Circular issued by Tax Research Unit clarifying classification of polypropylene woven and non-woven bags quashed

Association Of Technical Textiles Manufacturers And Processors & Anr Vs Union Of India & Ors (Delhi High Court)

Delhi High Court held that in the absence of a conferral of any power upon the Tax Research Unit (TRU), it cannot issue clarification regarding the classification of polypropylene woven and non-woven bags under the Customs Tariff Act, 1975. Accordingly, Circular dated 31 December 2018 issued by TRU is quashed and set aside.

Facts-

The first petitioner, which is an association of technical textiles manufacturers and the second petitioner which is a member of the said association, are principally aggrieved by the Circular dated 31 December 2018 issued by the Tax Research Unit constituted under the first respondent, and to the extent that it purports to clarify that polypropylene woven and non-woven bags including those laminated with Biaxially Oriented Polypropylene are liable to be classified as falling under Chapter 39 and more particularly Tariff Heading 3923 forming part of the First Schedule to the Customs Tariff Act, 1975. The dispute essentially related to a question of classification of polypropylene woven and non-woven bags under the Harmonized System of Nomenclature.

Conclusion-

Held that in the absence of a conferral of any power upon the TRU, or it being recognized as being statutorily enabled to issue any clarification or directive under Section 168 of the CGST Act, the circular is liable to be quashed and set aside on this ground

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. The writ petition has been preferred seeking the following reliefs:-

“a) Issue a writ of certiorari, or any order or direction in the nature thereof, quashing paragraphs 7.1, 7.2, 7.3 and 7.4 of the Circular No. 80/54/2018-GST dated 31.12.2018 issued by the Tax Research Unit of the Respondent No.1;

b) Issue any other suitable writ, order or direction, which this Hon’ble Court may deem fit and proper in the facts and circumstances of the present case;

c) Pass such further orders/writs and other reliefs as the nature and circumstances of the case may require;”

2. The first petitioner, which is an association of technical textiles manufacturers and the second petitioner which is a member of the said association, are principally aggrieved by the Circular dated 31 December 2018 issued by the Tax Research Unit¹ constituted under the first respondent, and to the extent that it purports to clarify that polypropylene woven and non-woven bags including those laminated with Biaxially Oriented Polypropylene² are liable to be classified as falling under Chapter 39 and more particularly Tariff Heading 3923 forming part of the First Schedule to the Customs Tariff Act, 1975³. The dispute essentially related to a question of classification of polypropylene woven and non-woven bags under the Harmonized System of Nomenclature⁴.

3. The TRU has, on due consideration of the aforesaid issue, clarified that those articles would be classifiable as „plastic bags‟ under Tariff Heading The petitioners are aggrieved by the aforesaid Circular, since it contends that polypropylene woven or non- woven bags are made out of textiles and thus cannot be equated with plastics, which form the subject matter of Chapter 39 of the First Schedule to the 1975 Act.

4. It is also their case that polypropylene non-woven fabric is a textile, which is classifiable under Tariff Heading 5603 comprised in Chapter 56 titled as “Wadding, Felt and Nonwovens; Special Yarns; Twine, Cordage, Ropes and Cables and Articles Thereof”. Quite apart from the controversy with respect to classification, and which we shall consider in the subsequent parts of this decision, a challenge is also raised to the authority and jurisdiction of the TRU to issue such a clarification in the first

5. Appearing for the petitioners, Lakshmi Kumaran, learned counsel drew our attention to Section 168 of the Central Goods & Services Tax Act, 2017⁵, and which reads as follows:-

“168. Power to issue instructions or directions.—(1) The Board may, if it considers it necessary or expedient so to do for the purpose of uniformity in the implementation of this Act, issue such orders, instructions or directions to the central tax officers as it may deem fit, and thereupon all such officers and all other persons employed in the implementation of this Act shall observe and follow such orders, instructions or directions.

(2) The Commissioner specified in clause (91) of Section 2, subsection (3) of Section 5, clause (b) of sub-section (9) of Section 25,sub-sections (3) and (4) of Section 35, sub-section (1) of Section 37,sub-section (6) of Section 39, Section 44, subsections

(4) and (5) of Section 52, sub-section (1) of Section 143,except the second proviso thereof], clause (l) of sub-section(3) of Section 158 and Section 167 shall mean a Commissioner or Joint Secretary posted in the Board and such Commissioner or Joint Secretary shall exercise the powers specified in the said sections with the approval of the Board.”

