QUERRY

Whether Bagasse based Particle Board manufactured with a composition of 75% of bagasse, 25% of wood particles and 5 kgs. of resins falls under serial No.92 of Schedule II [GST rate 12%) or under Sr. No. 137A of Schedule III (GST rate 18%) of the Notification No. 01/2017-Integrated Tax [Rate] dated 28.06.2017?

2.1 The Applicant, vide attached sheet “Annexure B” to their application dated 06.04.2018, has submitted the Statement of relevant facts having a bearing on the question raised is as follows:

(i) M/s Prayagraj Dyeing & Printing Mills Pvt. Ltd. is registered under Goods and Service Tax Act, 2017 vide GSTIN 24AABCP4044R1Z5 (herein after referred as “the applicant”] and is planning to manufacture bagasse-based particleboard. The basic raw materials used for manufacturing of bagassebased particleboard are “Bagasse” & “Rasins”. Due to shortage of basic raw material “Bagasse” in the market, the applicant sometime mixes some amount of wood particles, which may extent to maximum 25% of the total particle-board composition.

(ii) The rate of GST to be levied under Goods and Services Tax Act, 2017 is provided in Notification No.01/2017- 1GST (Rate) dtd. 28.06.2017. Sr. No. 92 of Schedule-II of Notification No.01/2017- IGST (Rate] dtd. 28.06.2017 provides for 12% GST rate for “Bagasse Board” falling under Chapter 44 or any chapter of the Customs Tariff Act. The relevant Sr. No.92 Schedule-II of Notification No.01/2017- IGST (Rate) dtd.28.06.2017 is reproduced hereunder:

(iii) However, apart from the Particle boards mentioned in Sr. No. 92 of Schedule II the other particle boards falls under Sr. No. 137A of Schedule III of the Notification No.01/2017- IGST (Rate) dated 28.06.2017 that was inserted vide Notification No. 43/2017- Integrated Tax (Rate) dated 14-11-2017. The relevant Sr. No. 137A of Schedule 111 of the Notification No. 1/2017- IGST (Rate) dated 28.06.2017 is reproduced hereunder:

2.2 The Applicant, vide attached sheet “Annexure C” to their application dated 06.04.2018, has submitted the Statement containing the applicants interpretation of law and/or facts, as the case may be, in respect of the aforesaid question (i.e. applicant’s view point and submissions on issues on which the advance ruling is sought is as follows:

(a) Particleboard is a composite panel product consisting of cellulosic particles of various sizes that are bonded together with a synthetic resin or binder under heat and pressure. Particle geometry, resin levels, board density and manufacturing processes may be modified to produce products suitable for specific end uses.

(b) Particle boards falling under Heading 4410 of the Customs Tariff Act are a flat product board manufactured in various lengths, widths and thicknesses by pressing or extrusion, and it is usually made from wood chips or particles obtained by the mechanical reduction of round-wood or wood residues, and also from other ligneous materials such as fragments obtained from Bagasse, bamboo, cereal straw, or from flax or hamp shives.

(c) Thus, the particle boards can be obtained from particles of various items such as wood particles, bamboo, bagasse etc., however, each of the product is different based on its characteristics like density, strength, flexibility, thickness, Swelling, Water Absorption, Screw withdraw, Internal bond strength etc. and on examination of all these criterions, one can observe that particle boards of woods are different from those made of vegetable fibers such as flax, straw, bagasse etc..

(d) The applicant is planning to start a factory for the manufacturing particleboard.

The product will contains the following component:

1. Bagasse-75%

2. Wood Particles – 25%

3. Resins-5kgs.

(e) This product is known in the market as bagasse based particleboard. The question before the Hon. Authority is whether bagasse based Particle Board manufactured with a composition of 75% bagasse, 25% of wood particles and 5 kgs. of resins falls under serial No.92 of Schedule II (GST rate 12%) or under Sr. No. 137A of Schedule III (GST rate 18%) of the Notification No. 01/2017-Integrated Tax (Rate) dated 28.06.2017.

