Geo Membrane is classifiable would fall under Chapter 59: Gujarat HC

Summary: The Gujarat High Court, in M/s Ananta Synthetic Innovations v. State of Gujarat (Special Civil Application No. 504 of 2023), ruled that Geo Membrane products should be classified under Chapter 59 (Textile Fabrics) rather than Chapter 39 (Plastic Articles). The petitioner, M/s Ananta Synthetic Innovations, which produces Geo Membrane—also referred to as Geo Grid or Geo Fabrics—argued that their product was a textile fabric under HSN Code 59111000, while the Department contended it fell under HSN Code 39269090 as a plastic item. The court emphasized the importance of the manufacturing process, recognizing that the product is a woven fabric made from polyester yarn, consistent with classifications in Chapter 59. As a result, the petitioner is required to pay a reduced GST rate of 12% instead of 18% since the ruling came into effect on November 15, 2017. The court also directed the Union of India to reevaluate previous rulings related to the classification and address concerns of discrimination regarding GST rates among similar products manufactured by different entities. The judgment affirms the relevance of the product’s nature and manufacturing process in determining appropriate tax classifications.

The Hon’ble Gujarat High Court in the case of M/s Ananta Synthetic Innovations v. State of Gujarat [Special Civil Application No. 504 of 2023 dated July 11, 2024] held that the product manufactured by the Assessee being Geo Membrane is classifiable would fall under Chapter 59 and not under Chapter 39. Therefore, the Assessee was liable to pay the GST @ 12% from November 15, 2017 onwards and not @ 18%.

Facts:

M/s Ananta Synthetic Innovations (“the Petitioner”) was a partnership firm which had come into effect from October 13, 2019. It is the manufacturer of Geo Membrane also known as ‘Geo Grid’, ‘Geo Grid Fabrics’ and ‘Geo Fabrics’ which is a textile fabric. As per the Petitioner, the Geo Membrane is chargeable to GST as a textile fabric under HSN Code 59111000, whereas as per the Department (“the Respondent”) it was chargeable as plastic Geo Membrane being an article of plastic to GST under HSN Code 39269090.

The Geo Membrane fabrics are used for the reinforcement of ponds, canals and such structures. HDPE reinforced Geo Membrane lined aquaculture ponds teamed Bio floc technology is a highly beneficial bacteria colony-based culture that keeps diseases at bay making it an ecologically sustainable symbiotic system it ensures minimal water exchange and keeps the pH levels steady by feeding on the nitrogen-produced fish and shrimps. In conventional farming where Biofloc technology is not used nitrogen is flushed out through water exchange every 25-30 days to keep the aquatic animal’s disease free. The Biofloc uses up the nitrogen and converts it into protein for animals. Geo Membrane fine ponds are a must Ponds lines with Rain shield Reinforced Geo Membrane insulate animals from diseases. Biofloc cuts down fish meal giving the cost advantages to the farmer production per unit area is high in bioflo system. The stocking destiny of animals in Geo Membrane lined bio floc pond twice the destiny of an ordinary unlined pond. Aquaculture ponds using Bio floc technology can bring big benefits to aquaculture farmers. The Geo Membrane are the fabrics of polyester yarns which are manufactured on weaving machine by weaving process. Chapter 59 of the new Tariff covered “Impregnated Coated. Covered or Laminated Textile Fabrics: and various varieties of such fabrics were specifically covered under Heading Nos. 5901 to 5910. Textile products and articles for technical use were covered under Heading 5911 of the Tariff. Geo fabrics being goods in coated textile fabrics for technical use, they specifically fall under Heading 5911 of the new Central Excise Tariff.

The Petitioner had started the commercial production and supply of goods in its factory by the month of August 2020 which attracted levy of GST and the rate of GST in accordance with the classification of the goods under HSN. The Petitioner, therefore, made an application for Advance Ruling dated November 11, 2020, on the question whether the Geo Membrane was classifiable under the HSN Code 59039090 or under the HSN Code 59119090.

