2021 (3) TMI 915 - AAR - GST

Classification of goods - PP Non-Woven Bags - whether PP Non-woven bags (made Raw materials - PP granules (HSN 39021000) which are used for manufacture of Non-woven fabrics (HSN 5603) which are further used for manufacture of PP Non-woven bags by stitching) classifiable under HSN 63059000 or HSN 39232990? - HELD THAT - In the subject case, the applicant is manufacturing PP Non-woven bags, made from non-woven fabrics of HSN 5603 and is classifying the same as bags made of technical textiles under HS code 63053900 /63059000 and paying GST @ 5% and the raw materials used are PP Granule of HS code 39021000 - the goods/articles covered under Chapter 39 cannot be classified under any of the Chapters falling under Section XI. Consequently it is clear that articles of plastics specified under Chapter 39, even if woven, are not to be classified under any of the Chapters including Chapter 63 falling under Section XI. The item Polypropylene Non-woven Bags has to be classified under HSN code 39232990 and not to be classified under HSN code 63059000 and to be taxed at 18% not at 5%.

Summary

Issues Involved:
1. Classification of PP Non-woven Bags under GST.
2. Applicable GST rate for PP Non-woven Bags.

Detailed Analysis:

Classification of PP Non-woven Bags under GST
The applicant, engaged in manufacturing PP Non-woven Bags, sought an advance ruling on whether these bags should be classified under HSN 63059000 or HSN 39232990. The applicant argued that their PP Non-woven Bags, made from Non-woven fabrics of HSN 5603, should be classified as bags made of technical textiles under HS code 63053900 / 63059000 and taxed at 5%.

The Authority for Advance Ruling (AAR) examined the applicant's submissions, including technical write-ups and certificates. The applicant emphasized that PP Non-woven Bags are environmentally friendly and different from traditional plastic bags, arguing for their classification under textile articles.

However, the AAR referred to the Customs Tariff Interpretative Rules, which are adopted for GST classification. According to Note 1(h) of Section XI, "woven, knitted or crocheted fabrics, felt or nonwovens, impregnated, coated, covered or laminated with plastics, or articles thereof, of Chapter 39," are excluded from textile chapters. Therefore, articles of plastics specified under Chapter 39, even if woven, cannot be classified under any chapters falling under Section XI, including Chapter 63.

The AAR noted that Tariff heading 3923, under sub-heading 39232990, clearly covers PP sacks and bags. Given the clear sub-heading in Chapter 39 assigned to PP sacks and bags, it is illogical to include them in Chapter 63. The AAR also cited Notification No.27/2019-Central Tax (Rate) and a press release from the 31st GST Council meeting, which clarified that PP woven and non-woven bags fall under HS code 3923 and attract an 18% GST rate.

The AAR referenced several rulings, including Order No.05/ODISHA-AAR/2018-19 and the West Bengal Appellate Authority of Advance Ruling, which classified similar products under Tariff Heading 39232990. The Madhya Pradesh High Court's judgment in the case of Raj Pack Well Ltd vs Union of India also supported this classification.

Applicable GST Rate for PP Non-woven Bags
The AAR concluded that the applicant's classification of PP Non-woven Bags under HS code 63053900 and payment of GST at 5% was incorrect. Instead, the PP Non-woven Bags should be classified under HSN code 39232990 and taxed at 18%.

Ruling
1. The item "Polypropylene Non-woven Bags" must be classified under HSN code 39232990 and not under HSN code 63059000, and should be taxed at 18%, not at 5%.
2. The application stands disposed of accordingly.
3. The applicant or the jurisdictional officer, if aggrieved by the ruling, may appeal to the Puducherry State Appellate Authority for Advance Ruling under Section 100 of the Puducherry Goods and Services Tax Act, 2017 / Central Goods and Services Tax Act, 2017 within receipt of the Advance Ruling.