2014 (1) TMI 1104 - HC - VAT and Sales Tax

Classification of goods - Classification of Air Bubble Film Rolls - Classification under HSN Code - Held that - if under a particular classification of HSN Code this particular commodity falls under them, such HSN Code alone would be applicable. If it is with reference to the functional value of the commodity which cannot be classified under any classification without reference to any particular commodity, then residuary clause has to be applied - Except sacks and bags, none of the description of other items are not even nearer to the product in question. The product herein though basically used for packing of goods, this is not the normal packing material used generally, unless the goods for which it is used is fragile or breakable. This is only to avoid damage being caused to the goods depending upon the nature of goods. If goods are otherwise air bubble film rolls are not used. Therefore, though this is used as a packing material for goods, it cannot be termed as packing material in general. With reference to HSN Code 3920, we have to see whether the product in question gets attracted to any of the classification under HSN Code 3920 with reference to a particular product. None of the products referred to under this HSN Code 3920 indicates Air Bubble Film Rolls. Then we have to refer to the component used for making the Air Bubble Film Rolls, i.e., poly ethylene granules. HSN Code 3920.10 refers to polymers of ethylene sheets of poly ethylene. Though it has air bubbles having bubble layer, it is nothing but a sheet of poly ethylene. It attracts HSN Code 3920.10.92. In other words, the eight digits 3920.10.92 is attracted under classification 3920.10 under HSN Code 3920 - Decided in favour of assessee.

Summary

Issues: Classification of commodity under KVAT Act based on HSN Code, applicability of tax rate, interpretation of schedules, relevance of HSN Code 3920 and 3923.

Analysis:
1. The appeal involved a dispute regarding the correct classification of Air Bubble Film Rolls under the Kerala Value Added Tax (KVAT) Act based on the Harmonised System of Nomenclature (HSN) Code. The appellant contended that the commodity should be taxed at 4% under HSN Code 3920, while the department argued for a 12.5% tax rate under Entry 103 of SRO 82 of 2006, classifying it as packing material.

2. The appellant argued that the HSN Code for the product is 3920.10.92, falling under the heading 'excise tariff' 3920, and should be interpreted based on the four-digit sub-heading. They emphasized that the product, though used for packing, is essentially a polyethylene film and not a general packing material. The government pleader cited a previous judgment related to polythene film but contended that the specific commodity's classification under the HSN Code should determine the applicable tax rate.

3. The court analyzed the HSN Codes 3920 and 3923 to determine the appropriate classification for Air Bubble Film Rolls. While HSN Code 3923 primarily covers articles for conveyance or packing of goods, the court found that the product in question, though used for packing fragile goods, did not fit the general packing material category. Upon examining the components and composition of the product, the court concluded that the correct classification falls under HSN Code 3920.10.92, supporting the appellant's argument.

4. Ultimately, the court allowed the appeal, quashing the orders of the authority for clarification (Annexures E and H) and ruling in favor of the appellant's classification under HSN Code 3920. This detailed analysis of the HSN Codes, product composition, and functional value led to the determination of the correct tax rate applicable to Air Bubble Film Rolls under the KVAT Act, resolving the classification dispute effectively.