Subject: GST Act,2017-Advance Ruling U/s 98 on Classification and rate of GST on PP Non-woven bags.

We would like to make it clear that the provisions of both the Central Goods and Services Tax Act, 2017 (“CGST Act”) and the Puducherry Goods and Services Tax Act, 2017 (“PGST Act”) are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the PGST Act.

2. M/s. TEXBOND NONWOVENS, No.A 27-30, PIPDIC Electronic Park, Thirubuvanai, Puducherry- 605 107 (hereinafter referred to as the ‘Applicant’) are engaged in the manufacture of various products falling under Chapter 56 & 63 of HSN and registered under GST having GSTIN 34AAEFT3643C1ZJ has filed an application on 23.05.2019 under section 97 of the CGST Act and the PGST Act, read with rule 104 of the Central Goods and Services Tax Rules, 2017 & Puducherry Goods and Services Tax Rules, 2017 in ‘Form GST ARA-01’ seeking an Advance Ruling on ‘classification of PP Non-Woven Bags’. The applicant enclosed copy of challan as proof of payment of fee of ₹ 5,000/- for SGST vide CIN No. SBIN19053400009675 dated 23.05.2019 with the application and subsequently also made a payment of ₹ 5,000/- for CGST vide CIN No. HDFC20093400001009, dated 04.09.2020. The applicant submitted that the question raised in the application has neither been decided by nor is pending before any authority under any provisions of the CGST Act/ PGST Act. No objection to the admission of the application has been raised by the jurisdictional officer concerned. Hence, the application is admitted. The applicant has sought whether PP Non-woven bags (made Raw materials – PP granules (HSN 39021000) which are used for manufacture of Non-woven fabrics (HSN 5603) which are further used for manufacture of PP Non-woven bags by stitching) classifiable under HSN 63059000 or HSN 39232990.

3. The applicant inter-alia submitted that they are manufacturing PP Non-woven bags, made from Non-woven fabrics of HSN 5603 and classifying the same as bags made of technical textiles under HS code 63053900 /63059000 and paying GST @ 5%. That the raw materials used are PP Granule of HS code 39021000.

4. The personal hearing was fixed on 23.10 2019. Mrs. Julie Ernestine Marie. T, Admin &Commercial manager appeared for personal hearing and represented on behalf of the applicant. She reiterated the earlier submission made in the application and requested time for submitting the technical write up for the manufacturing of non-woven package material.

5. The applicant furnished the technical write up regarding the product and process as detailed below:

5.1. In their technical write up the applicant inter-alia has stated that they are manufacturers of Polypropylene Spunbonded Non-woven fabrics (man-made textiles) falling under HSN 5603 (Non-woven, whether or not impregnated, coated, covered or laminated) and its Articles – Garments under HSN 6210 (garments, made up of fabrics of heading 5602, 5603, 5903, 5906 or 5907) and bags under HSN 6305 (sacks and bags, of a kind used for the packing of goods-man-made textile materials) and that some basic characteristics of Spun bond Non-woven fabric are,-

• 100% recyclable and
• Excellent breathability.
• It has air and water permeability – Does not block drainage
• Photo Degradable (Degrades under exposure to sunlight)
• Chemically inert, Nontoxic- burning does not produce any poisonous gases or (DKTE).

5.2. The applicant also had furnished a copy of the certificate from DKTE- Textile & Engineering Institute for Non-woven, which list the above characteristics and the applicant also mentioned that the DGFT have incorporated Non-woven with HSN 5603 under Technical Textile items vide Notification No. 54/2015-2020 Dt. 15.1.2019 and furnished copy of the same and that globally all countries are using HSN Code 5603 for all the exports and imports of PP Spunbond Non-woven fabric and 6305390010 for sacks and bags, of a kind used for the packing of goods,

• Of man-made textile materials
• Other
• Non-wovens

5.3. The applicant stated that there is a misconception or myth created in general for Non-woven being considered as just another plastic, because the raw material (i.e.,“Polypropylene”) is same for Non-woven and plastic. But the fact is, due to difference in the process and characteristic of the end product, there is substantial proof that it is not just another plastic. Polypropylene Non-woven, leaves no ecological footprint. It contributes to waste reduction and the movement away from one-use products, means that its ecological footprint, which is smaller than that of similar alternatives. The applicant admitted that Non-woven bags are made of polymers of polypropylene, but its properties are much different and definitely environment and pollution friendly than the so called plastic bags abundantly available in the market.

5.4. The applicant further gave a detailed summary about the scope for development of the industry due to the growing demand in the international market and finally concluded that the prime concern of their presentation is to prove Polypropylene (or PP) Non-woven fabric and bag is not Plastic and should be considered so and that it should not be covered or categorized in plastic grade under Chapter 39.The applicant has finally submitted for consideration of Non-woven Bag as textile article and for making a specific mention of its definition in the HSN classification /Tariff book.

