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CLASSIFICATION AND TAX RATE UNDER GST

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CLASSIFICATION AND TAX RATE UNDER GST
By: Mr.M. GOVINDARAJAN
July 6, 2018
  • Contents

Classification of goods or services

Classification of Goods or Services is extremely critical activity under GST regime.  The following should be taken care-

  • The description of the product or the service;
  • The nature of the transaction;
  • HSN (Harmonized System Nomenclature) /SAC (Service Accounting Code);
  • Taxability or as the case may be the exemption of the product or the service;
  • Date of commencement of taxability with the relevant tax rate.

It is mandatory to mention the HSN/SAC code of the product or the service on the tax invoice for all assesses having a turnover of ₹ 5 crores and above. Improper classification of goods or service would not only cause serious hardships to the accounting team but would also land the assessee in unwarranted and avoidable tax issues.

In the central excise and service tax regime many a case has been disputed by the Assessing Officers and assessees in regard to the classification of the products or services.  VAT is not an exemption to this.  In GST till no regular assessment has come into effect.  Advance Ruling Authorities have been formed in all of the States.  The assessees are used to make applications to the Authority for Advance Rulings for classification of goods or services and the applicable tax rates. 

In this article some of the decisions of the Authority for Advance Rulings of various States on various goods and services are discussed.

Classification of ‘Caesarstone’

In Re ‘Hafele India Private Limited’ – 2018 (5) TMI 646 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA  the applicant imports Caesarstone quartz surfaces for onward sale to domestic consumers in India.  The applicant, while importing the impugned goods, is liable to pay basic customs duty, IGST under Customs Tariff Act, 1975 on goods cleared for home consumption.  The applicant on certain examinations realized the Caesarstone merits classification under HSN Code 2506 or 6810 of the GST Schedule.  At the time of importation the same is being classified in Chapter 6810 for the purpose of levy of basic customs duty and IGST on the same.  Considering the ambiguity in classification, the applicant has initiated an application for an advance ruling. 

The Authority found that the scope of Heading 2506 is limited only to quartz in crude state shape by sawing to form a slab.  In the instant case addition of polymer resins and pigments in product has changed its structure from quartz.  The said product is not quartz per se but is only one of raw material for its manufacturing.  Accordingly its classification under 2506 is ruled out.  The Authority observed that a similar product under import in USA was classified under Heading 6810 of Harmonized Tariff Schedule of the US.  In view of the above, the Authority gave the ruling that Caesarstone slab is appropriately classifiable under Heading 6810 of Customs Tariff Act, 1975 and not under Heading 2506 for the purpose of levy of GST on local sale.

Pricing of content

In Re ‘Photo Products Company Private Limited’ - 2018 (6) TMI 38 - AUTHORITY FOR ADVANCE RULING - WEST BENGAL, the applicant is stated to be printing content supplied by the customers on photographic paper.  An advance ruling is sought regarding the nature and classification of the activity – whether it is supply of goods or service and whether the activity carried out by the applicable is taxable under HSN 4911 or SAC 9989.   The applicant contended that the content of the printed matters is not being supplied, but only printing service is being provided to the customers.  The photo prints supplied to the customers are not marketable commodities in the open market and as goods they have no value to persons other than the specific customer who provides the input content.  Therefore it cannot be said to be supplying goods classifiable under Heading 4911 of the Tariff Act.  The Authority ruled that the applicant is providing the service of printing and is liable to be classified under SAC 9989 and taxable @ 12% under Sl. No. 27(i) of Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017 as amended vide Notification No.31/2017-Central Tax (Rate), dated 13.10.2017.

Polished/Processed limestone slab

In Re ‘Maheswari Stone Supplying Co.’ – 2018 (6) TMI 458 - AUTHORITY FOR ADVANCE RULING-HYDERABAD, the applicant sought advance ruling on the following issues-

  • In which Chapter the commodity called ‘Polished/Processed limestone’ falls?
  • Under which HSN Code the above commodity comes?
  • Can it be classified as ‘Mineral substance not elsewhere specified or included; which is mentioned’ under HSN Code 2530?
  • Can it be classified under any of HSN Code 2515/2516/2521?
  • Can it be retained under HSN Code 25 with inaugural phrase of ‘Goods not mentioned elsewhere’ as mentioned at the start of column of 5%?

The applicant submitted that his main activity to bring rough limestone to his unit and subjecting it to polishing with a table polish machine and then cutting it to square or rectangular shape with a table cutting machine.  Since the product is not only cut into square or rectangular shapes but also undergone process of polishing, the same is classifiable under heading 6802 and not under Headings 2515/2516/2521.

The Authority observed that a complete reading of Explanatory Notes to Chapter 25 clearly specifies that limestone slabs which have undergone the processes of cutting and polishing and which have been worked beyond the stage of the normal quarry products of chapter 25 are correctly classifiable under Heading 68.02 of the Customs Tariff as per the Harmonized Commodity Description and Coding System.  The issue has been examined by the Authority with reference to the provisions of GST Acts and the rules made there under and the notifications issued the Authority gave the Ruling as ‘Polished/Processes limestone slabs’ are correctly classifiable under heading  6802 of the GST Tariff.

Roof ventilation

In Re ‘Sammarth Overseas & Credits Private Limited’ – 2018 (6) TMI 427 - AUTHORITY FOR ADVANCE RULING,TELANGANA the issue to be decided in the present application by the Authority is on the classification and rate of tax on roof ventilation.  The ventilation is powered by wind to give effect ventilation for industries, warehouses etc.,  The primary function is to provide ventilation by continuous extraction of air from building.  Even in trade parlance, thee goods are identified as roof ventilation only and not wind mills as contended by the applicant.  The Authority ruled that roof ventilation falls under Sl. No. 371B of Heading 8414 of Schedule III to Notification No. 01/2017-Central Tax (Rates) as amended and attracted at 9% CGST + 9% SGST.

