In re Eco Wood Private Limited (GST AAAR Kerala)
The impugned goods viz. PVC tufted coir carpet/Mat is classified under Tariff Heading 5703 90 90 and is liable to GST at the rate of 12% as per SI No. 144 of Schedule II of Notification No. 01/2017-Central Tax (Rate) dated 28-06-2017 as amended.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING,KERALA
1. The appeal stands Med under section 100(1) of the GST Act, 2017, by M/s Eco wood PIN Ltd. beaming GSTIN 32AAACE61307G120 (hereinafter referred to as the appellant also). The appellant is proposing to get engaged in the manufacture and export of Coir Mats/flooring with Vinyl (PVC] backing [Impugned product].
Brief facts of the ease
2. The appellant had sought for advance ruling in order to get clarity regarding the impugned product. The Advance ruling was sought for in following issues:
i) Whether the process of manufacture (embedding cog yarn into vinyl (PVC) Compound and curing by heating/cooling is ‘Tutting” Or a process “other than those processes mentioned In Headings 5701 to 5704! of the Customs Tariff and the HSN Explanatory Notes to Chapter 57?
ii) Whether “coir mats / matting floor covering with Vinyl (PVC) backing” manufactured by the process of embedding cog yarn into vinyl (PVC) compound and curing by heating / cooling , rightly covered under the description (cod mats. mattings and floor coveting
iii) Whether ‘coir mats / mailings 7 poor cover’ g with vinyl (PVC) backing’ manufactured by the process of embedding cod yarn into vinyl (PVC] compound and curing by healing /cooling, would merit classification under the Heading 5705 more specifically under CTH 5705 00 49) of Chapter 57 of the 1st Schedule to the Customs Tariff?
3. The Authority for Advance Ruling kerala issued Ruling vide order No: KER 84/2020 dated 20-5-2020 on the above Ix) es In seriatim as follows),
I. Manufacture of PVC Tufted Clair 5039 / M process of embedding cow yarn into PVC ca floor coverings by the process of embedding coir PVC cannot be considered as textile floor coverings of coir covered under HSN 5702, 5703 or 5705. The process undertaken is a tufting process and If ‘any materials arc tufted on the textile of coir. which Is used as floor mats or matting. it will come under the Customs Tariff Head 5703 90 90 and is liable to GST at the rate of 12% as per Entry a SI No, 144 of Schedule II of Notification No. 01/2017-Central Tax (Rate) dated: 28-06-2017,
II. No. PVC Tufted Coir Mats and Matting and matting cannot be considered as coir mats, mattings and floor coverings covered under HSN 5702 or 5705 arid is appropriately classifiable under HSN 5703 90 0 as tufted mats / matting / floor coverings of cow; and
III. No. The PVC Lulled Coir mats/ mattings nor coverings are classifiable under Customs Tariff Heading 5703 90 90 an attract GST at the rate of 12% as per SI No. 144 of Schedule I of the No cation
GROUNDS OF APPEAL
4. Aggrieved of the said Rulings the appellant has filed instant appeal before this authority, wherein they, submitted following facts and contentions for consideration:
4.1. The advance ruling passed by the advance ruling authority is factually. Incorrect and hence legally unsustainable The lower authority has failed to understand the basic fact that the manufacturing process involve in the manufacture of impugned goods is not tufting.
4.2 The appellant explains the Method a manufacturing Coir mats/ lower authority was to examine as to whether the above mentioned process of manufacture would fall under the process of ‘tufting as envisaged in Heading 5703 of Chapter 57. The lower authority without examining this issue, had proceeded to dispose the application with a prejudiced view that the process Involved is ‘tufting/ The process of manufacture of tufting stated in HSN Explanatory Notes to heading 5703 may be referred to, as per Which heading 5703 covers tufted carpets and other tutted textile floor coverings produced on tufting machines which, by means of a system of needles and hooks, insert textile yarn into a pre-existing hacking (usually a woven fabric or a nonwoven) thus producing loops, Or, If the needles and hooks are combined with a cutting device, tufts. The yarns forming the pile are then normally fixed by a coating or rubber of plastics. Usually before the coating is allowed to dry, it is either covered by a backing of loosely woven textile material, e.g. Jute, or by formed rubber.