The Authority of Advance Ruling Authority, Gujarat [Ruling No. GUJ/GAAR/R/107/2020 dated December 13, 2020] (“the Impugned Order”) relied upon the decision of the Hon’ble High Court of Madhya Pradesh in the case of M/s Raj Pack Well Ltd. v. Union of India [Miscellaneous Petition No. 1205 of 1988 dated September 19, 1989] in respect of classification of plastic tapes and bags under the Central Excise Tariff and came to the conclusion that Geo Membrane produced by the Petitioners merit classification under heading 39269090 chargeable to GST rate 18% from November 15, 2017.

The Petitioner contented that Geo Membrane is also manufactured by various registered persons all over the country including the State of Gujarat and such manufactures disputed

with the Revenue authorities who were classifying the products under Chapter 39 as articles of the plastic and not only under the GST tariff but also under the Central Excise Tariff. Such goods were chargeable to excise duty till June 30, 2017 when the Hon’ble High Court of Gujarat in the case of M/s CTM Technical Textiles Ltd. v. Union of India [Special Civil Application No. 8332 of 2020 dated December 24, 2020] which relied on the case of Raj Packwell (supra) and held that the Geo Grid was not a product meriting the classification under Chapter 39 as plastic articles but, it was fabric being textile product most appropriately classifiable under the Heading 5911 of the Tariff. The Petitioner was suffering because of the misrepresentation of facts that the manufactures are discharging the GST liability at reduces to rate of 12% whereas the Petitioner must pay GST rate of 18%, although the goods of all the manufactures are the same. Moreover, the buyers and customers of the product were the Government departments and Government corporations, because the work of providing waterproof lining in respect of ponds, canals etc is undertaken by the Government agencies and the suppliers of goods are recognized and the registered for supplying these goods and the price fixed by the Government agencies is paid to all suppliers at the fixed rate so the Petitioner is continuously suffering loss of 6%.

Hence, aggrieved by the decision of the AAR, Gujarat the Petitioner filed the writ petition before the Hon’ble Gujarat High Court.

Issue:

Whether the Geo Membrane a textile fabric classifiable under Chapter 59 or 39 of the Tariff?

Held:

The Hon’ble High Court of Gujarat in Special Civil Application No. 504 of 2023 held as under:

• Relied on, M/s. CTM Technical Textiles Ltd. (supra), wherein the Coordinate Bench after considering the issue of alternative remedy as well as entertainability of the writ petition with regard to merits of the case, has held as under:

a. Direct the Union of India to re-examine the CBEC Circular/Order No.8/92 dated September 24, 1992 and also the Ahmedabad Collectorate Trade Notice No.78/94 dated May 9, 1994.

b. Observed that, Prima facie, it appears from the materials on record that both the products involved in this case are “fabric” and both are produced by a weaving method. The Agro Shade Net is knitted on the Raschel Knitting machine. Knitting is a method of constructing fabric and it is an alternative method for making fabric.

c. Opined that, opined by him that the same is a green colored knitted fabric. The Geo Grid fabrics are woven fabrics, and the polyester yarn is used for weaving of this type of fabric. The manufacturing process of both the products is recorded in the show cause notice and also in the order passed subsequently. Thus, prima facie it appears that both the products are woven fabrics, and they are brought into existence by weaving method. The raw materials used for both the products is High Density Polyethylene (“HDPE”) strips which is a plastic material. But, plastic is used for producing textile fabrics. Polyester fabrics, terelene fabrics, nylon fabrics, etc. are well known varieties of fabrics, and the raw material for all such fabrics is plastic

d. Relied on, the case of Apex Court judgment of Porritts & Spencer (Asia) Ltd. [1983 (13) E.L.T. 1607(SC)] which observed that the word “textiles” has not been considered by the Board as well as by the Ahmedabad Collector while issuing the Order and the Trade Notice. Instead of considering the method of weaving as a relevant factor, the nature of the raw material seems to have been taken into consideration while issuing such Order and Trade Notice.

