that the lower authorities have completely misread its intent and scope. The circular was aimed at conventional laminated plastic bags or bags made out of plastic sheets where the primary character remains rigid or semi rigid plastics. It was never intended to override the statutory chapter notes and technical textile like spunbond non-woven fabrics. Even if the revenue's interpretation is accepted for a moment, a beneficial administrative circular can....