A Division Bench of the Delhi High Court has recently quashed a circular issued by the Tax Research Unit in clarification of classification of non-woven polypropylene bags, being devoid of authority under the Goods and Services Tax Act,2017 or 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.
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, and to the extent that it asserts that polypropylene woven and non-woven bags, including those laminated with Biaxially Oriented Polypropylene, should be classified under Chapter 39, specifically under Tariff Heading 3923 in the First Schedule to the Customs Tariff Act, 1975.
The TRU has, on due consideration of the aforesaid issue, clarified that those articles would be classifiable as “plastic bags” under Tariff Heading 3923. The petitioners are aggrieved by the aforesaid Circular, since it contends that polypropylene woven or nonwoven 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.
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 place.
Lakshmikumaran, for the petitioners submitted that, the power to issue orders, instructions or directions to Central Tax Officers stands vested exclusively in the Central Board of Indirect Taxes and Customs (CBIC).
It was in that backdrop that Mr. Lakshmikumaran contended that no power stands conferred upon the TRU. According to 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.”
The Bench of Justice Yashwant Varma and Justice Dharmesh Sharma noted that the counsel 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.
It was observed that, “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 us.”
Further, it was held that, “We are further of the view that since the writ petition itself stood restricted to the validity of the circular, it would be imprudent for us to hand down a verdict imbued with attributes of finality. We are thus of the considered opinion that the issue of classification should be left open for the consideration of the competent authority in appropriate proceedings.”
“The writ petition shall consequently stand allowed. The impugned circular dated 31 December 2018 is hereby quashed. We leave it open to the petitioners to adopt such measures, insofar as the issue of classification is concerned, as may be permissible in law”, the Delhi High Court Division bench held.
Thus, the bench quashed the circular issued, devoid of legal authority in favour of the petitioners and against the revenue.
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