GST ON ARTIFICIAL STONE: DETERMINING FACTORS

[Dr. Sanjiv Agarwal]

The question of classification of product called ‘caesarstone’ which is an article made from artificial stone has been recently examined by Authority for Advance Ruling (AAR) and later by Appellate Authority for Advance Ruling (AAAR), Maharashtra in the matter of Re: Hafele India Pvt. Ltd.

About Product

‘Caesarstone’ is a product imported by applicant. This product is an article made from artificial stone. It is a product made using artificial or engineered stone. Basic Customs Duty was paid on the same as per Customs Tariff Act, 1975- Heading 6810 on goods cleared for home consumption as also the IGST. The caesarstone quartz surfaces were used for onward domestic sales in India. These are used as kitchen / furniture / home accessories.

Caesarstone is 'engineered quartz surface' which outperforms natural stone. The manufacturer does not use it as a synonym of quartz as claimed by the appellant. It is being manufactured using various raw materials wherein up to 93 per cent natural quartz aggregates are mixed with pigments and polymer resins. The manufacturer declares the ingredients on the goods as- 'Quartz/Silica sand, Polyester Resin, Styrene, Titanium Dioxide, tert-Butyle peroxy-3,5,5-trimethylhexanoate, Pigment mixture'. The manufacturing process inter alia, includes that 'Caesarstone Quartz Surfaces' are manufactured through a highly automated yet strictly monitored process.

It is evident that Caesarstone is not a natural stone, as its registered name appears to suggest, but is an engineered product, manufactured after a series of processes which are in no way simple mechanical or physical processes covered by Chapter note 1 to Chapter 25. The goods in question are not a mixture or combination of goods, because 'Caesarstone' is an altogether new product, which comes into existence after undergoing various processes and is known in trade parlance by its new name, nature and use and not known by a mixture of quartz combined with other materials. Therefore the quartz contained in the goods in question i.e. Caesarstone, is not in crude state and has undergone processes beyond those allowed in Note 1 of Chapter 25.

Advance Ruling

The assessee was of the view that Caesarstone merits classification under HSN 2506 of the GST Schedule, however, at the time of importation, the same was being classified in heading 6810 for the purpose of levy of Basic Customs Duty (BCD) and IGST on the same. Considering the ambiguity in classification, the appellant initiated an application for an Advance Ruling before Advance Ruling Authority for determination of correct classification of Caesarstone under the Maharashtra Goods and Services Tax Act, 2017. Chapter 25 covers the naturally occurring quartz which has undergone changes without changing the structure of product (Heading 2506). Chapter 25 specifically excludes goods like caesarstone.

The Authority for Advance Ruling has ruled that Caesarstone which is original engineered quartz surface is an article made from artificial stone. It is a product made using artificial or engineered stone. It cannot be covered under Chapter 25 and being an agglomerated stone Caesarstone imported by applicant, is to be classified under HSN Code 6810 in Chapter 68. [Hafele India Pvt. Ltd.  (2018) 5 TMI 646 (AAR-Maharashtra);].

The assessee was aggrieved and thus preferred an appeal against advance ruling before appellate authority (AAAR).

Before Appellate Authority

The ruling given by AAR, Maharashtra was mainly challenged on the following grounds:

(a)       Ruling has been passed on the basis of incorrect reading of Heading 2506 in Chapter 25 of Customs Tariff.

(b)       Goods fall under heading 2506 only.

From a reading of the Tariff, for the goods 'quartz', there are only two entries at tariff item  level  (8 digit level) under heading 2506, viz.

1. 25061010 - In lumps
2. 25061020 - In powder

Even if 'Quartz' was to be imported, it would have been classified under 2506 in the above two forms only. However, the form in which the goods are imported, even if it is presumed for the sake of argument that these are quartz, are neither in form of 'lumps' nor in the form of 'powder', but are Agglomerated/Fabricated/Engineered stone in slab form. For correct classification, one needs to understand the processes that the product has undergone from the primary state of the materials used to the finished state of the product being offered 'off the shelf.

Chapter Note 1 to chapter 25 stipulates that the headings of this Chapter cover only products which are in the crude state or which have been washed, crushed, ground, powdered, levitated, sifted, screened, concentrated by floatation, magnetic separation or other mechanical of physical processes (except crystallisation), but not products which have been routed, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading. The Explanatory Notes to HSN 2506, state that, Quartz is naturally occurring crystal form of silica. Any product falls in this heading only if it complies with both of the following two conditions:-

1. It must be in crude state or have not undergone any process beyond that allowed in Note 1 to this Chapter; for this purpose, heat treatment designed solely to facilitate crushing is regarded as a process permitted by Chapter Note 1.

2. It must not be of a variety and quality suitable for the manufacture of gemstones.

The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3. As per rule 3(a), specific description shall be preferred over generic description and as per rule 3(b), the classification shall be decided based on the material or component which gives the mixture or combination of goods as their essential character. The processes being undertaken by the manufacturer for this product are much beyond the processes mentioned in Chapter Note 1 to Chapter 25, and thus the said goods cannot be classified under this Chapter.

The competing entry HSN 6810 covers Articles of Artificial Stones. As per the Explanatory Notes to HSN 6810, 'Artificial Stone is an imitation of natural stone obtained by agglomerating pieces of natural stone or crushes or powdered natural stone' (limestone, marble, granite, porphyry, serpentine etc.) with lime or cement or other binders (e.g. plastics). Articles of artificial stone include those of 'terrazzo', 'granito', etc.' The Explanatory Notes also state that- 'when lumps of quartz of various sizes are introduced into the mixture, artificial type products are obtained.'

As per the Explanatory Notes to HSN 6810,

'Artificial Stone is an imitation of natural stone obtained by agglomerating pieces of natural stone or crushes or  powdered natural stone (limestone, marble, granite, porphyry, serpentine etc.) with lime or cement or other binders (e.g. plastics). Articles of artificial stone include those of "terrazzo", "granito", etc'

The Explanatory Notes also state that- "when lumps of quartz of various sizes are introduced into the mixture, artificial type products are obtained."

The AAAR, therefore, affirmed the ruling of AAR and held that Caesarstone imported by the Appellant merits classification under HSN 6810 in view of the Rule 1 of the Rules for interpretation of the Customs Tariff, applicable to classifications under GST, read with chapter Note 1 of the Chapter 25 and terms of the heading 6810. [Ruling dated 2.8.2018 in Re Hafele India Pvt. Ltd. 2018 (8) TMI 523 - APPELLATE AUTHORITY FOR ADVANCE RULING, MAHARASHTRA ].