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2019 (5) TMI 1213 - AAAR - GSTClassification of goods - Bags made of Cotton - whether the Cotton Bags manufactured by the appellant and classified by the Original Authority under CTH 42022220 is legal and proper or requires modification? - challenge to AAR decision. The first contention of the Appellant is that Chapter 42 of Customs Tariff covers only articles of leather or composition leather or articles which are characteristically of leather trade - HELD THAT - Classification of goods for the purposes of GST is based on the entries in the First Schedule to the custom Tariff Act 1975. In terms of explanation (iii) and (iv) to Notification No. 1/2017 - Central Tax (Rate) dated 28-06-2017, tariff heading, sub-heading, heading and chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 and the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall be applied for the interpretation and classification of goods. Shopping bags of textile material is specified in the Chapter Heading 4202 itself. Further, those shopping bags with outer surface of textile material is classified under CTH 4202 22 and thereupon depending on the constituent material, the bags are sub-classified. Applying the Interpretative Rule 1, we find that Chapter heading 4202 above, specifically classifies Shopping Bags of cotton with outer surface of textile material - In the case at hand the bags are shopping bags made of Cotton having an outer and inner surface made of cotton, a textile material and merits classification under CTH 4202 22 20. Further, the Customs Tariff is based on the Harmonious System of Nomenclature(HSN) which is a dependable guide for interpreting the customs tariff. In as much as it is clear that Chapter 42 is not restricted only to article of leather and Tariff Heading specifically covers Shopping bags of cotton, with outer surface of textile materials, we do not find merit in the contention of the appellant that articles of leather or characteristically of leather trade is alone classified under Chapter 42. The next contention of the appellant is that the observation of the AAR is not based on any reasoning supported by Chapter Notes or Section Notes or any interpretative rules and In the absence of any such distinction recognized in the chapter headings, the observation of the AAR is totally without the authority of law - HELD THAT - The appellant has not disputed the fact that the bags manufactured by them are used as a carry bag and not as packing bags. The difference between the bags covered under the CTH 6305 the bags under consideration and as to how these bags do not fall under CTH 6305 is also brought out in Para 5.2 of the Ruling. In as much as the original authority has reasoned the decision taken by them, we do not find any infirmity and conclude the contention of the appellant is not supported. The final contention of the Appellant is based on the clarification issued by CBIC vide Circular No. 80/54/2018 dated 31.12.2018 on the issue of classification and applicable GST rates on Polypropylene Woven and Non-Woven Bags and Polypropylene Woven and Non-Woven Bags laminated with BOPP - HELD THAT - The Circular mentioned is based on the deliberations in the 31 st Meeting of the GST Council. The deliberations related to the clarification as to the classification of Polypropylene Woven and Non-Woven Bags and PP Woven and PP Woven and Non-Woven Bags laminated with BOPP(Proposal SI.No. 9 of Part B of Annexure I of the Agenda) - the clarification by the Board in the context of the adoption of HS classification in Customs and the duty drawback clearly provides that the bags (handbags/ shopping bags) made of cotton are squarely classifiable under Chapter heading 4202 of the Customs Tariff and not under Chapter 63. The appellant has stated that the bags supplied by them are in the nature of carry bags/re-usable shopping bags made of cotton, which is a specific entry under tariff heading 42.02. The fact being so, there are no reason to interfere with the ruling of the Original Authority on the Classification and applicable rate of tax payable on such cotton bags. Ruling of AAR upheld - Appeal dismissed.
Issues Involved:
1. Classification of Non-Woven Carry Bags/Shopping Bags. 2. Classification of Cotton Carry Bags/Shopping Bags. 3. Applicable rate of tax for Non-Woven and Cotton Carry Bags/Shopping Bags before and after 15.11.2017. 4. Validity and correctness of the original Advance Ruling. Issue-Wise Detailed Analysis: 1. Classification of Non-Woven Carry Bags/Shopping Bags: The original Advance Ruling Authority classified Non-Woven Carry Bags/Shopping Bags under CTH 4202 2210. This classification was based on the material and usage of the bags as shopping bags rather than packing bags. The decision was not contested in the appeal, and the classification remained unchallenged. 2. Classification of Cotton Carry Bags/Shopping Bags: The original authority classified Cotton Carry Bags/Shopping Bags under CTH 4202 22 20. The appellant contested this classification, arguing that these bags should be classified under Tariff Item No. 6305 20 00 as sacks and bags used for packing goods. The appellant argued that Chapter 42 covers articles of leather or materials with leather characteristics, which does not include cotton. However, the appellate authority upheld the original classification, stating that Chapter 42 is not limited to leather articles and specifically includes shopping bags of cotton with outer surfaces of textile materials. 3. Applicable Rate of Tax for Non-Woven and Cotton Carry Bags/Shopping Bags Before and After 15.11.2017: The original ruling stated: - Before 15.11.2017, both Non-Woven and Cotton Carry Bags/Shopping Bags were taxable at 9% under CGST and SGST. - From 15.11.2017 onwards, Cotton Carry Bags/Shopping Bags were taxable at 6% under CGST and SGST, while Non-Woven Carry Bags remained taxable at 9% under CGST and SGST. The appellant did not contest the tax rates for Non-Woven Bags but argued that Cotton Bags should attract 5% GST based on their classification under Chapter 6305. The appellate authority, however, upheld the original tax rates based on the classification under Chapter 4202. 4. Validity and Correctness of the Original Advance Ruling: The appellant argued that the original ruling lacked proper reasoning and was not supported by Chapter Notes or interpretative rules. They also cited a CBIC circular clarifying the classification of Polypropylene Bags and contended that Cotton Bags should be classified similarly. The appellate authority refuted these arguments, stating that the original ruling was well-reasoned and supported by HSN explanatory notes and relevant customs tariff provisions. The authority also noted that the CBIC circular related to Polypropylene Bags was not applicable to Cotton Bags. Conclusion: The appellate authority upheld the original ruling, confirming the classification of Non-Woven Carry Bags under CTH 4202 2210 and Cotton Carry Bags under CTH 4202 22 20. The applicable tax rates were also upheld, and the appeal was dismissed.
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