♦ Background
→ In recent times, there has been a surge in the demand for High-Density Polyethylene (HDPE) Geomembranes. These versatile materials find their primary application in canals and ponds, particularly in rainwater harvesting practices within the agricultural sector. An intriguing innovation has emerged where HDPE Geomembranes contribute to creation of Biofloc Technology—an aquatic environment fostering bacteria, algae, and protozoa coexistence, improving water quality, facilitating waste treatment, and enhancing disease prevention for aquatic life. This technology supports a doubled stock density of aquatic organisms compared to conventional methods, presenting robust, economical, and operationally convenient nitrogen compound management. The significance of HDPE Geomembrane extends beyond a mere plastic sheet, encompassing a realm of scientific applications.
HDPE Geomembrane (IS 15351:2015)
HDPE Geomembrane (IS 15351:2015)
♦ Classification Issue
→ Amidst this backdrop, a pivotal issue arises regarding the proper classification of HDPE Geomembranes within the Harmonized System Nomenclature (HSN) which has been made applicable to the GST regime. An ongoing debate revolves around whether HDPE Geomembrane should be classified under Chapter 59 or Chapter 39 of the Custom Tariff Act. While HDPE Geomembranes share similarities with HDPE sacks in terms of raw material, it’s crucial to note that their manufacturing process significantly diverges. The production adheres to BIS standard 15351:2015, also referred to as “Agro Textiles” signaling its specialized role in canal or pond lining.
♦ Manufacturing process
→ The manufacturing procedure of HDPE Geomembranes unfolds in a stepwise manner:
Step 1: The basic raw material for manufacturing Geomembrane is High Density Polythene Granules (HDPE Granules) and Master Batch containing carbon black. These raw materials are melted in extruder by applying heat and friction, and they are extruded in form of thin sheet, in molten form. Such thin sheet in molten stage is passed through a quenching tank containing water, to form a solid thin sheet, which is then slit into tapes/strips. Such slit tapes/strips are passed through hot plate for orientation process so as to impart strength. The width of such tapes/strips is below 5 mm. and they are wound on metal pipes for producing bobbins.
Step 2: These tapes/strips are then loaded on circular looms or flat looms for weaving purposes. By employing weft and warp methods of weaving, woven fabrics are produced by using tapes/strips of width below 5 mm. These are uncoated woven fabrics of plastic; and such fabrics in rolls are further processed for producing coated/laminated fabrics on extrusion lamination machine within the applicant factory.
Step 3: Rolls of uncoated fabrics loaded on extrusion lamination machine are drawn for feeding into the laminating unit. Mix of Low-Density Polythene (LDPE), LLDPE and color/black master batch is fed into the extruder through a Hopper, and melted by applying heat and friction, for forming a thin film in a molten state. Uncoated fabric is thus coated/laminated on one side by this molten mix and passed over a chill roll containing chilled water. Edges of coated/laminated fabrics are trimmed and then wound on steel pipes on a winder.
Step 4: Same way. the other side of the fabric is also coated/laminated to form a waterproof fabric. For increasing thickness of such fabric, one side coated/laminated fabrics are sandwiched laminated with a film and then laminated again with one more layer of fabric to form a coated/laminated fabric of higher thickness. Trimming of edges is undertaken, and such coated/laminated fabric in rolls is subjected to inspection, where defects, if any, are removed, and the ends of the fabrics are rejoined by heat sealing. After inspection of such coated/laminated fabric rolls, they are sent for overlap sealing to increase the width of the coated/laminated fabric, and then they are cut in required length to obtain the required size of Geomembranes. These final products i.e., products or articles of textile fabrics are packed, and are ready for sale and supply.
♦ Advance Rulings and Judicial Pronouncement:
→ The ongoing debate over the classification of HDPE Geomembranes stems from differing interpretations. However, it’s essential to recognize the distinction between HDPE Geomembranes and these references. HDPE Geomembranes, being an Agro Textile, carry specific technical utility, making them stand apart from conventional plastic articles.
→ More often the Authorities for advance ruling refer to M/s Raj Pack Well Ltd Vs Union of India [1990 (50) E.L.T. 201 (M.P.)] wherein it was ruled that HDPE Strips/tapes/sacks are made of plastic and thus they are classifiable under Chapter 39.
→ A reference is also made to case of Shree Radhe Industries Vs Collector of Customs and Central Excise, Ahmedabad [1983 (12) E.L.T. 379 (Tri.-Del)] wherein it was ruled by Honorable Delhi Tribunal that HDPE Tapes are made from plastic and thus it HDPE Tapes would be considered as “articles of plastic”.
→ Recently, The Honorable Supreme Court of India in the case of Neo Corp International Ltd Vs Commissioner of Customs, Central Excise and Service Tax- (2023) 8 Centax 180 (S.C.) wherein Hon’ Supreme Court upheld decision of CESTAT that HDPE/PP/LDPE sacks, bags and warp knit fabrics were classifiable under Chapter 54, 60 and 63 and not under Chapter 39.
→ In the said decision, the manufacturing procedure for goods were emphasized and accordingly it was decided that the manufacturing procedure fits the requirement of respective Chapter and classification is required to be done accordingly.