4.4. It is further submitted that as per the HSN Explanatory Notes, Heading 5705 covers carpets and textile floor coverings, other than those covered by a more specific heading of Chapter 57, As per explanation (1) of the Explanatory Notes, Weeding 5706 Includes bonded pile carpets, where the pile use surface is bonded either to a substrate [an underlying substance or layer) or directly to an adhesive which forms the substrate and the bonding may be achieved by adhesion or heat or a combination of both. From the above explanation. It is amply clear that the process of manufacture of the impugned goods as explained above would squarely fall under the manufacturing method as mentioned In the Explanatory note to Heading 5705. The authority may also be pleased to see that there are no needles or hooks used in the manufacture of the Impugned product and also the yarn is not tufted into a pre-existing backing of woven / non woven fabric as described In the manufacturing process of tufted products falling under sub heading 5703. Hence, the impugned product can no way he classified under sub heading 5703.
4.5. Attention is invited to Rule I of the General Rules of Interpretation of the 1″ Schedule – Import Tariff of the Customs Tariff Act, 1975. As per Rule 1. for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes. As per chapter Note 1 of Chapter 57 the term “carpets and other textile floor coverings” means floor coverings in which textile materials serve as the exposed surface of the article when in use and Includes articles having the characteristics of textile floor covering but intended for usc for other purposes. From the above note, it Is amply clear that the basis of matting/ floor covering with Vinyl (PVC) backing as follows:-
Coir yarn of desired rummage and ply is wound as spools. such spools are loaded on a creel stand and coir yarn these spools is fed into the machine Vinyl (PVC] compound is prepared by mixing PVC resin (Paste grade), plasticizer (like DOTP, DINP,etc.) along with stabilizer, filler, desiccant, dye, etc. The mixing is don in a high shear mixer. The mixed compound is allowed to cool down to room temperature and brought to the machine that makes coir mats with Vinyl (PVC) backing The machinery for making cog mats with vinyl (PVC) ‘backing consists of a creel stand loaded with coir yard spools, yarn feeding system cutting head a continuous Teflon belt that is progressively heated, cooling area and winding and cutting mechanism. The pre-mixed vinyl compound is pumped onto the moving Teflon belt and spread evenly We the moving Teflon belt using a doctor blade or roller). This results in a uniform, thin (3-5mm), layer of uncured vinyl in free flowing form (low viscosity) on the moving Teflon belt.
Meanwhile the ends of coir yarn from the crocl stand are unwound and fed over rollers to a cutting head station. The cutting head station is positioned above the continuous. Teflon belt that is moving with the vinyl layer as mentioned above. In the cutting head station, a set of guillotine blades that run across the entire width of the machine chop the coir yarns into predetermined lenghts. These bits of coir yarn later from the pile of the mat. The chopped coir yarn are at horizontal Orientation at time of chopping and they are then directly for a down a chute that turns it around 90 degree to vertical orientation by the time they reach the top surface of the PVC compound moving underneath on the continuous Teflon belt at this point, there is a reciprocating compacter that vertically pushes the short length of cut coir yarns into the PVC layer. in this way, with constant, regulated feed coir yarn through the cutting head and feeding of vinyl compound on to the moving, continuous layer of uncured vinyl and a substantially continuous series of cut coir yarn places (piles) extending up there from. That embryonic mat is then transported over the teflon belt through progressive heating and cooling areas to cure the vinyl (PVC) compound so as to form a well cured vinyl (PVC) backing with evenly cut coir yarn piles firmly embedded in it in vertical orientation. This forms the finished coir mat with vinyl (PVC) backing. It may further be sheared to have a more even surface and cut to required size, as needed.
