BLOCK JOINING MORTAR: GST @ 18%, NOT 28%

[Dr. Sanjiv Agarwal]

There are various products where tariff classification / heading poses a challenge, more so when such classification results in or impacts exemption and /or rate of tax.

Block Joining Mortar

One such item is ‘Block Joining Mortar’which is widely used in building construction, viz joining masonry units like AAC blocks, concrete blocks, fly ash bricks etc. This product does not have refractory property and is also not used for surfacing preparations for facades, indoor walls, floors, ceilings etc.

Its chemical base is cementitious mortar modified with polymers. It is available in powdered form in 30 kg bags. It needs to be mixed thoroughly with water before applying a thin uniform layer of the paste to cleaned and leveled surface of the masonry units (AAC blocks, fly ash brick etc.) using trowel. It is, therefore, a bonding compound used for joining masonry units like AAC blocks and fly ash bricks. It is a powder made pasty before use by adding water, and it hardens after application, enabling joining of the masonry units. It is applied with a trowel after cleaning the surface.

Advance Ruling

One of the manufacturers of block joining mortar, i.e., SIKA India Pvt. Ltd, manufacturing such joining mortars in the brand name of ‘SIKA’ sought advance ruling on classification of such product under tariff head.

Though the assessee earlier classified the product under Heading 3214 of Customs Tariff Act, 1975 in pre-GST regime, it claimed that in view of its nature, use and commercial identity, it was actually classifiable under Heading 3824 under GST.

Heading 3214 of the Tariff Act covers "Glaziers' Putty, grafting putty, resin cements, caulking compounds and other mastics; painters' fillings; non-refractory surfacing preparations for facades, indoor walls, floors, ceilings or the like”.

32141000      -           Glaziers' putty, grafting putty, resin cements, caulking compounds and other mastics, painters' fillings

321490           -           Other:

32149010      -           Non-refractory surfacing preparations

32149020      -           Resin Cement

32149090      -           Other

Terms like non-refractory surfacing preparation or mortar are not defined in the GST Act, nor is the ambit of the related headings, discussed in the Explanatory Notes to the Tariff Act.

The contesting Heading 3824 covers prepared binders for foundry \moulds or cores; chemical products and pre­parations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included.

On the Advance Ruling being sought on this classification issue, West Bengal Advance Ruling Authority (WBAAR) gave a ruling to the effect that ‘SIKA Block Joining Mortar’ is to be classified under Tariff Item 3214 90 90 of the Customs Tariff Act, 1975, and, therefore, taxable under Serial No. 24 of Schedule IV vide Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017 under CGST Act, 2017 and 1125-FT, dated 28-6-2017 under WBGST Act, 2017. [In Re: Sika India Pvt. Ltd. ( 2018 (4) TMI 812; [2018] ].

Ruling by Appellate Authority

On the Appellant Authority for Advance Ruling (AAAR) being approached against above ruling, the Appellate Authority allowed the appeal by modifying the advance ruling and confirming the assessee’s classification that block joining mortar was classifiable under tariff heading 3824 which allows tax rate relief of 10 percent (18% instead of 28%).

The advance ruling was challenged mainly on the following grounds:

1. The AAR has travelled beyond its jurisdiction by classifying the product, "SIKA Block Joining Mortar" under Tariff Heading 3214 90 90. The Appellant had approached the WBAAR for classification of the product in Tariff Heading 3824 50 90 instead of Tariff Heading 3214 90 10.
2. The advance ruling does not specify the basis of classifying the product "SIKA Block Joining Mortar" under Tariff 3214 90 90.
3. The AAR did not considered the fact that the Appellant's competitors are marketing similar products under HSN Tariff Heading 3824 50 90 and that the same type of product cannot be classified under two HSN Tariff Headings and thereby, chargeable under two different rates of tax.

Thus, the core issue to be addressed was whether the block joining mortar is to be classified under Tariff Head 3214 90 10, which the Appellant was declaring voluntarily for the past few years and which the WBAAR held as 3214 90 90 to be the correct classification, or Tariff Head 3824 50 90.

It was stated that while it had earlier classified their product 'SIKA Block Joining Mortar' under Tariff Head out of ignorance and it made no difference as the duty/tax payable under both the heads, that is Tariff Head 3214 90 10 and Tariff Head 3824 50 90, was the same. Under the GST Act, however, there is a difference of 10% which is pushing them out of market as its competitors are supplying the similar products charging lower tax.

Following is the comparison of duty/tax in pre- and post-GST regime:

Tariff Heading	Duty (Prior to GST)	Tax Rate under GST
3824 50 90	Excise @ 12.5%, VAT @ 14.5%	18%
3214 90 10	Excise @ 12.5%, VAT @ 14.5%	28%

The challenge to classification was supported by common parlance principle, specific description to prevail over general description and that in case of conflicting tariff headings, one which is more beneficial to assessee need to be adopted.

After considering the description, agreements, use and ingredients, AAAR come to a view 32 that Block Joining Mortar is non-­refractory and that it is not used for preparation of surfaces. Considering the nature, use and commercial identity of the item in question and, notwithstanding the Appellant's earlier voluntary declaration about the classification of the item, its classification under Tariff Item 3214 can not be accepted. Instead, it is to be classified under Tariff Item 3824.

The earlier advance ruling was thus modified to the extent that 'SIKA Block Jointing Mortar' is classified under Tariff Item 3824 as notified taxable under Serial No. 97 of Schedule III vide Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017 under the Central Goods and Services Tax Act, 2017 a d 1125-FT, dated 28-6-2017 under West Bengal Goods and Services Tax Act, 2017.