→ Now an argument can arise that High Court of Madhya Pradesh in case of Raj Pack Well Ltd Vs UOI – 1990 (50) E.L.T. 201 (M.P.) stated that HDPE Strips/tapes/sacks are made of plastic and thus they are classifiable under Chapter 39. Also the CEGAT in case of Shree Radhe Industries Kalol Vs Collector of Customs and Central Excise, Ahmedabad -1983 (12) E.L.T. 379 (Tri.-Del) stated that HDPE Tapes are made from plastic and thus it HDPE Tapes would be considered as “articles of plastic”.
→ In both above decisions it is apparent that only the raw material of HDPE Products is considered i.e., plastic. While the Hon’ Supreme Court of India upheld the decision where an effort towards the manufacturing procedure was made for classification and did not entertain only the facts of raw material.
→ In CC v. Sanghvi Swiss Refills P. Ltd., 1997 (94) E.L.T. 644 (CEGAT), it was held that Section Notes and Chapter Notes being statutory in nature, have precedence over functional test and commercial parlance for the purpose of classification. This principle was reaffirmed by the Supreme Court in CCE v. Wood Polymers Ltd. – 1998 (97) E.L.T. 193 (S.C.), wherein it was reiterated that classification should be done as per the rules of interpretation contained in the Tariff and not as per trade parlance and commercial understanding. Trade parlance was to be examined only if the tariff entry is ambiguous – Nirlon Synthetic Fibres v. UOI – 1999 (110) E.L.T. 445 (Bom.) or if the statute did not define the words – Indo International Industrial v. CST – 47 STC 359 (S.C.) = 1981 (8) E.L.T. 325 (S.C.).
→ The Hon’ble High Court of Gujarat in case of CTM Textiles vs UOI [2021] 15 G S.T.R. – OL 290 (Guj) ruled that woven fabrics produced from plastic materials, including HDPE, are rightfully classified as textile fabrics, aligning with both the dictionary definition of “textile” and the precedent set by the Hon’ble Supreme Court’s judgment in the case of Porritts & Spencer (Asia) Ltd. The Hon’ Gujarat High Court rejected revenue’s argument that these products should be classified as plastic articles due to their HDPE tape composition and a clear distinction was drawn from the ruling of the Hon’ble Madhya Pradesh High Court in the case of Raj Packwell Ltd as the case was not relevant to the classification of fabric made from plastic materials, particularly HDPE.
→ Also, the Gujarat’s Authority for Advance Ruling in case of
- Texel Industries Ltd (2022 (61) G.S.T.L. 217 (A.A.R. – GST – Guj.)
- Shree Ambica Geotex Pvt Ltd (GUJ/GAAR/R/2022/46)
And the Authority for advance ruling of Daman, Diu and Dadra & Nagar Haveli in case of
- Emmbi Industries Ltd 2019 (29) G. S. T. L. 105 (A. A. R. – GST)
have also ruled that HDPE Geomembrane is classifiable under Heading 5911 of HSN.
→ It is pertinent to note that HDPE Geomembrane is not just a plastic article but much more than that as it possesses technical use. It cannot be considered similar to HDPE Strips/tapes/sacks. The HDPE Geomembrane is much more than a plastic article.
♦ Justification for Classification
→ Heading 5911 is most appropriate classification of HDPE Geomembrane on the following grounds:
Heading 5911 applies to the following goods, which do not fall in any other heading of Section XI:
(a) textile products in the piece, cut to length or simply cut to rectangular (including square) shape (other than those having the character of the products of headings 5908 to 5910), the following only:
(i) textile fabrics, felt and felt-lined woven fabrics, coated, covered or laminated with rubber, leather or other material, of a kind used for card clothing, and similar fabrics of a kind used for other technical purposes, including narrow fabrics made of velvet impregnated with rubber, for covering weaving spindles (weaving beams);
(ii) bolting cloth;
(iii) straining cloth of a kind used in oil presses or the like, of textile material or of human hair;
(iv) flat woven textile fabrics with multiple warp or weft, whether or not felted, impregnated or coated, of a kind used in machinery or for other technical purposes;
→ We also refer to Note 1 (g) of Section XI (Textile and Textile Articles)
“1. This Section does not cover:
(a) …………………………
(g) Monofilament of which any cross-sectional dimension exceeds 1 mm or strip or the like (for example, artificial straw) of an apparent width exceeding 5 mm, of plastics (Chapter 39), or plaits or fabrics or other basket ware or wickerwork of such monofilament or strip (Chapter 46)”.
For the purpose of this provision, plastic strips with an apparent width exceeding 5 mm shall fall within the scope of Chapter 39 of the relevant legal code, while plastic strips with an apparent width of 5 mm or less shall be classified under Section XI, covering Chapter 50 to Chapter 63, of Schedule I of the Customs Tariff Act, 1975
Main ingredients for classifying products under Chapter 5911
→ From the above it is clear that for a product to be classified under 5911 it must fulfill below conditions:
(A) It must be Textile fiber.
(B) It must be woven, coated, covered or laminated.
(C) It must be used for technical purpose.