4.3 It may he found that the Adv ere Ruling Authority had completed misconceived the classifications sought from them. The request before the classification of goods falling under Chapter 57 is on the basis of the textile materials which serve as the exposed cwt of that at bole when put to use.
It is further submitted that in the case in hand, the textile material which serve as the exposed surface of coir mats with Vinyl (PVC) backing is nothing but coir and hence such article needs to be classified as coir mats/matting/product only. Further, it is submitted that the product is Identified in the market as coir mats / malting / floor covering and not as vinyl (PVC) mat matting. It is also submitted that the essential characteristics of the impugned product Is that of coir and the same is marketed / sold and known as coir mats / matting / floor covering only. The Hon’ble Authority may be pleased to find that the goods falling under Chapter 57 need to be classified only on the basis of the nature of textile material used as surface when put In use and on the process of manufacturing. The material used for or as backtng / bonding of the textile material has no relevance In the classification of the goods.
4.6. The above matter of classification was examined by the Central Board of Exeige and Customs and vide letter dtd 20-05-2011 has clarified Lhnt the carpels and floor coverings whether or not backed by vinyl / latex / rubber are classifiable under respective heading of Chapter 57 depending upon the process of manufacture and the type of textile materials used. It was also clarified that in case of coir mats the essential characteristic is of coir and such goods are sold as coir mats only irrespective of the backing. It is further submitted that an identical view has been taken by the Kerala Agricultural Income Tax and Sales Tax Appellate Tribunal vide Its order dtd. 31-01-2002 in Appeal No.TA478/1996. wherein it was found that the crystals of coir fixed at the bottom of a sheet of PVC compound and which appears like coir mat being used as floor mat made up of oak fibre has to be treated as a coir product for the purpose of exemption from sales tax available for coir products.
4.7. Further, M/s. Coir Board vide its clarification dated 12-04-2016 had clarified that the PVC backing of the colt. products does not, In anyway after the basic characteristics of coir products and hence PVC backed tifted coir mats / PVC backers coir mats etc. has to be considered and classified as coir products only. It is also submitted that the impugned product was tested by Regional Laboratory of Textile Committee. Ministry of Todiles, Govt of India for ascertaining the classification of the product. On testing the impugned product, the textile committee vide its report n0. 339;2019-20 dtd. 30-10-2019 has categorically opined that file product Is “coir fibres embedded with poly vinyl chloride based polymer glue” and suggested to be classified as carpets and other textile floor coverings”, which falls under HS heading
No.5705. The authority may be pleased to see that, though the Lest report was placed on record before the original authority at the time of hearing, the same had not found a’place in the impugned order. As all the above tests of classification such as essential character test, Market/trade parlance test etc. and More so the .definition in Chapter note 1 of chapter 57, would suggest that the impugned goods aft to be. classified as colt- mats/matting/ floor covering, the authority may be pleased to classify the impugned goods as coir mat/matting/floor covering. ‘
4:8. As per Explanatory note 1 to the General Rules for interpretation of Customs tariff.
“Wherein column(2) of this schedule, the ‘description of an article or group of articles under he heading is preceded-I,’ the said article or group of articles shall be taken to be a sub-classification of the article or group of articles cowered by the said heading Where however, the description of an article or group of articles is preceded by ‘H:. the said article or group of articles shall be taken tit be a sub- classification of the immediately preceding description of the article or group of article Which has “–or “–“
4.9. It is submitted that heading. 5705 Is baking only a single “-” which is succeeded by five “—” which are carpets–, durries “of jute”, “carpets carpeting, rugs, mats and mattings” and “other”. Since the impugned product is not a carpet or durries or of jute, [the same has W be classified under the entry “carpets carpeting rugs mats and mattings”. Under the said entry since the impugned goods are neither knitted nor of Rotten, the same has to be classified under CIE 5105 9(!);40 as “—other”, by applying the above General Explanatory Notes of the General Rules for the Interpretation of the Schedule.