(f) Generally, all types of particle boards are covered under the heading 4410 vide Sr. No.l37A of Schedule-Ill of the Notification No. 1/2017 – 1GST (Rate) dated 28.06.2017. Sr. No. 137A is comprehensive and covers all type of particleboards. The relevant description of Sr. No. 137A of Schedule-III is reproduced as under:

“Particle board, Oriented Strand Board and similar board [for example, wafer board) of wood or other ligneous materials, whether or not agglomerated with resins or other organic binding substances, other than specified boards”.

(g) However, Sr. No. 92 of Schedule-II of the Notification No. 1/2017 – IGST (Rate) dated 28.06.2017 specifically covers some of the boards viz. Cement Bonded Particle Board, Jute Particle Board, Rice Husk Board, Glass-fibre Reinforced Gypsum Board (GRG), Sisal-fibre Boards, Bagasse Board, Cotton Stalk Particle Board and particle/fibre board manufactured from agricultural crop residues.

(h) Further, explanation (iv) of the Notification No. 1/2017 – IGST (Rate) dated 28.06.2017 provides that, “The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.”

(i) As per Rules for the Interpretation of the First Schedule of the Customs Tariff Act, 1975 (51 of 1975), for mixture and composite goods rule 3 is applicable, the same is reproduced for ready reference:

“3. When for any reason, goods are prima facie, classifiable under two or more Headings, classification shall be effected as follows:-

(a) The Heading which provides the most specific description shall be preferred to Heading providing a more general description.

(b) Mixtures and composite goods which consist of different materials or are made up of different components and which cannot be classified by reference to (a) shall be classified as if they consisted of the material or component which gives the goods their essential character, in so far as this criterion is applicable.

(c) …….”

(j) As per the rule 3(a) of classification rules, the specific entry shall prevail over the general entry. Based on interpretation of rule (3)(a), GST rate applicable on bagasse board is 12% as the same is specifically covered under S.No.92 whereas S.No.l37A covers all type of particleboard that is a general description. Further, as per Rule 3(b) of the classification rules, in case of mixture/composite goods consisting of different materials or made up of different components the goods shall be classified as if they consisted of the material or component which gives them their essential character. In the bagasse-based particleboards the predominant raw material will be “bagasse” even though it will contain some mixture of wood-particles. The predominant raw material being bagasse the particle board manufactured shall be “bagasse board” as is known in trade parlance. Therefore, as per the applicant’s understanding their product will fall under Sr. No. 92 of Schedule-11 of Not. 1/2017- IGST (Rate) dt. 28.06.2017 which provides for 12% GST rate for “Bagasse Board” falling under Chapter 44 or any chapter.

(k) The view of the applicant is also supported by following judgments:

(I) In case of NAFFAR CHANDRA JUTE MILLS LTD. Versus ASSISTANT COLLECTOR OF C. EX. 1993 (66) E.L.T. 574 (Cal.) 1993 (66) E.L.T. 574 (Cal.), wherein it is stated that:

“45. Section 2 of the Central Excise Tariff Act, 1985 provides: ‘ Duties specified in the Schedule to be levied. The rates at which duties of excise shall be levied under the Central Excises and Salt Act, 1944 (1 of1944), are specified in the Schedule.”

46. The Schedule which contains the rates of duties in respect of specified items has categorized these items sectionally. Within each section are chapters covering sub-categories of the section. Each section contains specific rules of interpretation in respect of entries in the section and relate to intersectional admixtures. The Rules relied upon by the petitioners are the Rules for the interpretation of the schedule itself. There are general rules of interpretation applicable to inter-sectional admixtures and like all general rules are to be resorted to when the sectional rule does not provide to the contrary. The item in question is an admixture of jute and plastic classifiable under Sections XI and VIII respectively. The specific rules of interpretation provided for those sections do not provide for inter-sectional admixtures. The general rules of interpretation will thus apply.

47. The rules on which reliance has been placed:

“2.(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other material or substance. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance.

3. When any application of sub-rule (b) of Rule 2 or for any other reason, goods are prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) ** ** ** ** **

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets, 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.”

