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2019 (7) TMI 1159 - AAR - GSTClassification of goods - rate of tax - Steel Mugs with a plastic outer body supplied by the applicant - Sl. No 184 of Schedule II of N/N. 1/2017 of Central Tax (Rate) dated 28th June, 2017 (as amended) - HELD THAT - The subject product, even though a household article is not manufactured exclusively with the use of a single material. The materials used are iron/steel and plastics. In the present case, the product is manufactured using more than one substance mainly steel (close to 75%) and for outer body plastic (with plastic and other components amounting to only 25% of the total cost of the product) . In view of the provisions of Rule 3 (a), Chapter Headings 7323 and 3924, both appear to be equally specific in relation to the subject goods, in as much as the subject goods can definitely be treated as household articles and therefore we now have a look at Rule 3 (b), which states that composite goods consisting of different materials or made up of different components, (in this case iron steel and plastics) and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable. The subject Steel Mugs with plastic body are advertised and sold as steel mugs. It is the steel that gives the essential characteristic to the subject product. Liquids specially, is they are boiling are not preferred to be poured in plastic containers. Hence in such a case it would be appropriate to consider the element of steel as the major element which are used in such conditions. Further, the plastic with its varied colours would seem to be lending to only visual attraction of the steel mugs and the essential characteristic remains to be steel. The subject goods fall under Chapter Heading 7323, since according to us, the material which is giving the essential character to the steel cups with plastic body is the presence of steel, which is 75% of the total value and composition of the subject goods - the said product is therefore covered under Sr. No. 184 of Schedule II of Notification 1/2017 Central Tax (Rate) dated 28th June, 2017.
Issues Involved:
1. Classification of Steel Mugs with a plastic outer body under GST. 2. Determination of the applicable tax rate for the product. Issue-wise Detailed Analysis: 1. Classification of Steel Mugs with a plastic outer body under GST: The applicant, a manufacturer and exporter of various products including specially designed Steel Mugs with a plastic outer body, sought an advance ruling on whether these mugs should be classified under Sl. No. 184 of Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017, which pertains to "Table, kitchen or other household articles of iron & steel; Utensils" under Chapter Heading 7323. The applicant argued that the mugs should be classified under Chapter Heading 7323 because: - The manufacturing process involves a predominant use of steel (75%) with plastic forming only 25% of the total composition. - The product is perceived and used as a steel mug by consumers, with the plastic outer body serving mainly aesthetic and functional purposes such as insulation. - The essential character of the product is derived from the steel component, which is crucial for its durability and utility. The applicant supported their claim with various judicial precedents and interpretations of the term "utensils," emphasizing the common parlance and commercial understanding of the product as a household article made primarily of steel. 2. Determination of the applicable tax rate for the product: The Authority for Advance Ruling (AAR) examined the classification under both Chapter Heading 7323 (which attracts a 6% CGST rate) and Chapter Heading 3924 (which pertains to "Tableware, kitchenware, other household articles & hygienic or toilet articles, of plastics" and attracts a 9% CGST rate). The AAR applied the General Rules for the Interpretation of the First Schedule to the Customs Tariff Act, 1975, particularly Rule 3(b), which states that composite goods should be classified based on the material or component that gives them their essential character. The AAR found that: - The essential character of the Steel Mugs with a plastic outer body is provided by the steel component, which constitutes 75% of the product's value and composition. - The steel component is crucial for the product's functionality, especially for handling hot beverages, while the plastic serves primarily for insulation and aesthetic purposes. Based on these findings, the AAR concluded that the product should be classified under Chapter Heading 7323, as it is primarily a steel utensil. Consequently, the applicable tax rate for the product is 6% CGST under Sl. No. 184 of Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017. Judgment: The AAR ruled in favor of the applicant, confirming that the Steel Mugs with a plastic outer body should be classified under Sl. No. 184 of Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28th June 2017, and are subject to a 6% CGST rate.
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