PERSONAL HEARING
5. Sri John Chako Neroth, Director and Sri Balagopal, M, Advocate, authorized representative of the appellant were personally heard by the Appellate authority for Advance ruling p: the office of the Chief Commissioner, Customs and Central Tax, TVM Zone, Kochi, on 31/12/2020. The appellant demonstrated the product through a video. presentation and submitted a compilation of documents relied upon by them in their favour for classification of product under heading 5705. These documents include Minutes of 16th Meeting of GST Council, CBEC clarification dated 20.05.2011 on drawback, Order of Kerala State Tax Appellate Tribunal dated 31.01.2002 in case of M/s Kerala Balers Ltd, Coir Industry Act, Clarification of Coir Board, Textile Committee Test report, HSN Explanatory notes to Chapter 57, heading 5703 and 5705 etc.
The representatives submitted that coir is textile material in terms of chapter note 1 to chapter 57; that manufacturing process is the deciding factor for classification of products; that AAR has given contradictory findings at para 7(1) and 7(11); and that 57039020 is the most appropriate heading attracting levy of GST OM% only.
DISCUSSION & FINDINGS
6. We have carefully gone through the facts of the case, the relevant Advance Ruling passed by the Advance Ruling authority of Kerala state, the appeal memorandum and the grounds of appeal filed by the appellant before this authority and those including video presentation made/submitted during the course of personal hearing, and other evidences on record. The issue for determination before this authority is listed as follows:-
a. Whether the process of manufacture (embedding coir yarn into vinyl (PVC) compound and curing by heating / cooling) is ‘Tufting’ or a process “other than those processes mentioned in Headings 5701 to 5704” of the Customs Tariff and the HSN Explanatory Notes to Chapter 57?
b. Whether “coir mats / matting / floor covering with Vinyl (PVC) backing’ manufactured by the process of embedding coir – yarn into vinyl (PVC) compound and curing by heating / cooling is rightly covered under the description ”coir mats. mattings and floor covering”?
c. Whether “coir mats / mattings / floor covering with vinyl (PVC) backing” manufactured by the process of embedding coir yarn into vinyl (PVC) compound arid curing by heating / cooling. would merit classification under the Heading 5705 (more specifically. .under CTH 5705 00 49) of Chapter 57 of the I si Schedule to the Customs Tariff?
7. Before we examine the issues on merit. It is noticed that the appellant has filed the instant appeal with delay of about 18 days from the due date as the Advance. Riding order was communicated to (he Appellant. on 20.05.2020 and the last date for filing of appeal was 19.06.2020, whereas the same has been filed on 7111 July 2020. In terms of proviso to Section 100(2) of CGST/SGST Act. 2017, the Appellate authority may condone the delay upto 30 days if the appellant was prevented by a sufficient cause from presenting the appeal within prescribed period .of 30 days. Considering Covid-19 related lockdown during or period and that the appeal has been filed within 30. days from the last late of filing of appeal as prescribed in section 100 (2); we condone the sauce in terms of proviso to Section 100(2) of the Act and proceed to decide the issue on Merit.
8. The issue relates to classification of “Mats. Mattings and Floor er,. Late..x etc” manufactured by the riff code covers Carpets and other f ta.fiff which are under adjudication before us are 57039090 leviable to GST 12% (as decided by the Advance Ruling authority Kerala) and 57050049 leviable to GST 05% (as claimed by the appellant). Hence, we proceed to decide the appeal considering that the impugned product is appropriately classifiable tinder chapter 57 of the Tariff in terms of chapter note 1 to Chapter 57 of the tariff. In this regard, the clarification issued by the CBEC drawback division vide letter dated 20.05.2011 is also relevant, wherein It is classified that the woven coir carpet. whether or not backed by vinyl/latex/rubber is classifiable under heading, 570206 and tufted coir carpet whether or net backed by vinyl/latex/rubber classifiable under heading 570399.
9. Before we proceed to .examine the issue on merit, the description of goods covered under the said two Aral entries viz. .5703 and 5705 are reproduced below for easy reference:
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