2025 (2) TMI 171 - HC - GST

Classification and taxation under the West Bengal Goods and Services Act 2017 - classification of Non-Woven Fabric - classification of the PPSB Bed Sheets. Whether Non- Woven Fabric which made from filament and how the said manmade filament are made from polypropylene granules? - HELD THAT - This issue in appeal need not be examined as the Appellate Authority agreed with the assessee s submissions and finding was rendered in favour of the assessee holding that non-wovens whether or not impregnated coated covered or laminated of manmade filament is rightly classifiable in Chapter 56 under HSN and 75603 and GST should be charged at 12% instead of 18%. Classification of the PPSB Bed Sheets - HELD THAT - The allegation against the appellant in the show-cause notice issued by the Central Customs authorities is that Chapter 3(b) of Chapter 56 of the Central Excise Tariff Act 1985 states that non-woven which are completely embedded in plastic or label are entirely clubbed in such material are excluded from Chapter 56 and Second Note (h) of Section XI of the First Schedule to the Central Excise Tariff Act which also states that this section does not cover Non-wovens whether or not impregnated coated covered or laminated with plastics or articles thereof of Chapter 39. The adjudicating authority noted that the said allegation was raised only on the basis that the impugned product is manufactured completely from 100% polypropylene. The adjudicating authority also took note of the definition of the term Non-woven as defined in the handbook on glossary on textile terms issued by the Bureau of Indian Standards under SP 45-1988 and after taking note of the said definition the adjudicating authority held that the product is Non-woven since it is composed of polypropylene fibres and merits classification under Chapter heading no.5603 of the Central Excise Tariff Act 1985. The revenue never disputed the classification of PPSB Bed Sheets manufactured by the appellant under HSN 6304 - Unfortunately in the case on hand the revenue appears to have shifted the burden on the petitioner to prove the negative which is not sustainable in law - when the learned Single Bench found the legal position is wholly in favour of the appellant the necessity to remand the matter for fresh consideration would not arise. Conclusion - i) The Appellate Authority s decision lacked evidentiary support and proper consideration of relevant legal principles. The necessity to remand the matter for fresh consideration was deemed unnecessary given the established legal position favoring the appellant. ii) The Court set aside the order remanding the case to the appellate authority and directed the refund application to be allowed with statutory interest. The order passed by the learned Single Bench to the extent remanding the matter to the appellate authority to reassess the facts is set aside and consequently the writ petition is allowed.

Summary

The judgment addresses several key issues concerning the classification and taxation of Non-Woven Fabric and PPSB Bed Sheets under the West Bengal Goods and Services Act, 2017. The primary legal questions revolve around the correct classification of these products for tax purposes and the subsequent refund applications due to an inverted tax structure.

The first issue discussed is the classification of Non-Woven Fabric. The Appellate Authority agreed with the assessee's classification under Chapter 56 of the Harmonized System of Nomenclature (HSN), which attracts a 12% GST rate. This decision was not contested by the revenue, thus attaining finality.

The second issue involves the classification of PPSB Bed Sheets. The assessee argued that these should be classified under Chapter 63, attracting a 5% GST rate. The Appellate Authority, however, classified them under Chapter 5603, similar to Non-Woven Fabric, imposing a 12% GST. The authority based its decision on the Customs and Central Excise Tariff Act, which states that articles made from Chapters 56 to 62 do not fall under Chapter 63.

The Court found that the Appellate Authority misinterpreted the tariff notes, leading to an incorrect classification. Specifically, the authority incorrectly added words to the statute, which is impermissible. The Court emphasized that the classification should be based on the specific description provided in the tariff headings, and the authority's error in substituting words led to an incorrect tax rate.

The Court also noted that the classification issue was improperly raised during the refund application process, which should have been addressed during the assessment stage. Previous decisions under the VAT regime and Central Excise Act had resolved similar classification disputes in favor of the assessee, and these decisions had attained finality.

The Court emphasized the principle that the burden of proof regarding product classification lies with the taxing authority. The authority failed to provide tangible evidence to support its classification decision, relying instead on assertions. The Court referenced several Supreme Court decisions underscoring the importance of trade parlance and common understanding in determining product classification.

In conclusion, the Court held that the Appellate Authority's decision lacked evidentiary support and proper consideration of relevant legal principles. The necessity to remand the matter for fresh consideration was deemed unnecessary, given the established legal position favoring the appellant. The Court set aside the order remanding the case to the appellate authority and directed the refund application to be allowed with statutory interest.

The judgment reinforces the principle that classification disputes should be resolved based on clear statutory interpretation and established legal precedents, with the burden of proof resting on the taxing authority. It also highlights the importance of adhering to procedural norms in tax adjudication processes.