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2018 (8) TMI 975 - AAR - GSTClassification of an item - Modelling dough - Whether the product of the applicant i.e. Modelling dough will be covered under Chapter 34 or Chapter 95 under the Customs Tariff Act, 1975? Held that - The ingredients consist of maida, water and chemicals. The percentages of various chemicals used by the applicant in manufacture of their product was submitted by the applicant to us as per table above but we are not revealing the exact percentage of various chemicals used in manufacture of the product in the table above to protect the applicant s trade secret - the product is being used by children to prepare some shapes from the dough. Chapter 34 of the Customs Tariff falls in Section VI which is for Products of the Chemical or Allied Industries . The Heading of Chapter 34 reads as Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modelling pastes, dental waxes and dental preparations With a basis of plaster - the impugned product contains several chemicals and not maida per se. There is no question that anybody would purchase this product for being used as maida as so many other chemicals as given in table above are also added to it . Neither can maida alone be used for preparing the various shapes as various chemicals are needed to be added to maida for it to be used and reused as modelling dough for making the various shapes. These chemicals are needed to give the needful firmness, elasticity, plasticity and non perishability to the shapes. The dough needs to be mouldable and flexible to make the various shapes. There needs to be some safeguard against cracking, crumbling. The meaning of plastic is not just restricted to the polymer plastic but rather it refers to various properties with respect to malleability and flexibility. The impugned product being a dough used for amusement of children, the Heading 3407 would be the correct classification. Ruling - Modelling dough will be covered under CTH 3407 under the Customs Tariff Act, 1975.
Issues Involved:
1. Appropriate classification and rate of GST applicable on the supply of "Modelling Dough" under the Central Goods and Services Tax Act, 2017. Detailed Analysis: Applicant's Contentions: 1. Product Description: The applicant, engaged in the manufacture of various products taxable under GST, describes "Modelling Dough" as a semi-solid, clay-like structure made from 'maida' (refined wheat flour) used as a toy for children to create various shapes. 2. Classification Ambiguity: The applicant highlights an anomaly in the Customs Tariff and GST Tariff Schedules regarding the classification of "Modelling Dough." The product could be classified under Chapter 34 (Heading 34.07) or Chapter 95 (Heading 95.03). 3. Customs Tariff Chapter 34: Chapter Heading No. 34.07 falls under Section VI, which covers "Products of the Chemical or Allied Industries." The applicant argues that their product, made from 'maida', is neither a chemical nor a product of any allied industry, thus should not be classified under this section. 4. Competitors’ Classification: Competitors classify similar products under Chapter 95 (Heading 95.03) as "Toys," attracting a lower GST rate of 12% (6% CGST). 5. Request for Clarification: Due to the prevailing ambiguity and its impact on fair competition and market practices, the applicant seeks an advance ruling for the correct classification and applicable GST rate. Concerned Officer’s Contentions: 1. Lack of Information: The applicant did not provide sufficient information, such as samples, photographs, and detailed manufacturing processes, crucial for determining the correct classification. 2. Essential Characteristics: The officer argues that the essential characteristics of "Modelling Dough," such as elasticity, pliability, and non-perishable nature, are provided by chemicals, not 'maida'. Therefore, the classification should depend on these chemicals. 3. Specific vs. General Classification: The officer suggests that if the product fits under both Chapter 34 and Chapter 95, it should be classified under the more specific heading, i.e., 34.07. Hearing and Observations: 1. Product Ingredients: The applicant provided a detailed list of ingredients, revealing that the product consists of 'maida', water, and various chemicals. 2. Custom Tariff Headings: - Heading 34.07: Covers "Modelling pastes, including those put up for children's amusement." - Heading 95.03: Covers various toys, including those made of wood, metal, and plastics. 3. Chemical Composition: The product contains significant chemicals that provide necessary properties like firmness, elasticity, and non-perishability, aligning it with products under Section VI for "Products of the Chemical or Allied Industries." 4. HSN Explanatory Notes: The notes for Heading 34.07 describe "modelling pastes" as plastic preparations, generally used by artists or children for amusement. The term "plastic" here refers to the material's malleability and flexibility, not necessarily polymers. 5. Differentiation of Terms: The term "plastic" as used in Chapter 34 should be understood in its broader sense, denoting malleability and flexibility, rather than being restricted to polymers as defined in Chapter 39. Final Judgment: - Classification: The product "Modelling Dough" is classified under CTH 3407 of the Customs Tariff Act, 1975. - GST Rate: As per Schedule III of Notification No. 1/2017-Central/State Tax (Rate), the applicable GST rate is 18% (9% CGST). Order: For reasons discussed, the product "Modelling Dough" will be covered under CTH 3407 under the Customs Tariff Act, 1975.
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