6. It was submitted that as would be evident from the above provision, the power to issue orders, instructions or directions to Central Tax Officers stands vested exclusively in the Central Board of Indirect Taxes and Customs⁶. It was in that backdrop that Mr. Lakshmi Kumaran contended that no power stands conferred upon the According to learned counsel, even if a clarification pertaining to classification were to be issued under the CGST Act, the same could have been achieved only by way of a directive issued by the Board and none other.

7. We note that learned counsels for the respondents could not draw our attention to any provision of the CGST Act, in terms of which the TRU could be said to have been clothed with the authority or jurisdiction to render a clarification with respect to classification of goods and articles. That power clearly appears to stand conferred upon the Board exclusively. We are thus of the considered opinion that no authority vested in the TRU to issue the clarification impugned before

8. While this would have been sufficient to dispose of the writ petition on this short ground alone, we proceed further in light of the detailed submissions which were addressed by respective counsels and related to the classification of the article itself.

9. Lakshmi Kumaran drew our attention to the title of Chapter 39 of the First Schedule to the 1975 Act and which deals with “Plastics and Articles Thereof”. Learned counsel laid emphasis on Notes 1 and 2 thereof and which purports to exclude textile materials which would otherwise fall within the ambit of Section XI of the First Schedule to the 1975 Act. Notes 1 and 2 of the said Chapter are extracted hereinbelow:-

“CHAPTER 39

Plastics and Articles Thereof

NOTES

1. Throughout this Schedule, the expression “plastics” means those materials of headings 3901 to 3914 which are or have been capable, either at the moment of polymerisation or at some subsequent stage, of being formed under external influence (usually heat and pressure, if necessary with a solvent or plasticiser) by moulding, casting, extruding, rolling or other process into shapes which are retained on the removal of the external

Throughout this Schedule, any reference to “plastics” also includes vulcanised fiber. The expression, however, does not apply to materials regarded as textile materials of Section XI.

2. This Chapter does not cover:

(a) lubricating preparations of heading 2710 or 3403;

(b) waxes of heading 2712 or 3404;

(c) separate chemically defined organic compounds (Chapter 29);

(d) heparin or its salts (heading 3001);

(e) solutions (other than collodions) consisting of any of the products specified in headings 3901 to 3913 in volatile organic solvents when the weight of the solvent exceeds 50% of the weight of the solution (heading3208); stamping foils of heading 3212;

(f) organic surface active agents or preparation of heading 3402;

(g) run gums or ester gums (heading 3806);

(h) prepared additives for mineral oils (including gasoline) or for other liquids used for the same purposes as mineral oils (heading 3811);

(ij) prepared hydraulic fluids based on polyglycols, silicones or other polymers of Chapter 39 (heading 3819);

(k) diagnostic or laboratory reagents on a backing of plastics (heading3822);

(l) synthetic rubber, as defined for the purpose of Chapter 40, or articles thereof;

(m) saddlery or harness (heading 4201) or trunks, suit–cases, hand—bags or other containers of heading 4202;

(n) plaits, wickerwork or other articles of Chapter 46;

(o) wall coverings of heading 4814;

(p) goods of Section XI (textiles and textile articles);

(q) articles of Section XII (for example, footwear, headgear, umbrellas, sun umbrellas, walking-sticks, whips, riding-crops or parts thereof);

(r) imitation jewellery of heading 7117;

(s) articles of Section XVI (machines and mechanical or electrical appliances);

(t) parts of aircraft or vehicles of Section XVII;

(u) articles of Chapter 90 (for example, optical elements, spectacle frames, drawing instruments);

(v) articles of Chapter 91 (for example, clock or watch cases);

(w) articles of Chapter 92 (for example, musical instruments or parts thereof);

(x) articles of Chapter 94 (for example, furniture, lamps and lighting fittings, illuminated signs, prefabricated buildings);

(y) articles of Chapter 95 (for example, toys, games, sports requisites); or

(z) articles of Chapter 96 (for example, brushes, buttons, slide fasteners, combs, mouth–pieces or stems for smoking pipes, cigarette holders or the like, parts of vacuum flasks or the like, pens, propelling pencils, and monopods, bipods, tripods and similar ”

10. It would thus appear that while Tariff Heading 3923 speaks of articles for the conveyance or packing of goods, it would essentially extend to articles made of plastics and read holistically exclude textiles completely therefrom. Tariff Heading 3923 is reproduced hereinbelow:-