As the jurisprudence over GST develops with the passage of time, some interesting issues are evolving which are in contrast to earlier VAT Law. One such issue was recently dealt by Hon’ble Appellate Authority for Advance Ruling in the case of House of Marigold, Gujarat reported in 2019 (30) GSTL 301 (AAR-GST) which upheld the judgement of GAAR (2019 (23) GSTL 269(AAR-GST) in appellant’s case.
Appellant basically deals in supply of articles consisting of Gold, diamond, precious stones like ruby, emerald , sapphire, pearls etc. wherein a watch movement is fitted. It was argued by appellant before the Gujarat Authority for Advance Ruling (GAAR) that cost of the jewellery includes cost of Gold, Silver, Diamonds etc. of very high value but the cost of a watch which is fitted in the jewellery selected by customer, is very nominal i.e. not even 1% of total value. It was submitted that the customers intend to buy jewellery only. It was further submitted that the articles dealt with by the appellant fully satisfy the definition of the term `Jewellery’.
This issue has interesting facets and to understand the issue, it is relevant to give the extracts of relevant HSN Codes:
Description of goods under Chapter Heading 7113 of the Customs Tariff Act, 1975:
“Articles of jewellery and parts thereof, of precious metals or of metal clad with precious metals
Chapter Note 3 of Chapter 71 of the Customs Tariff Act, 1975 inter-alia provides as follows :-
“3. This Chapter does not cover :
(l) articles of Chapter 90, 91 or 92 (scientific instruments, clocks and watches, musical instruments)
Presently this HSN attracts the GST of 3%
Description of goods under Chapter Heading 9101 of the Customs Tariff Act, 1975:
“Wrist-watches, pocket-watches and other watches, including stop-watches, with case of precious metal or of metal clad with precious metal”
Chapter Note 2 of Chapter 91 of the Customs Tariff Act, 1975 provides as follows:—
“2. Heading 9101 covers only watches with case wholly of precious metal or of metal clad with precious metal, or of the same materials combined with natural or cultured pearls, or precious or semi-precious stones (natural, synthetic or reconstructed) of headings 7101 to 7104. Watches with case of base metal inlaid with precious metal fall in heading 9102.”
Presently this HSN attracts the GST of 18%.
Contention of the Appellant:
a) Judgement by the Hon’ble High Court in the case of Titan Industries Ltd. (2018 (360) ELT 983 (Guj.) as well as determination order passed (in assessee’s own case) with reference to Gujarat VAT Act, 2003 based on the essential character of the product.
– On this point Hon’ble AAAR held that the said judgement and order pertain to classification of goods under entry 13(ii) of Schedule-II of Gujarat VAT Act 2003. Scheme of classification of goods under VAT Act and GST are different. It is settled principle of law that the judgement rendered in different context can not be applied to another fact scenario.
b) Rule 1 of the `General Rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975’ inter-alia provides that classification shall be determined according to the terms of heading and relative section or chapter notes. Rule 3 provides that when by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as provided under the said Rule 3 which provides for classification with reference to material or component which gives the item the essential character.
On this point Hon’ble AAAR held that the product in question is specifically covered under Heading 9101, in view of the terms of that heading read with the relevant chapter note. Therefore, the product is not required to be classified in accordance with Rule 3(b) of the Rules for Interpretation. Hon’ble AAAR relied upon the judgement of Titan Industries Ltd. Vs Commission 2006(204) ELT 435(CESTAT) wherein the Hon’ble CESTAT after referring the Chapter Notes and Explanatory Notes of HSN, held that goods in question fully satisfy the description contained in Chapter Heading 9101.
Hon’ble AAAR upheld the GAAR view that the `Butterfly Bridal with watch and similar jewllery products containing watch are classifiable under Heading 9101,
(The author is a Jaipur based practicing Chartered Accountant and can be reached on 09829063908, [email protected])