5.5. The applicant has also furnished ‘POLY PROPYLENE SPUNBONDED NON-WOVEN FABRICS & ARTICLES PROCESS FLOW CHART’, wherein the spunbonding process has been elaborately explained and they have further stated that PP Non-woven fabric bag is made from Non-woven fabric by directly cutting and pasting the fabric without adding any tangible material to it and that some bags are also made by stitching the Non-woven fabrics and so it is a made-up of Non-woven fabric and that it should be considered as textile article, because the immediate raw material of Non-woven bag is Non-woven fabric, which is a textile product. The applicant has also stated that the international HSN code (10 digit) for Non-woven bags is 6305390010.

6. We have taken into consideration the submissions made by the applicant in their application, the additional submissions made during personal hearing by the authorised representative and also the technical write up and other documents furnished by them. We have taken into account the issues on which the applicant has filed for advance ruling, relevant facts having relevance on the subject issue raised and the applicant’s justification/interpretation of law in respect of the issue.

6.1. In the subject application, advance ruling is sought for ‘classification of PP Non-woven Bags’. The applicant have stated that they are manufacturers of polypropylene Spunbonded Non-woven fabrics (manmade textiles) falling under HSN 5603 (Nonwovens, whether or not impregnated, coated, covered or laminated) and its Articles – Garments under HSN 6210 (Garments, Made Up Of Fabrics Of Heading 5602, 5603, 5903, 5906 OR 5907) and bags under HSN 6305 (Sacks And Bags, of a kind used for the packing of goods-man-made textile materials).

6.2. It is pertinent to mention that the issue to be taken for consideration by this Advance Ruling Authority is ‘classification of PP Non-woven Bags’ and hence the question of looking into the significance/advantages of using the material over others and deliberating the characteristics of the material based on the certificates issued by certifying agencies, the scope for growth of demand for the material globally due to various advantages even though may be true but are not relevant to this forum. Therefore, the issue in hand is only the determination of ‘classification of PP Non-woven bags’.

6.3. In the subject case, the applicant is manufacturing PP Non-woven bags, made from non-woven fabrics of HSN 5603 and is classifying the same as bags made of technical textiles under HS code 63053900 /63059000 and paying GST @ 5% and the raw materials used are PP Granule of HS code 39021000.

7. Adoption of Customs Tariff Interpretative Rules: To avoid classification disputes, Rules of interpretation of the Customs Tariff have been adapted for GST Tariff for classification of goods under GST. As for Rules of interpretation, Customs Tariff classification shall be determined according to the terms of Heading and any relative Section or Chapter Notes. In accordance with the above, as Textile and Textile articles are covered under Section XI of the Customs Tariff, the same is adopted under GST Tariff also for the purpose of specification of rate of GST and the Rules of interpretation. Further, notes 1 (h) under Section XI clearly excludes woven fabrics of plastics and article thereof from the purview of the said section dealing with textile and textile articles. The extract of the same is reproduced hereunder.

Note 1(h) of Section XI

“woven, knitted or crocheted fabrics, felt or nonwovens, impregnated, coated, covered or laminated with plastics, or articles thereof, of Chapter 39;”

7.1. Thus it is very clear that the goods/articles covered under Chapter 39 cannot be classified under any of the Chapters falling under Section XI. Consequently it is clear that articles of plastics specified under Chapter 39, even if woven, are not to be classified under any of the Chapters including Chapter 63 falling under Section XI.

7.2. In Chapter 39, in Tariff heading 3923, under sub-heading 39232990, PP sacks and bags are clearly covered. With the inclusion of a clear sub-heading in Chapter 39 assigned to PP Sacks and bags, it is illogical for the same to be included in Chapter 63 and more specifically under sub-heading 630539010, as stated by the applicant.

7.3. Moreover, in terms of Notification No.27/2019-Central Tax (Rate), dated 30.12.2019, it is well clarified that the rate of GST on Woven and Non-woven bags and sacks of polyethylene or polypropylene strips or the like, whether or not laminated, of a kind used for packing of goods (HS code 3923/6305) would be @ 18%.

7.4 That the Press release dated 22.12.2018 of the 31st GST Council meeting followed by CGST Circular No.80/54/2018-GST dt.31^st December, 2018, regarding the issue of classification of Polypropylene woven and Non-woven bags, the following point was clarified:

Para 7.4 “Polypropylene woven and non-woven bags and PP woven and non-woven bags laminated with BOPP falls under HS code 3923 and attracts 18% GST rate.”

Para 7.5 “Non-laminated woven bags would be classified as per their constituting materials.”

8. In this regard the extracts of the Order No.05/ODISHA-AAR/2018-19 dated 16.11.2018 passed by the Odisha Authority for Advance Ruling in the application filed by M/s. Utkal Polyweave Industries (P) Ltd., 26-Ganeswarpur Industrial Estate, Januganj, Balasore-756019, Odisha are furnished below as the issues involved are same,-

“4.5 The applicant has placed reliance on order no. 09/WBAAR/2018-19 dated 06.07.2018 of the West Bengal Authority for Advance Ruling, Goods and Service Tax in the case of M/s Mega Flex Plastic limited, Howrah, wherein, the authority, classified “PP Leno bags” under Tariff sub heading 63053300. The aforesaid ruling of the West Bengal Authority of Advance Ruling has, in the meanwhile, been reversed by the West Bengal Appellate Authority of Advance Ruling in the Appeal Case No.06/WBAAAR/Appeal/2018 dated 08.08.2018 wherein PP Leno Bags have been ordered to be classified under Tariff Heading 39232990.