• Noted that, the Impugned Order in Original passed by the Respondent dated June 06, 2020, is quashed and set aside and the matter is remitted for the fresh consideration, and the Petitioner will be given a reasonable opportunity of hearing. Hence, the Hon’ble High Court directed the Union of India to re-look into the CBEC Circular / Order No. 8/92 dated September 24, 1992, and the Ahmedabad Collectorate Trade Notice No.78/94 dated May 09, 1994, take an appropriate decision in accordance with law to enable the Respondent to arrive at an appropriate conclusion in the fresh round of hearing. This time we make it explicitly clear that the issue of discrimination raised by the writ-applicants shall be specifically dealt with by the Respondent in an appropriate manner in accordance with law.
• Held that, the product manufactured by the petitioner being Geo Membrane is classifiable would fall under Chapter 59 and not under Chapter 39 as held in the Impugned Ruling . The petitioner, is liable to pay the GST  12% not 18%. The Respondent authority is, therefore, directed to apply the discounted rate of 12% of the GST on the product manufactured by the Petitioner under HSN Code 59111000 of the Tariff. The respondent authority is, therefore, directed to apply the discounted rate of 12% of the GST on the product manufactured by the petitioner under HSN Code 59111000 of the Tariff. The petitioner is entitled to claim the refund on the excess GST @ 6% paid pursuant to the order the Gujarat Advance Ruling Authority.

Our Comments:

In recent years, the demand for High-Density Polyethylene (HDPE) Geomembranes has significantly increased. These adaptable materials are predominantly used in canals and ponds, particularly for rainwater harvesting in agriculture. A notable innovation is the use of HDPE Geomembranes in Biofloc Technology, which creates an aquatic environment where bacteria, algae, and protozoa coexist. This improves water quality, aids in waste treatment, and enhances disease prevention for aquatic life. Biofloc Technology also allows for double the stock density of aquatic organisms compared to traditional methods, providing an efficient, cost-effective solution for managing nitrogen compounds. HDPE Geomembranes now serve a more advanced purpose beyond being just a plastic sheet, entering the field of scientific applications.

A reference is made to the case of Shree Radhe Industries v. Collector of Customs and Central Excise, Ahmedabad [1983 (12) E.L.T. 379 (Tri.-Del)], where the Hon’ble Delhi Tribunal ruled that HDPE Tapes are made from plastic and should, therefore, be classified as “articles of plastic.” Recently, in Neo Corp International Ltd v. Commissioner of Customs, Central Excise and Service Tax (2023) 8 Centax 180 (S.C.), the Hon’ble Supreme Court of India upheld the CESTAT’s decision, stating that HDPE/PP/LDPE sacks, bags, and warp-knit fabrics fall under Chapters 54, 60, and 63, not Chapter 39. In that ruling, the Court focused on the manufacturing process of the goods and determined that classification should be based on the procedures involved, aligning with the specific Chapter requirements.

An argument could arise from the Raj Pack Well Ltd. v. Union of India [[1990 (50) E.L.T. 201 (M.P.)] case, where the Madhya Pradesh High Court classified HDPE strips, tapes, and sacks as plastic and placed them under Chapter 39. Similarly, the CEGAT in Shree Radhe Industries Kalol Vs Collector of Customs and Central Excise, Ahmedabad [1983 (12) E.L.T. 379 (Tri.-Del)] ruled that HDPE tapes should be treated as articles of plastic.

Notification No. 01/2017- Central Tax (Rate) dated June 28, 2017 in exercise of the powers conferred by Section 9(1) and Section 15(5) of the CGST Act on recommendation of the Council Notified as below:

Schedule II-6%

Schedule III-9%

Omitted vide Notification 41/2017 dated November 14, 2017 w.e.f. November 15, 2017, before it was read as:

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