CLASSIFICATION OF ‘LENO BAGS’ UNDER GST

[Dr. Sanjiv Agarwal]

The Classification of polypropylene Leno Bags (PP Leno Bags) was decided by Appellate Authority for Advance Ruling (AAAR), West Bengal in matter of RLJ Woven Sacks Pvt. Ltd. on an appeal filed against advance ruling by the Revenue.

In the instant cast, M/s RLJ Woven Sacks Pvt. Ltd., Kolkata sought an advance ruling on the classification of PP Leno Bags under the GST Tariff which is aligned to the First Schedule of the Customs Tariff Act, 1975. The AAR, West Bengal pronounced the ruling on 28.09.2018. After considering Section Notes 1 (g) and 1 (h) of Section XI of the Tariff Act and specifications issued by the Bureau of Indian   Standards ruled that ‘PP Leno Bags’, if specifically made from woven Polypropylene fabric 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. [In Re: M/S. RLJ Woven Sacks Pvt. Ltd. 2018 (9) TMI 1770 - AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL ].

Since the revenue did not agreed with the ruling, it preferred an appeal before Appellate Authority for Advance Ruling (AAAR), West Bengal against the said classification.

The main grounds of appeal were as follows:

(i)   AAR has referred to 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, hence the learned Advance Ruling authority has erred in interpreting the true essence of this Chapter Note.

(ii)  AAR has erred in reading the legality of the Section Note in so far as when every word in the above 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.

(iii)  AAR has failed to take note of the judgment delivered by the Hon’ble Madhya Pradesh High Court in the case of M/s. Raj Pack Well Ltd Vs Union of India referred in  1989 (9) TMI 120 - MADHYA PRADESH HIGH COURT where the  High Court has observed that HDPE strips or tapes fall under the Head, 39.20, sub-heading 3920.32 of the Central Excise tariff Act and not under Head 54.06, sub-heading 5406.90. Similarly, the HDPE sacks fall into Heading 39.23, sub-heading 3923.90. Consequently, the petition filed by the petitioners was allowed. The order impugned passed by the Assistant Collector, Central Excise, Indore Division and that of the Collector (CE) Appeals, New Delhi were quashed. The respondents were directed to classify the goods accordingly.

Since this order had not been superceded by any decision of any  High Court or the Apex Court, the judgment delivered by the Advance Ruling Authority is not proper and legal.

(iv)   The said taxpayer has been following this practice of classifying both their products-PP Leno Bags & PP woven sacks-under Chapter 39 for the last 9 years. It is not cogent why the taxpayer did not seek advance Ruling at any point of time, earlier. Under self-assessment regime, the taxpayer is the active agent in seeking such Ruling in case of doubts related to classification, or otherwise. The taxpayer’s action of their seeking advance Ruling in this case and a sudden change in classification betrays their self- serving intent of taking undue advantage of a lower tax rate. This was also held by the Apex Court in Sri Babu Ram alias Durga Prasad vs. Sri Indra Pal Singh (Dead) by Irs., 1998 (8) TMI 605(SC), and P.R. Deshpande vs. Maruti Balramhaibatti, 1998 (8) TMI 604 (SC) wherein the Apex Court has observed that such a self-serving action or conduct violates the doctrine of estoppels.

(v)  The taxpayer has relied on the classification given by the Bureau of Indian Standards to classify their products Leno bags under Chapter 63 only when the tax rate has been reduced to 5% against 18% under Chapter 39 which was the previous classification made by the assessee. In a judgment of Hon’ble Apex Court in the case of M/s. Novopan India Ltd v. Collector of Central Excise and Customs, Hyderabad,   (1994) 9 TMI 67 (SC), the Apex Court observed that “Classification of goods-Commercial understanding is the true test and not what scientific books like Encyclopedia Britannica may say”. The Apex Court also observed “….. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason explained in Mangalore Chemicals and other decisions, viz., each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it. As observed by a Constitution Bench of Apex Court in Hansraj Gordhandas v. H.H. Dave [ (1968) 9 TMI 112 (SC) that such a Notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the Notification, i.e, by plain terms of exemption.”

It was also submitted that in Appeal Case No. 06/WBAAAR/Appeal/2018, it was ruled that PP Leno Bags of similar description, manufactured by M/s Mega Flex Plastics Ltd. were classified under Tariff Heading 3923 29 90. [In Mega Plastics Ltd. 2018 (11) TMI 663 - APPELLATE AUTHORITY FOR ADVANCE RULING, WEST BENGAL ]

That AAAR observed that the Chapter 63 covers ‘Other made up textile articles; sets; worn clothing and worn textile articles; rags’. For sake of clarity, the relevant text of the Tariff Heading 6305 3300 is reproduced as under:

“6305	Sacks and bags, of a kind used for the packing of goods
……	-Of man-made textile materials
6305 3300	-- Other, of polyethylene or polypropylene strip or the like”

Further, Chapter 39 covers ‘Plastics and Articles thereof’. For sake of clarity the relevant text of Chapter Sub-Heading 3923 2990 is reproduced as under:

“3923	Articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other closures, of plastics
……..	-Sacks and bags (including cones)
392329	--Of other plastics
39232990	---Other”

It further observed that taxpayer’s intention to change the classification of the impugned goods appears to enjoy of the lower Tariff rate of GST. In this regard, on the similar issue, the Order of the Hon’ble Supreme Court, in the matter of P.R. Deshpande vs. Maruti Balram Haibatti, as reported in  (1998) 8 TMI 604 (SC), is relevant, wherein the  Supreme Court has observed that :

“…….the doctrine of election is based on the rule of estoppel- the principle that one cannot approbate and reprobate inheres in it. The doctrine of estoppel by election is one of the species of estoppel in pais (or equitable estoppel), which is a rule in equity. By that law, a person may be precluded by his actions or conduct or silence when it is his duty to speak, from asserting a right which he otherwise would have had.”

Not only this, there is a CBIC clarification vide Circular No. 80/54/2018-GST dated 31.12.2018 where applicability of GST on supply of Polypropylene Woven and Non-woven Bags and PP Woven and Non-woven Bags laminated with BOPP has been clarified. Accordingly,

“7.2 As per the explanatory notes to the HSN to HS Code 39.23, the heading covers all articles of plastics commonly used for the packing or conveyance of all kinds of products and includes boxes, crates, cases, sacks and bags.

7.3 Further as per the Chapter note to Chapter 39, the expression ‘plastics’ means those materials of heading 39.01 to 39.14 which are or have been capable, either at the moment of polymerization or at some subsequent stage, of being formed under external influence (usually heat and pressure, if necessary with a solvent of plasticizer) by moulding, casting, extruding, rolling or other process into shapes which are retained on the removal of the external influence.

7.4 Thus it is clarified that Polypropylene Woven and Non-Woven Bags and PP Woven and Non-Woven Bags laminated with BOPP would be classified as plastic bags under HS code 3923 and would attract 18% GST.”

It was therefore, ruled that Polypropylene Leno Bags whether laminated with BOPP or not would be classified as plastic bags under HS Code 3923 and would attract 18% GST and that Polypropylene Leno Bags shall be classifiable under Heading No. 092390 of Customs Tariff Act. The ruling was modified accordingly.  [In Re: Assistant Commissioner of Central Tax (T&R), Howrah CGST & CX Commissionerate (M/S. RLJ Woven Sacks Pvt. Ltd.) 2019 (2) TMI 833 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL ; ].