GST ON POLYPROPYLENE LENO BAGS

[Dr. Sanjiv Agarwal]

What should be the classification of Polypropylene Leno Bags (PLBs) has been decided by Appellate Authority of Advance Ruling (AAAR) of West Bengal.

In Re: Mega Flex Plastics Ltd. 2018 (7) TMI 391 - AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL ;  the applicant was a manufacturer of PLBs and sought ruling on classification of bags under the GST Tariff which is aligned to First Schedule of Customs Tariff Act, 1975.

It was ruled that such bags, if specifically made from woven polypropylene fabrics using strips or the like of width not exceeding 5 mm and without any impregnation, coating, covering, or lamination with plastics, are to be classified under Tariff Sub-Heading 6305 33 00.

The Revenue, being not satisfied preferred an appeal before AAAR, West Bengal on the following grounds who allowed the appeal and reversed the advance ruling pronounced by AAR. In Re : Mega Plastics Ltd. 2018 (11) TMI 663 - APPELLATE AUTHORITY FOR ADVANCE RULING, WEST BENGAL ;  :

1. Company had declared that they manufacture woven sacks of plastic materials of Chapter 39. Note 1(h) to Section XI of the Tariff Act which covers “textile and textile articles from Chapter 50 to 63 and does not include woven, knitted or crocheted fabrics of Chapter 39”, and hence the Advance Ruling Authority had erred in interpreting the true essence of this Chapter note.
2. When every word in the Chapter note is separated by comma, then each word should be given equal weightage and from that perspective the word 'woven' should have been considered as an exclusion word in its own right. Hence the Advance Ruling is not legally tenable.
3. Though Advance Licence issued by the DGFT, Kolkata (valid for 18 months) classified the said product under Chapter 39, the assessee without citing any reason to the Department or seeking any amendment to DGFT, cleared the product in the domestic market under Tariff Heading 6305 33 00 instead of 3923 29 90. The suo motu change of Tariff Heading is clearly illegal and in violation of the Advance Licence Scheme. In GST as the rate of tax has changed for the two Chapter Sub-Headings, the company applied for Advance Ruling while the Chapter Sub-Heading of Advance Licence issued by DGFT is still in force.

It is a fact that Polypropylene Leno Bags are manufactured by the company by weaving polypropylene strips (tapes). Polypropylene is a variety of plastic and it is a fact that the company declared the Polypropylene Leno Bags voluntarily under Tariff Heading 3923 29 90 and enjoyed the duty drawback. No cogent reason could be offered by the company as to why and how the Tariff Heading should be changed from 3923 29 90 to 6305 33 00.

The AAAR relied upon the judgment in Raj Pack Well Ltd. v. Union of India 1989 (9) TMI 120 - MADHYA PRADESH HIGH COURT as extracted below:

“……the process of the manufacture of the HDPE tapes, the earlier judgments of the CEGAT approved by the Supreme Court and accepted by the Department, all clearly go to show that the HDPE bags are the bags woven by the plastic strips and they, therefore, are goods of plastic and the material used for weaving those bags being the strips of plastic made from plastic granules, the strips of plastic used for weaving the aforesaid HDPE woven sacks has to be classified as an Item under entry 39.20 of Chapter 39 and not under entry 54.06 of Chapter 54. Accordingly the entries of the finished goods have also to be made under the proper Chapter of the Tariff Act treating them as the finished goods made of plastic strips.

In the result we hold that HDPE strips or tapes fall under the Heading 39.20, sub-heading 3920.32 of the Central Excise Tariff Act and not under Heading 54.06, sub-heading 5406.90. Similarly the HDPE sacks fall into Heading 39.23, sub-heading 3923.90...”

The AAAR observed that the above MP High Court judgment is squarely applicable and that AAR, West Bengal failed to take note of the same. It was held that since the company declared that Polypropylene Leno Bags manufactured by weaving polypropylene strips (tapes) under Tariff Heading 3923 29 90 for claiming duty drawback, and no explanation could be offered as to why the Tariff Heading should be changed now to 6305 33 00, it is not permissible under the doctrine of equitable estoppels that the company be allowed to take such a divergent stand now.  

It was also observed that the Apex Court has consistently struck down such self-serving attitude as held in The Rajasthan State Industrial Development and Investment Corporation and Anr. vs. Diamond and Gem Development Corporation Ltd. and Am., 2013 (2) TMI 870 - SUPREME COURT OF INDIA .

In conclusion, the AAAR, therefore, set aside the AAR ruling and confirmed that the item Polypropylene Leno Bags (PLBs) manufactured by the company, be classified under Tariff Heading 3923 29 90 only.