Tobacco leaves

In Re. ‘Shalesh Kumar Singh’ – 2018 (5) TMI 529 - AUTHORITY FOR ADVANCE RULING - DELHI the applicant claimed that the tobacco leaves are classifiable under Heading 2401 and taxable at 5% GST under serial number 109 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 as leaves of tobacco.  After harvesting of tobacco and collection of leaves from plant, natural sap or moisture in leaves is cured by various methods of curing like air curing, sun curing etc., followed by fermenting in certain cases.  Thereafter, further processes like aging, grinding, mixing etc., is done for making it manufactured tobacco fit for consumption.  The applicant is dealing with goods at post curing state where tobacco is not fit for consumption.  A regards classification of goods, HSN explanatory notes for Heading 2401 specifically mention and that whole tobacco (other than tobacco leaves) may be falling under Heading 2401 but not covered under aforesaid entry.  The GST rate of 5% is applicable only to leaves of tobacco as such, broken tobacco leaves and stems in terms of Board’s circular Nos.81/5/87-CX-3, dated 23.06.1987 and 143/12/2911-ST, dated 26.05.2011 and Tribunal order in 2006 (195) ELT 196 (Tri. Mum) =  2005 (9) TMI 173 - CESTAT, MUMBAI relied by applicant is not applicable, being in different context.  The Authority held that the ‘Dried Tobacco Leaves’ which have undergone the process of curing after harvesting of tobacco leaves are ‘unmanufactured tobacco’ covered under HSN Code 2401.   However, they are not covered under Sl. No. 109 of Schedule I of Notification No.1/2017-Central Tax (Rate), dated 28.06.207 @ 2.5% (CGST) + 2.5% (SGST) or 5% (IGST), but the same are covered under Sl. No. 13 of Schedule IV of the said notification as ‘unmanufactured Tobacco (other than Tobacco Leaves) @ 14% (CGST) + 14% (SGST) or 28% (IGST).

Carry bags

In Re ‘J.J. Fabrics’ – 2018 (6) TMI 560 - AUTHORITY FOR ADVANCE RULINGS, KERALA, the petition is the manufacturer of carry bags made of poly propylene non woven fabrics.  The petitioner preferred an application before the Authority for the Advance ruling on the rate of tax of the said product.  The applicant asserted that as per the clarification issued by the Commissioner of CGST and Central Excise, Madurai, the said non woven bags come under HSN Code 6305 90 00 with 2.5% CGST & 2.5% SGST if the sale value is less than ₹ 1000/- per piece.  The applicant further referred to the clarification order C3/17556/2009, dated 29.09.2009, wherein it was clarified that packing bags, textile bags and carry bags made out of non woven fabrics of polypropylene is covered under HSN Code 6305 33 00 of Customs Tariff Act.  The report of the Centre for Biopolymer Science & Technology revealed that the product of the applicant is made of polypropylene.  The Authority found that the above HSN Code appears in Schedule I and Schedule II of Notification No. 01/2017-Central Tax (Rate), dated 28.06.2017 and State Notification No.360/2017, dated 30.06.2017 based on the sale value of the product.  The Authority ruled that in the present case, the sale value of non woven carry bags made of polypropylene is less than ₹ 1000/- per piece.  Therefore it will attract tax @ 5% vide Entry No. 224 of Schedule I of both CGST and SGST Notification.

Joint replacements

In Re. ‘Gopal Gireesh’ – 2018 (6) TMI 705 - AUTHORITY FOR ADVANCE RULINGS, KERALA, the applicant in his application for advance ruling before the Authority submitted that the commodities dealt with by them are implant for handicapped patients in the nature of joint replacement fall under HSN Code 9021 31 00 and are included under Schedule I and the rate of GST is 5%.  Sl. No. 257 – List 3E(G) – Implants for handicapped patients, Joint replacement etc.,  The Authority applied the principle under Rule 3 of the General Rules of interpretation of the First Schedule to the Customs Tariff Act, 1975; that the Heading which provides the most specific description shall be preferred to the Headings providing a more general description.  The Authority held that the Joint replacements fall under HSN Code No. 9021 31 00 and covered under Sl. No. E(9) of List 3 under Sl. No. 257 in Schedule I to Notification No. 1/2017-Central Tax (Rate) attracting GST @ 5%.

Goods for specific use

In Re ‘Dharsak V.P.’ – 2018 (7) TMI 142 - AUTHORITY FOR ADVANCE RULING, KERALA, the Authority ruled that various parts such as marine propellers, rudder set, stern tube set, propeller shaft and M.S. Shaft for couplings are supplied by applicant specific for use in the vessels and cannot be called general purpose parts.  Hence they are covered under Entry No. 252 of Schedule I of Notification No. 01/2018-Central Tax (Rate), and taxable @ 5%.  If these parts have been used for some other purposes these would not have been taxable at 18% as per description.

Conclusion

The above said decisions are not exhaustive.   Many rulings were given by Authorities of many States.  But there are controversies of decisions between the Authorities for the same product.  Even though the decision of the Authority is binding on the particular assessee and the Department it will cause confusion among the industry and trade.  The GST Council is to have a resolution to this.

 

By: Mr.M. GOVINDARAJAN - July 6, 2018

 

 

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