4.6 While passing the order, the authority relied upon Hon’ble Madhya Pradesh High Court Order in the case of Raj Pack Well Ltd Vs Union of India [1993 (41) ECC 285;1993;ECR 351 MP; 1990 (50) ELT 201 MP] regarding classification of woven sacks made of HDPE tapes and fabrics . The relevant portion of the judgment reproduced below.

“………….the process of the manufacture of the HDPE tapes, the earlier judgments of the CEGAT approved by the Supreme Court and accepted by the Department, all clearly go vide its Order dated 25.10,2018 to show the HDPE bags are the bags woven by the plastic strips and they, therefore, are goods of plastic and the materials used for weaving those bags being the strips of plastic made from plastic granules, the strips of plastic used for weaving the aforesaid HDPE woven sacks has to be classified as an item under entry 39.20 of chapter 39 and not under entry 54 06 of chapter 54. Accordingly, the entries of the finished goods have also to be made under the proper chapter of the Tariff Act treating them as the finished goods made of plastic strips.

In the result we hold that HDPE strips or tapes fall under the Heading 39.20, subheading 3920.30 of the Central Excise Tariff Act and not under Heading 54.06, sub-heading 5406.90. Similarly the HDPE sacks fall into Heading 39.23, sub-heading 3923.90”.

4.7 Tariff heading 3923 includes goods that are classifiable as ‘Articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other closures, of plastics’. Polypropylene Leno Bags, as stated by the applicant, are manufactured by weaving polypropylene strips (tapes), Linear Low Density Polyethylene (LLDPE) and Plastic Master Batch. Polypropylene is a wide variety of plastic. LLDPE is a plastic that is softer and more flexible and has lower tensile strength. These raw materials are made from Plastic Granules. The strips of plastic (polypropylene) are used for weaving ‘PP Leno Bags’ which are clearly classifiable under Tariff Item 39232990 of GST Tariff. The applicant had also been clearing the said goods under Chapter 39 all along and now seeks to reclassify them under Tariff Head 63053300 just to avail the lower GST Rate prescribed in the GST rate schedule for the goods classifiable under Chapter 63. As observed above and also as decided by the West Bengal Appellate Authority of Advance Ruling, PP Leno Bags are classifiable under heading 39232990 and not under 63053300. It is a fact that both the headings bear reference to Sacks and Bags but, in view of the exclusion in the Chapter Note 1(h) appearing under Chapter XI, Woven Fabrics and articles thereof specified under Chapter 39 are not to be covered by the articles mentioned against the heading 63053300.

4.8 Further, as per the existing CBEC Revised Duty Drawback rates schedule applicable w. e. f. 01.10.2017, “polypropylene woven fabrics/bags/sacks, whether or not laminated, with or without U. V. stabilization, with or without liners/fasteners” are specifically classified under drawback chapter 39 under Tariff Item 392302.The item under consideration being woven bags of polypropylene therefore merits classification under this Chapter as it stands today without any ambiguity.”.

9. In view of the above Order No.05/ODISHA-AAR/2018-19 dated 16.11.2018 passed by the Odisha Authority for Advance Ruling and also the order of the West Bengal Appellate Authority of Advance Ruling in the Appeal Case No.06/WBAAAR/Appeal/2018 dated 08.08.2018, wherein PP Leno Bags have been ordered to be classified under Tariff Heading 39232990 and also the order of the Hon’ble Madhya Pradesh High Court Order in the case of Raj Pack well Ltd vs Union of India [1993(41) ECC 285;1993;ECR 351 MP; 1990 (50 )ELT 201 MP] regarding classification of woven sacks made of HDPE tapes and fabrics, it is very clear that in the instant case also the PP Non-woven Bags are to be classified under Chapter Heading 39 and not under 6305.

10. Hence, the contention/statement of the applicant that they are manufacturing PP Non-Woven Bags made from Non-woven fabrics of HSN 5603 and classifying the same as bags made of technical textiles under HS code 63053900 and paying GST @ 5% appears to be wrong.

RULING

In view of the above discussions we pass the following ruling:

1. The item “Polypropylene Non-woven Bags” has to be classified under HSN code 39232990 and not to be classified under HSN code 63059000 and to be taxed at 18% not at 5%.

2. The instant application stands disposed of accordingly.

3. The applicant or the jurisdictional officer, if aggrieved by the ruling given above, may appeal to the Puducherry State Appellate Authority for Advance Ruling under Section 100 of the Puducherry Goods and Services Tax Act, 2017 / Central Goods and Services Tax Act, 2017 within receipt of the Advance Ruling.