2024 (7) TMI 409 - HC - GST

Classification of goods - fusible inter lining fabric of cotton - correctly classifiable under Heading 5903 of Chapter 59 to the First Schedule to the Custom Tariff Act 1975 or not - HELD THAT - The Heading 5903 would apply only to the fabrics in which impregnation coating or covering cannot be seen with the naked eye. The comparison made by the appellate authority of the criteria prescribed under the Chapter Note 2(a) of Chapter 59 of the Custom Tariff Act 1965 and the corresponding test result as per the Atira s test report is concerned Criteria 1 which provides that film coating is visible with naked eye as per test report however Chapter note 2(a) does not refer to the film coating but it refers to the coating and covering which cannot be seen with naked eye. As per the test report of the Atira the fabric manufactured by the petitioner was partially coated and once the fabric is partially coated the same would not fall in Chapter 59 but the same would fall under Chapters 52 to 55 as per the exclusion clause as mentioned in Serial No. 125 Chapter Note 2(a) of Chapter 59. On going through the Chapter Note 2(a)(4) of the Chapter Heading 5903 and as per the test report of Atira the specimen fabric i.e. Polyester plus cotton interlining woven fabrics being partially covered with plastic and bearing design resulting from this treatment which leads to the plastic coated pattern which is visible on one side of the fabric will fall under Chapters 502 55 58 or 60 as per Chapter Note 2(a)(4) of the relevant Chapter 59 of the GST Tariff and not under Chapter 59 Heading 5903 as held by the impugned orders. Impugned order dated order dated 08.04.2021 passed by the Gujarat Appellate Authority for Advance Ruling Goods and Service Tax is quashed and set aide and the product manufactured by the petitioner being partially covered with plastic coated pattern i.e. visible on one side of the fabric and the same will fall under Chapters 50 to 55 58 or 60 GST Tariff and not under Chapter 59 of Chapter Note 5903 as held by the impugned order. Petition allowed.

Summary

Issues Involved:
1. Classification of fusible interlining cloth under GST.
2. Validity of the order passed by the Gujarat Appellate Authority for Advance Ruling.
3. Consideration of test reports and previous judicial precedents.

Detailed Analysis:

Issue 1: Classification of Fusible Interlining Cloth under GST
The petitioner, engaged in the manufacturing of fusible interlining cloth, challenged the classification under Chapter 59, Heading 5903, as determined by the Advance Ruling Authority and confirmed by the Appellate Authority. The petitioner contended that the fabric should be classified under Chapters 52, 54, or 55, based on the qualitative analysis from ATIRA, which indicated that the coating on the cloth is non-continuous and not visible with the naked eye. The Court observed that the product being partially coated does not fall under Chapter 59 but under Chapters 52 to 55 as per the exclusion clause in Chapter Note 2(a) of Chapter 59.

Issue 2: Validity of the Order Passed by the Gujarat Appellate Authority for Advance Ruling
The Court found that the Appellate Authority erroneously relied on the criteria for classification under Chapter 5903 without considering the actual test report from ATIRA. The comparison made by the Appellate Authority was flawed as it did not accurately interpret the Chapter Note 2(a) of Chapter 59. The Court highlighted that the film coating visible with the naked eye mentioned in the test report does not align with the criteria in Chapter Note 2(a), which refers to coatings not visible with the naked eye. Consequently, the Court quashed the impugned order dated 08.04.2021 by the Gujarat Appellate Authority for Advance Ruling.

Issue 3: Consideration of Test Reports and Previous Judicial Precedents
The petitioner argued that the authorities ignored the binding precedent set by the Madras High Court in the case of M/s. Madura Coats, which held that partially coated fabrics should be classified under Chapters 52, 54, and 55. The Court agreed, noting that the Appellate Authority failed to consider the clarification issued by ATIRA and the precedent set by the Madras High Court. The Court emphasized that once a circular is quashed by a higher court, it cannot be relied upon for classification purposes.

Conclusion:
The Court allowed the petition, quashing the order dated 08.04.2021 by the Gujarat Appellate Authority for Advance Ruling. It directed the Advance Ruling Authority to reconsider the classification de novo, taking into account the test report from ATIRA and the precedent set by the Madras High Court. The Court concluded that the product manufactured by the petitioner, being partially coated, falls under Chapters 50 to 55, 58, or 60 of the GST Tariff, not under Chapter 59, Heading 5903. Rule was made absolute to this extent, with no order as to costs.