AAR Rules 5% GST Applicable on Bio Compostable Carry Bags

The case involved a manufacturer producing eco-friendly carry bags made from compostable polymer materials, certified under recognised standards. To avoid any ambiguity in tax treatment, the applicant approached the Rajasthan Authority for Advance Ruling seeking clarity on how these products should be classified under GST and what rate would apply.

The key question was whether such bio-compostable bags fall within the category of plastic products under Chapter 39 and whether they qualify for a reduced GST rate introduced through a recent notification. The applicant specifically sought confirmation on the applicability of the concessional 5% rate.

Central Issue: Whether bio-compostable carry bags qualify for 5% GST under Chapter 39 classification.

Tribunal’s Decision: The Rajasthan Authority for Advance Ruling ruled in favour of the applicant. It held that since the bags are made from polymer materials and are used for packing or carrying goods, they are correctly classifiable under Chapter 39 of the tariff.

The Authority further noted that compostable and biodegradable bags are specifically covered under the amended GST rate notification. Accordingly, it concluded that such products would attract GST at the concessional rate of 5%, bringing clarity for manufacturers dealing in environmentally friendly alternatives.

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