48. The Rule 3(b) enacts what may be termed as the predominant principle of classification. That is to say an excisable item must be understood with reference to the predominant element in its make-up.

49. The respondents have strongly urged that these Rules are limited to interpretation of the Schedule and cannot serve as guidelines to interpret a notification. The submission is unacceptable.

50. In my view, it is immaterial whether the words in question are used in the Act or in the notification issued under the Act. The notification being issued in exercise of statutory power under the Act forms part of it is to be noted that in Parle’s case (supra) the Supreme Court said:

“It is well settled that when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment.” (emphasis supplied).

51. Furthermore, the predominant principle of classification has been followed by the Supreme Court even when construing an exemption notification under the Central Excises and Salt Act, 1944.’”

(II) In case of THERMODORS PVT. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, PUNE 2016 (334) E.L.T. 174 (Tri. – Mumbai):

“6. We find that the product i.e. Missile containers are manufactured out of two main ingredient i.e. Plastic and Glass Fiber. Plastic content in the product is to the extent of 39% and Glass Fiber is 33%. The product Missile Container is a container which does not have a single specific entry in the tariff act Any container manufactured is liable to be classified depending upon the raw material used such as if container is manufactured predominantly made of plastic/Glass/ Metal/Aluminum/copper/steel, the classification of the container will be based on the material used in the container. In case of this type of product if the goods is manufactured with various material then being composite product the classification shall be based on the predominant ingredient contained in the product. In the present case the pre-dominant input is plastic as compared to Glass fiber therefore the product Missile Container merit classification under Chapter 39 and not under Chapter 70. The submission of the appellant that classification should be based on the end use is not correct for the reason that there is no specific tariff entry for missile container in the Central Excise Tariff Act. The very same issue has been decided by the Larger Bench and upheld by the Hon’ble Supreme court in case of Kemrock Industries & Exports Ltd v. CCE [2007 (2101 E.L.T. 497 (S.C.)]. In the said judgment the product in question was Fiber Glass Reinforced Plastic Articles, it was held that the Rule 3(b) of Rules for Interpretation of Tariff requires that composite goods, mixtures and goods put up in sets to be classified on the basis of materiel or component which gives the product its essential character. Following the said judgment, in the present case also the plastic being predominant in the product, Missile Container, it merits classification under Chapter 39, in view of above discussion and settled legal position of law, the order passed by the Id. Commissioner (Appeals) is just and proper which reeds no interference we, therefore, uphold the impugned order and dismiss the appeal.”

(III) In case of INNOVISION FOODS PVT. LTD. Versus COMMISSIONER OF C. EX., BANGALORE-I 2017 (348) E.L.T. 591 (Tri. – Bang.)

“5.1 In terms of Rule 2(b) classification of goods consisting of more than one material or substance shall be in accordance with the principles contained in Rule 3. Rule 3(b) concerns with mixtures and composite goods consisting of different materials and reads as follows:

“mixtures, composite goods consisting of different materials or made up of different components, and goods put up in the 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, insofar as this criterion is applicable”.

5.2 Since ‘paneer darbari’ is a product of different materials and predominantly of vegetables (58.69%), the same is liable to be classifiable under CSH 2001.10 of Central Excise Tariff Act, 1985, in terms of Rule 2(b) read with Rule 3(b) of the Interpretation Rules of the Tariff.”

(IV) In case of COLLECTOR OF CUSTOMS, MADRAS Versus INDIAN TEXTILE PAPER TUBE COMPANY LTD. 1985 (19) E.L.T. 550 (Tribunal)

“So it is rightly contended that there is a predominance of the plastic material and it should be assessed only as such. An earlier assessment under Chapter 59 in 1976 will not prevent the Government from reviewing the matter specially as there is no estoppel in taxing statute.

9. We, therefore, agree with the view that the proper classification of the belts in question would be as articles of plastic under Heading 39.07 of the Customs Tariff Act, 1975 and not under Heading 59.16/17 as stated by the Appellate Collector. The impugned order is, therefore, set aside and the appeal is allowed.”

