Partially Coated Polyester Fabric (Knitted or Woven) classified at HSN 5903

Partially Coated Polyester Fabric (Knitted or Woven) classified at HSN 5903 Introduction: An advanced ruling is a mechanism whereby taxpayers can get answers or clarifications regarding supply of goods and services, directly from tax authorities and the primary objectives for such a mechanism are to reduce litigation, attract FDI due to transparent tax liability, provide certainty with respect to tax liability and disclose ruling in an inexpensive and transparent manner. The Authority for Advanced Ruling (AAR) constituted by the tax authorities interprets tax laws for the taxpayers and it was created to address any issues faced by taxpayers and assist them by providing a decision on the clarification sought. The AAR’s appallet authority is the AAAR (Appellate Authority or National Appellate Authority for Advanced Ruling). Section 95 to Section 106 in Chapter XVII of CGST Act covers the procedures and rules related to advance rulings. An application is made by the taxpayer on the clarification sought by them. The taxpayer is provided an opportunity of being heard by the AAR. If there is consensus on resolution on the clarification sought between the AAR and taxpayer, an ‘Advance Ruling’ is issued by the AAR and on the contrary, the matter is referred to the AAAR. The question of law which are address through this AAR are as follows:

• The proper classification of the material processed by the applicant and reasoning thereof.

Facts of the application made to AAR, by taxpayer ‘M/S. Supercoat India (Trade name) Ayush Baid (Legal name) (applicant)’, dated 27-Aug-2021:

The applicant, M/S. Supercoat India (Trade name) Ayush Baid (Legal name), requires the intervention of the AAR for correct classification of the cloth material which they process. The applicant processes partially coated Polyester material (woven or knitted) or any other variety of partially coated (having scattered micro-dot print) and currently classifies them under chapter 50-55, 58 or 60. These fabrics are further used as interlining fabric such as in gowns, shirts, coats, etc. The process involved in making the partly coated polyester fabric and other partly coated fabric are elaborated by the applicant. The key point to be noted in the process with reference to the proper classification of the processed fabrics, is listed below.

• The fabric which is purchased from the open market are put through a process of dyeing, screen printing, drying through burners and blowers and finally cooled. The fabric is partly quoted with scattered dots one side, the dots are made visible by providing them an elevation so that it can be used for attaching to other fabric for interlining and hence names as fusible interlining fabric.

The applicant is currently classifying the material under Chapter heading 5903 but they are of the opinion that this classification is incorrect as the material processed by the applicant has plastic coating which is fused with other materials as mentioned above. The applicant is of the view that plastic quoted materials having design in them cannot be classified under Chapter heading 5903 and will fall under Chapter 50-55, 58 or 60. It opined that since the processed fabric are polyester materials, they will not fall under Chapter headings 50-53 and can be classified under Chapter 54. The applicant further stated that classification under Chapter 59 is not possible as under a Madras High Court case which was further appealed to CESTAT vide appeal no. E/31/2012, the order stated that cotton fusible interlining fabric should be classified under chapter heading 5903 under omission of chapter note 2(c ) to chapter 59 which reads as follows ‘Textile fabrics, partially or discretely coated with plastic by dot printing process.” Further the applicant submitted similar advanced rulings passed by other AAR authorities, the significant one to be note being the one passed by the AAR, Uttarakhand in the case of M/S. Goodswear fashion Pvt. Ltd. where the AAR passed order that based on lab reports, the polyester viscose fusing interlining woven fabric should be covered under chapter 55 to 58 and not chapter 59. Further in the case of Ashima Dyecots (P) Ltd., the applicant stated that the case is irrelevant as the fabric in question in the aforementioned case was cotton and not polyester as the present case. For the above mentioned reasons, the applicant submitted that their product will not fall under chapter heading 5903 or 59 and will be classified under Chapter heading 5407 as their material is woven or knitted polyester fabric. Further they submitted a letter from Man Made Textile Research Association, dated 31.Jul.2021 which provided the following insights about the applicant’s processed fabric.

• The dots of the plastic coating are visible to the naked eye.
• That the fabric bent without fracturing at 15-30 degree Celsius.
• The dot coating provided a design on one side of the fabric
• The fabric has dots on one side of the fabric using coating material and
• The fabric is not impervious that is it becomes wet when in contact with water.

Contention of revenue:

The revenue is of the contention that the original classification made by the applicant for the processed polyester fusible interlining fabric under Chapter heading 5903 is correct as the materials are textile fabrics, laminated or covered with plastic, impregnated and coated.

Observations and final ruling by AAR vide Order No. GUJ/GAAR/R/45/2021 dated 27.Aug.2021:

The personal hearing by the AAR was on 17. Jun. 2021 and Avinash Poddar appeared on behalf of the applicant and reiterated the facts as stated above. The personal hearing was adjourned few times and the final personal hearing through video-conferencing was held on 31-Jul-2021 and the representative of the applicant made representations similar to what the Man Made Textile Research Association, had made dated 31.Jul.2021. The AAR acknowledged the facts mentioned by Man Made Textile Research Association, and reiterated the question in hand, i.e., of the processed fabric must be classified under Chapter heading 5903 or Chapter heading 50-55, 58 or 60. The AAR stated that classification of goods under GST is basis the HSN and the custom tariff is basis the HSN. The AAR further explained that the Chapter notes are part and parcel of the Customs Tariff Act, 1975 and the explanatory notes to the HSN have used for interpreting the correct classification. The general principle followed for classifying under HSN is to go by the Section headings or Chapter Notes and this approach has been adopted by AAR to arrive at the conclusion. The AAR had reproduced Chapter 59 and Heading 5903 as is. The AAR sighted the difference between Chapter 59 and Heading 5903 where Heading 5903 specifically quotes “laminated with plastics (eg: poly(vinyl chloride)) and also took into account the Man Made Textile Research Association’s observations. The AAR, based on explanatory notes to Heading 5903 confirmed its findings on the following points to be fulfilling the explanatory notes to Heading 5903.

• The fabric is coated with plastic and the material is not tyre cord fabric.
• The dot coating on material for fusing with other materials can be seen with naked eye
• That the material can be bent manually without fracturing, at temperatures between 15 to 30 degree Celsius.
• The dot coating is present only on one side of the fabric
• The dots on the fabric are elevated which assist in interlining with other fabrics and are partially coated.
• The goods are not cellular plastic mixed with textile fabric. The process flow given by applicant provides evidence to the same
• The AAR agrees with applicant that fabric does not fall under heading 5811 as it deals with quilted textile products.
• The product is not rigid

AAR concluded that since the fabric fits the above explanatory notes to Heading 5903, the fabric has to fall under HSN 5903. Further the AAR confirmed that without taking into consideration the omission of chapter note 2(c) to chapter 59 which was issued as a circular dated 27.Nov.1998, the AAR could conclude as above. Further with respect to the other advanced rulings cited by the applicant, the AAR is of the contention that as per Section 103 of CGST Act, the advanced rulings are specifically binding on the applicant and hence are not considered for making the final order. The AAR therefore ruled that the subject mentioned fusible interlining fabric made from polyester has to be classified under HSN 5903.