2019 (8) TMI 1356 - AAAR - GST

Classification of goods - Salwar / Churidhar sets, comprising of three pieces of cloths viz., tops, Bottom and Dupatta, whether partially stitched/ neck work done, or not - whether they are to be classified as Fabrics under Chapters 50 to 55 depending on the constituent material or as articles of apparel and made up textile articles under Chapter 61,62 and 63? - rate of GST - challenge to AAR decision. HELD THAT - It is agreed that in the sets under consideration, the Salwar (bottom) requires stitching and the Kurta(Top) is to be stitched to size but mere Stitching / Stitching to size do not take away the characteristics of the garments being Salwar/ Churidar sets. It will not be out of context to mention that in the Model 2 and 3 displayed during the hearing, it was observed that the duppatta which is one of the pieces in the Set is hemmed/ knotted and in a ready to wear condition. The sets can be used only as Churidars and cannot be used as any other garments or termed as fabrics - Therefore the sets which are in approximate shape/outline of the finished goods, more so with one piece in ready to wear condition, have the essential character of finished goods and in view of interpretative Rule 2(a) are classified as Kurta and Salwar with or without dupatta under CTH 6211. The second contention of the appellant is that once the trade raised the doubt, that, in trade parlance, these goods are supplied as fabric , which is subject to stitching according to the size/ shape and designs of the end user and therefore it cannot be termed as ready-made garments and only called as Churidar materials - HELD THAT - The clarifications were issued that unstitched salwar suits are classifiable as fabrics and attract 5% GST. It is seen that CBIC vide Circular No. 13/2017 dated 27.10.2017 has clarified that Mere cutting and packing of fabrics into pieces of different lengths from bundles or thans, will not change the nature of these goods and such pieces of fabrics would continue to be classifiable under the respective heading as the fabric and attract the 5% GST. Thus, to be a garment/ made up, the product has to be more than mere fabric - In the case at hand it is already established that the products are incomplete or unfinished Salwar/Churidar Sets , which requires further stitching to size/design. The products are not simply fabrics with certain embellishments but containing Top which are Semi-stitched, Stitched and neck-line formed/ dupatta hemmed/ knotted, which are without ambiguity cannot be considered as mere Fabrics but more appropriately termed as garments or Part of garments - Thus the Model 2, 3 and 4 under consideration, being Sets of three pieces consisting of (1) unstitched Salwar(bottom), (2) laced/ hemmed/ knotted duppata and (3) Semi-stitched / Fully stitched Kurta(Top)/ Top with defined neckline are garments and not mere fabric in three pieces. These are covered under specific entry in the Customs Tariff- CTH 6211, as the heading includes Salwars of various materials. Rate of tax - HELD THAT - As per Notification No. 01/2017-C.T.(Rate) dated 28.06.2017 as amended and Schedule I of Notification No. II(2)/CTR/532(d-4)/2017 vide G.O. (Ms) No. 62 dated 29.06.2017 of Tamil Nadu Government as amended, the subject goods are liable to GST @ 5% CGST-25% and SGST-2.5% , if the sale Value is less than ₹ 1000/- per piece and @ 12% CGST 6% and SGST-6% , if the sale value is more than ₹ 1000/- per piece. The decision of Advance ruling Authority upheld.

Summary

Issues Involved:

1. Classification of Salwar/Churidar sets under GST.
2. Applicable GST rate for different models of Salwar/Churidar sets.
3. Whether semi-stitched or partially stitched Salwar/Churidar sets are considered "fabrics" or "garments."

Issue-wise Detailed Analysis:

1. Classification of Salwar/Churidar Sets under GST:

The appellant, engaged in trading readymade garments and fabrics, sought an advance ruling on the classification of Salwar/Churidar sets comprising three pieces: Top, Bottom, and Dupatta. They argued these should be classified as "fabrics" under Chapters 50-55 based on the constituent material, attracting 5% GST. The original authority ruled that:

- Model 1 (Both Top and Bottom not stitched) is classifiable as fabric under Chapter 50-55.
- Models 2 (Top semi-stitched and Bottom not stitched), 3 (Top stitched but Bottom not stitched), and 4 (Top Neck-worked; Both Top and Bottom not stitched) are classifiable as made-up articles under Tariff heading 621142/621143/621149 depending on the material.

The appellate authority upheld this classification, stating that the sets, especially Models 2, 3, and 4, have the essential character of "finished goods" and thus fall under CTH 6211.

2. Applicable GST Rate for Different Models of Salwar/Churidar Sets:

The original authority determined the GST rates as follows:

- Model 1: 2.5% CGST and 2.5% SGST.
- Models 2, 3, and 4: 2.5% CGST and 2.5% SGST if the sale price is less than ?1000 per piece; 6% CGST and 6% SGST if the sale price exceeds ?1000 per piece.

The appellate authority confirmed these rates, emphasizing that the products, being classified under CTH 6211, attract GST based on their sale price.

3. Whether Semi-stitched or Partially Stitched Salwar/Churidar Sets are Considered "Fabrics" or "Garments":

The appellant argued that the sets, requiring further stitching, should be classified as "fabrics." They cited CBIC Circulars stating that mere cutting and packing of fabrics do not change their classification as fabrics. However, the appellate authority found that the products in question, especially Models 2, 3, and 4, have undergone significant work (e.g., hemming, stitching) and thus possess the essential character of garments. The authority referred to Rule 2(a) of the General Rules for Interpretation, which states that incomplete or unfinished articles having the essential character of the complete or finished article should be classified as such.

The appellate authority concluded that the sets, being more than mere fabrics and having undergone significant work, are appropriately classified as "garments" under CTH 6211. The authority dismissed the appeal, upholding the original ruling on classification and applicable GST rates.