2019 (11) TMI 768 - AAR - GST

Classification of goods - fusible interlining cloth partially coated with plastic which is used for shirt collars, cuffs, pant belts etc. - whether classifiable in Chapters 50 to 55 or under Chapter Note 2(a) to Chapter 59 of the Tariff Act? - CBEC issued Circular No. 24/Coated Fabrics/88-CX.1 dated 02/09/1988 - N/N. 1/2017-CT (Rate) dated 28/06/2017 - HELD THAT - Chapter Note 2(a)(4) to Chapter 59 says that fabrics partially coated or partially covered with plastics and bearing designs resulting from these treatments are excluded from Heading 5903 and are usually covered in Chapter 50 to 55, 58 or 60, depending on the materials used. At the same time, according to the Explanatory Notes to the HSN Code, textile fabrics which are spattered by spraying with visible particles of thermoplastic material and are capable of providing a bond to other fabrics or materials on the application of heat and pressure are classifiable under Heading 5903. According to Circular No. 433/66/98-CX-6 dated 27/11/1998 of CBEC, such classification should be treated as an exception to Chapter Note 2(a)(4) to Chapter 59. The Applicant s reference to rule 3(b) of the General Rules of Interpretation is of no use, as recourse to such rules is permitted under rule 1 of the said General Rules only if the terms of the headings and Section Notes or Chapter Notes do not otherwise require. It is evident from the above discussion that the Applicant s product is classifiable under Heading 5903 in terms of the Explanatory Notes to Chapter 59. Rule 3(b) of the General Rules of Interpretation is, therefore, not applicable. The Applicant s product, namely fusible interlining cloth, is classifiable under Heading 5903 in Chapter 59 of the First Schedule of the Customs Tariff Act, 1975.

Issues Involved:

1. Admissibility of the Application
2. Classification of fusible interlining cloth
3. Submissions of the Applicant
4. Submissions of the concerned officer from the Revenue
5. Observations and findings of the Authority

Detailed Analysis:

1. Admissibility of the Application

1.1 The Applicant, a manufacturer of fusible interlining cloth, seeks a ruling on its classification under Chapters 50 to 55 or Heading 5903 of the Customs Tariff Act, 1975.
1.2 The application is admissible under Section 97(2)(a) of the GST Act.
1.3 The question raised is neither decided by nor pending before any authority under the GST Act, and the Revenue does not object to the application.
1.4 The application is admitted.

2. Submissions of the Applicant

2.1 The Applicant describes the fusible interlining cloth as partially coated with plastic, used for shirt collars, cuffs, and pant belts, resulting in a dotted pattern.
2.2 A test confirms the fabric is partially coated with polyethylene, with a non-continuous coating.
2.3 The Applicant argues the product should fall within exclusion No. 4 of Chapter Note 2(a) to Chapter 59 and be classifiable in Chapters 50 to 55.
2.4 The Applicant contends that Chapter Note 2(a) to Chapter 59 was never intended for fabrics partially coated with plastic, citing historical classification changes.
2.5 The Applicant refers to CBEC Circulars and judicial scrutiny, emphasizing conditions for classification under Heading 5903.
2.6 The Applicant notes that prior to the insertion of Note 2(c), such fabrics were classified under Chapters 50 to 55.
2.7 The Applicant references the judgment in Madura Coats, which struck down a CBEC circular as ultra vires.
2.8 The Applicant asserts that the deletion of Chapter Note 2(c) revived the pre-1989 classification position.
2.9 The Applicant cites the AAR Uttarakhand ruling that similar fabrics fall under Chapters 50 to 55, 58, or 60.
2.10 The Applicant argues that Section Note 1(h) to Section XI does not apply automatically to all fabrics coated with plastic.
2.11 The Applicant invokes rule 3(b) of the General Rules of Interpretation, suggesting classification under Chapter 52 based on the fabric's essential character.

3. Submissions of the concerned officer from the Revenue and reply of the Applicant

3.1 The concerned officer agrees that the uncoated side is made of cotton and suggests classification under Heading 5212 for woven fabrics of cotton.
3.2 The officer argues that fabrics coated with plastic are classified under Chapter 59, citing Section Note 8(b) to Section XI.
3.3 The officer distinguishes the Madura Coats judgment as irrelevant to the GST Act.
3.4 The officer notes the test report does not describe the sample as 'fusible,' questioning its relevance to the cited judgment.
3.5 The officer suggests classification under Heading 5911 for technical use.
3.6 The Applicant rebuts, arguing against classification under Heading 5911 and citing principles of classification and the Dunlop India case.

4. Observations and findings of the Authority

4.1 The purpose of classification is to ascertain tax applicability under the GST Act, referring to the Tariff Act and HSN Code.
4.2 The dispute over classification of fusible interlining cloth has been addressed in CBEC Circulars, focusing on the production process and coating characteristics.
4.3 CBEC Circulars clarified classification changes due to Chapter Note 2(c) and its subsequent deletion.
4.4 The deletion of Chapter Note 2(c) did not affect classification under Heading 5903, according to CBEC Circulars.
4.5 The Explanatory Notes to the HSN Code classify fabrics spattered with thermoplastic material under Heading 5903, treated as an exception to Chapter Note 2(a)(4).
4.6 The Madura Coats judgment does not consider the applicability of the HSN Code's Explanatory Notes.
4.7 The Division Bench of the Madras High Court set aside the Single Bench judgment without declaring the circular ultra vires.
4.8 CBEC's view on classification, as reflected in Circular No. 433/66/98-CX-6, remains relevant.
4.9 The GST Act aligns with the Tariff Act, making the Explanatory Notes to the HSN Code applicable for classification issues.
4.10 The Applicant's product fits the exception category under the Explanatory Notes to Chapter 59.
4.11 The Applicant does not dispute the classification under Heading 5903 based on the Explanatory Notes.
4.12 Rule 3(b) of the General Rules of Interpretation is inapplicable as the product is classifiable under Heading 5903.
4.13 Other arguments and counterarguments are not relevant to the findings.

Ruling:

The Applicant's product, fusible interlining cloth, is classifiable under Heading 5903 in Chapter 59 of the First Schedule of the Customs Tariff Act, 1975. This ruling is valid subject to the provisions under Section 103 until declared void under Section 104(1) of the GST Act.

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