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2018 (7) TMI 390 - AAR - GSTClassification of Rakhi - whether exemption under N/N. 2/2017-Central Tax (Rate) dated 28/06/2017 (1126-FT dated 28/06/2017 of State Tax), is applicable for such manufacture, and if not, the taxability of the same? Held that - Rakhi is not an essential part of any Puja or Religious Ceremony to pay obeisance to any deity. Mere inclusion of Rakhi in a Puja Thali at the discretion of either the Customer or the Supplier does not make it an integral and essential part of Puja Samagri. Serial number 148 of the Exemption Notification lists the items to be considered as Puja Samagri and Rakhi is not listed therein. Rakhi , therefore, cannot attract NIL rate of duty under Serial No 9(1) of FAQ dated 03.08.2017 (later, Serial No 92(1) of F. No 332/2/2017-TRU issued by the Tax Research Unit, Govt of India, Ministry of Finance, Department of Revenue) - The Rakhi s the Applicant intends to make, therefore, are not in the form of kalava and hence, cannot attract NIL rate of duty under Serial No 92(2) of the TRU Clarification. Under the GST Act the identity of an item at the point of supply is of paramount importance - In this case Rakhi appeals to the end-consumers because of its specific characteristics which gives the identity of Decorative/Designer/Fancy/Kids Rakhi . All the constituent materials are to be considered under Serial No 92(3) of the TRU Clarification and Rakhi is to be classified in terms of Rule 3(c) of the Interpretation Rules and will be leviable to GST accordingly - It is seen that Rakhi is an independently identifiable product and is also known to be so in common and commercial parlance. The multifarious constituents that go into the making of the Rakhi cannot be considered as accessories; the material which provides the essential character to Rakhi is varied and the buyer may also be motivated to purchase the same as much for its for its designer/decorative/fancy part, as for its symbolic characteristic of a bond of protection. Ruling - The Applicant has to classify the goods Rakhi as per its constituent materials in accordance with Rule 3(c) of Rules for Interpretation of the Customs Tariff Act, 1975, as laid down in Explanatory Notes (iv) of Notification No 1/2017-CT(Rate) dated 28.06.2017. Rakhi will attract GST in accordance to its classification as stated above. Exemption under Notification No. 2/2017-Central Tax (Rate) dated 28/06/2017 is not applicable for Rakhi .
Issues Involved:
1. Classification of "Rakhi". 2. Applicability of GST exemption under Notification No. 2/2017-Central Tax (Rate) dated 28/06/2017. 3. Taxability of "Rakhi" if not exempt. Issue-wise Detailed Analysis: 1. Classification of "Rakhi" The Applicant, a manufacturer of "Rakhi," seeks a ruling on its classification. The "Rakhi" is described as consisting of various materials like cotton thread, silk thread, nylon thread, glass beads, plastic beads, colored stones, metal pendants, and Rudraksha. The manufacturing process involves both in-house production and job-work, employing economically weaker sections, including housewives and widows. Traditionally, "Rakhi" is considered a handicraft item involving skillful pasting or attaching decorative items to threads. The Authority noted that "Rakhi" does not feature in the list of articles considered as "handicraft goods" under Notification No. 32/2017-Central Tax dated 15.09.2017, amended by Notification No. 38/2017-Central Tax dated 13.10.2017. Therefore, "Rakhi" cannot be classified as a handicraft for GST purposes. The Applicant suggested that if "Rakhi" is not exempt, it may be classifiable under Serial No. 224 of Schedule I and Serial No. 171 of Schedule II of Notification No. 1/2017-CT(Rate) dated 28.06.2017. The Authority referred to Rule 1 of the Interpretation Rules, which states that classification should be determined according to the terms of the headings and any relative Section or Chapter Notes. 2. Applicability of GST Exemption The Applicant argued that "Rakhi" should be exempt from GST as it was traditionally considered a handicraft item and was exempt from VAT and Central Excise duty under the earlier tax structure. The Exemption Notification exempts Kalava (raksha sutra) from GST as it is listed as "puja samagri." However, the Authority noted that "Rakhi" is not listed as "puja samagri" under Serial No. 148 of the Exemption Notification and cannot attract NIL rate of duty under Serial No. 92(1) of the TRU Clarification. The Authority further clarified that "Rakhi" is not an essential part of any Puja or religious ceremony involving deities. The inclusion of "Rakhi" in a Puja Thali at the discretion of the customer or supplier does not make it an integral part of Puja Samagri. 3. Taxability of "Rakhi" The Authority examined the applicability of Rule 3(b) of the Interpretation Rules, which states that mixtures, composite goods, and goods put up in sets for retail sale should be classified based on the material or component that gives them their essential character. However, "Rakhi" is an independently identifiable item and not a mixture or composite good. The Authority emphasized that "Rakhi" is a symbol of a bond involving the potential care of the sister by the brother and retains its specific identity despite being made up of various materials. The classification of "Rakhi" should be based on its constituent materials in accordance with Rule 3(c) of the Interpretation Rules, which states that when goods cannot be classified by reference to 3(a) or 3(b), they should be classified under the heading that occurs last in numerical order among those which equally merit consideration. For example, a "Rakhi" with constituent materials like glass beads, stone, cotton thread, and plastic beads would be classified under Chapter 70/71, depending on the nature of the stone, and attract GST accordingly. Ruling: The Authority ruled that the Applicant must classify "Rakhi" based on its constituent materials in accordance with Rule 3(c) of the Interpretation Rules of the Customs Tariff Act, 1975. "Rakhi" will attract GST based on its classification. Exemption under Notification No. 2/2017-Central Tax (Rate) dated 28/06/2017 is not applicable for "Rakhi." This ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.
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