(D) The width must be less than 5 mm.
→ A product must fulfil above 4 conditions to be classified under Heading 5911 of HSN.
Condition (A): Geomembrane is textile fiber as per following:
- The Ministry of textile via Official Gazette of India dated 17.03.2020 published 12 segments as Technical Textiles. Agrotech is one of such Textile segments which was stated as technical textiles. HDPE Geomembrane possess IS 15351:2015 whose title only gives Name Agro Textile to HDPE Geomembrane.
- The Honorable Supreme Court of India in case of Porritts & Spencer (Asia) Ltd. Vs State of Haryana 1983 (13) E.L.T. 1607 (S.C.) stated that, “the word `textiles’ is derived from the Latin `texere’ which means to weave’ and it means any woven fabric”.
- It implies any woven fabric would be considered as textile material. HDPE Geomembrane is also required to be weaved during manufacturing. So, it qualifies to be textile.
- From above it is clear that HDPE Geomembrane is technical textile.
Condition (B): Geomembrane must be woven, coated, covered or laminated.
- As per the procedure for manufacturing of Geomembrane it is weaved at Step-2, it coated and laminated at Step-3. Thus Condition (B) is also satisfied in Step 2 and Step 3 of manufacturing stated above.
Condition (C): The Geomembrane must be used for technical purpose.
- Geomembrane is capable for creation of Biofloc technologies. For creation of Biofloc technology, HDPE Geomembrane is must. Biofloc technology is capable to make aquatic stock twice then conventional technology. Biofloc technology is a technical area as it cannot be created by every material.
- HDPE Geomembrane is much more than a plastic article as it contains technical usages.
Condition (D): Width of HDPE Geomembrane must be less than 5 mm.
- In Step-2 of manufacturing, the weft and wrap method of weaving is used in order to produce a product of width of less than 5mm. Such size is maintained throughout the manufacturing until the final HDPE Geomembrane is produced whose width is also less than 5 mm.
→ Thus, on basis of above explanation all the 4 conditions of Heading 5911 of HSN are satisfied and accordingly HDPE Geomembrane is classifiable under Heading 5911.
→ However, certain authorities had ruled HDPE Geomembrane is manufactured from plastic and thus it is plastic article. Before considering HDPE Geomembrane as a mere plastic, one should refer to Metrowood Engineering Works Vs Collector of C.Ex 1989 (43) E.L.T. 660 (Tri.-Del), in this case it was held that industrial laminates having insulation property will be considered as Electrical Insulators under Chapter 85 and not under Chapter 39 even if they were plastic laminates.
♦ Relevancy of Trade Notice No. 02/2023-24-DGFT dated 17th April, 2023
→ There is also a common misconception in the industry for Trade Notice No. 02/2023-24-DGFT dated 17th April, 2023 wherein DGFT has notified HSN codes for 32 Technical Textiles wherein at First Sr No. Geomembrane (IS 16352) is notified under HSN 39201013. This notification was issued to highlight easy and correct recognition HSN codes as import/export were booked under other available HSN codes instead of notified HSN Codes.
→ It is pertinent to that DGFT has notified Geomembrane with IS 16352:2020 under HSN 39201013. The HDPE Geomembrane possess IS 15351:2015. Both the IS codes are different and the underlying product and its use are also different, Geomembrane falling under 15351:2015 is not mentioned anywhere in this notification and therefore the same cannot be classified under Chapter 39.
→ The Geomembrane with IS 16352:2020 is very well explained by Ministry of Railways in their publication Indian Railway Technical Bulletin September 2022 Edition (Vol. LXXVIII No.382), where it is stated that Geomembrane (IS 16352:2020) is used in tunnel and in practice used by Highway development authorities. This Geomembrane restricts the seepage in tunnel.
Geomembrane (IS 16352:2020)
♦ Conclusion
Geomembrane (IS 16352:2020) is used for tunnel while HDPE Geomembrane (IS 15351:2015) is used in ponds and canals. Both the products are not related, neither in terms of its manufacturing process nor in terms of its end use, accordingly notification is applicable to Geomembrane (IS 16351:2020) and cannot be made applicable to HDPE Geomembrane (IS 15351:2015).
Classification is required to be done basis the Internationally excepted General Rules of Interpretation, Specific over general is a rule which is legally accepted way of classification. In this case also, Geomembranes confirming to IS 15351:2015 specifically fall under chapter 59 heading 5911 whereas chapter heading of Chapter 39 being Articles of Plastic would be too generic in nature and hence cannot be applied. Correct Classification of HDPE Geomembranes under a particular HSN is a nuanced matter. While authorities have provided varying interpretations, a thorough analysis of their technical utility, manufacturing process, and conformity to Heading 5911 of the HSN suggests that these Geomembranes are best classified under this heading. It’s essential to recognize their specialized role as ‘Agro Textiles’, bridging the gap between traditional plastic articles and advanced technical materials. Recent precedents in similar cases support the importance of scrutinizing manufacturing processes for accurate classification.
This article is authored by CA Praveen Maheshwari and Article Fuzail Miran.
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| CA Praveen Maheshwari | Article Fuzail Miran |
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