(l) In light of the above interpretation of law, the applicant request the Honorable Authority to take into consideration the relevant Notification, Rules and case laws and give an advance ruling that the Bagasse-based particle board containing predominant amount of bagasse and some amount of wood particles shall fall in serial No.92 of Schedule 11 (GST rate 12%) of the Notification No. 01/2017 – Integrated Tax (Rate) dated 28.06.2017 as the predominant raw material is bagasse.

3. The Central Goods & Services Tax Commissionerate, Surat, vide their letter dated 08.06.2018 has submitted the point wise comments as under:

(i) The activity is not on going one and is a proposed one.

(ii) The questions / issues raised in the application were neither already pending not decided in any proceedings in the case of applicant.

(iii) The product under question cannot be termed as Bagasse Board as wood particles is mixed. As per Notification No.41/2017-Central Tax (Rate) dated 14.11.2017 point (C) in Schedule III – 9% at Sr. No. (xlv) reads as under:

‘After S. No. 137 and the entries relating thereto, the following serial numbers and the entries shall be inserted, namely:

On the basis of above mentioned notification, it is to state that the GST rate for CGST is 9% and the same for SGST. So the rate of GST for particleboard is 18%.

Discussion & Findings:

4. We have considered the submissions made by the applicant in their application for advance ruling. We have also considered the information and views submitted by the Central Goods and Service Tax Commissionerate, Surat.

5. The issue involved in this case is regarding rate of GST of Bagasse based Particle Board manufactured with a composition of 75% of bagasse, 25% of wood particles and 5 kgs. of resins.

6. The Applicant submitted that Bagasse-based particle board containing predominant amount of bagasse and some amount of wood particles shall fall in serial No.92 of Schedule 11 (GST rate 12%) of the Notification No. 01/2017 – Integrated Tax (Rate) dated 28.06.2017 as the predominant raw material is bagasse and would attracts GST @ 12%.

7. We find that the ‘Bagasse board’ has specific entry at Sr. No. 92 in Schedule II to the Notification No.01/2017- Central Tax (Rate), dated 28.06.2017. Accordingly, the said entry covers Bagasse boards falling under Chapter 44 or any other Chapter and attracts concessional GST rate of 12%. Said entry reads as under:

8. We find that the applicant has sought for advance ruling for GST rate of the product, Bagasse based Particle Board manufactured with a composition of 75% of bagasse, 25% of wood particles and 5 kgs of resins. Above entry covers Bagasse Board manufactured from bagasse only. We find that apart from the Particle Boards mentioned in entry at Sr. No. 92 in Schedule II to the Notification No. 01/2017- Central Tax (Rate), dated 28.06.2017 above, the other Particle Boards cover in entry at Sr. No. 137A in Schedule III to the Notification No. 01/2017- Central Tax (Rate), dated 28.06.2017. This entry is reproduced hereunder:

9. We find that Bagasse based Particle Board to be manufactured by the applicant is a composition of bagasse & wood particles and not only of bagasse, therefore, same would be covered under entry at Sr. No. 137A in Schedule III to the Notification No. 01/2017- Central Tax (Rate), dated 28.06.2017 and attracts GST rate of 18%.

10. In view of the foregoing, we rule as under –

R U L I N G

Question: Whether Bagasse based Particle Board manufactured with a composition of 75% of bagasse, 25% of wood particles and 5 kgs of resins falls under serial No.92 of Schedule II [GST rate 12%) or under Sr. No. 137A of Schedule III (GST rate 18%) of the Notification No. 01/2017 – Integrated Tax [Rate] dated 28.06.2017?

Answer: Bagasse based Particle Board, which is a composition of 75% of bagasse, 25% of wood particles and 5 kgs of resins, will fall under entry at Sr. No. 137A in Schedule III to the Notification No. 01/2017- Central Tax (Rate), dated 28.06.2017/ Notification No. 01/2017 – Integrated Tax [Rate] dated 28.06.2017 and attract GST rate of 18% (CGST: 9% & SGST: 9%).