Tips and Balls of Ball Point Pens are Taxable @ 18% [Read Analysis of Advance Ruling]
#GST Case-66-Interpretation and Classification of Goods in residual entry No. 453 of Schedule III of Notification No. 01/2017-Central Tax (Rate) containing Goods which are not specified in Schedule I, II, IV, V or VI and taxable at 18%-AAR West Bengal
Query 1: Whether tips and ball, both being pen parts under HSN Chapter Head 9608, used in manufacturing process of ball point pens, are taxable at the rate of 12%
Query 2: If the tips and balls used in the manufacturing of ball point pens are not taxable at the rate of 12% under HSN 9608, then at what rate shall they be taxable and under which HSN.
Applicant is in the business of manufacturing and supplying of ball point pens. The applicant requires pen tips and balls for manufacturing of pens. Balls are used inside tips in order to make tips working. Applicant also trades and supplies ball point pen tips and refills to various dealers.
3.) Observation by AAR
a. Difference between a Nib and Tip: The applicant only referred in their query about the tax rate on Tip and Balls. However, during the course of submission, it appeared to AAR that applicant was using the words “Tip” and “Nib” interchangeably, and to clear the confusion applicant was asked to submit samples of the products on which the Ruling has been sought for. Samples were submitted during Final Hearing.
“Nibs” and “Tips” of pens are completely two different products with distinguishable anatomy catering to different kinds of ink and hence, use. While the split down the centre is the essential and salient feature of a “Nib”, the ball at the end of the refill is the essential and salient feature of a “Tip”. The two terms cannot be used synonymously and/or as substitutes of each other.
b. Rules of Interpretation of Tariff: Where description of an article or group of articles under a heading is preceded by “-“,such descriptions under “-” (single dash) are first to be considered for sub-classification under a Heading first, before proceeding to further classify under “–” (double dash). Articles whose description are preceded by a “—” (triple dash) or “—-” (quadruple dash) are sub classifications of the immediately preceding single dash or double dash, as the case may be.
c. Classification as per First Schedule to the Customs Tariff Act, 1975:-‘Tips and ball of pens’, essentially are “parts” of refills. Therefore they cannot be classified in either as Ball point pens (960810) or Felt tipped and other porous-tipped pens and markers (960820) or Fountain pens, stylograph pens and other pens (960830) or Propelling or sliding pencils(960840) or Sets of articles from two or more of the foregoing sub-headings (960850) or Refills for ball point pens, comprising the ball point and ink-reservoir (960860).it has to be classified under “-Other”, which includes:
–9608 91: Pen nibs and nib points
— 9608 99: Other
Since, nibs and nib points are not similar to tips and the Applicant is in the business of manufacturing “ball-point pens” and not “fountain pens”, the classification of “tips and balls for pen” should fall under –9609 99: Other, which includes
— 9608 99 10: Pen holders, pencil holders and similar holders
— 9608 99 90: Others
Since, “tips and balls of pens” are definitively not considered as part of “Pen holders, pencil holders and similar holders” they are to be classified under 9608 99 90: Others, under HSN 9608 and are to be taxed accordingly.
d. Classification as Rate Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017 (as amended from time to time)-:
In the Rate Notification ball point pens, classified under HSN 9608, are included under Sl No. 232 of Schedule II under the description: “pens other than fountain pens, stylograph pens”. The same Notification also mentions “fountain pens, stylograph pens” under Sl No. 447 of Schedule III. However, parts of pen, including “tips and balls of pens”, classifiable under HSN 9608 as discussed above, are not exempted or specifically included under entries of any other schedules. They are, therefore, to be included under Sl No. 453 of Schedule III and taxable @ 9% CGST and 9% SGST.
“Tips and Balls” of Ball Point Pens are to be classified under GST Tariff Heading 9608 99 90 and included under Sl No. 453 of Schedule III of Notification No. 01/2017Central Tax (Rate) dated 28.06.2017 (corresponding State Notification No. 1125-FT dated 28/06/2017).
There are two issues which arises out of the given decision.
a. Decision does not take into account decision of CESTAT in the matter of M/s Swan Tips Pvt. Ltd. Vs. Commissioner of Customs (C.S.I. Airport), Mumbai-
AAR in its judgement has provided that balls of pens are part of pen. However, CESTAT in its judgement specifically rejected that the steel balls are part of ball point pen. The revenue in the said matter had classified polished steel balls parts of ball point pens under Chapter Heading 7326 and the appellant sought to classify it under Chapter 9608. The Tribunal specifically rejected the contention of the applicant and held that
The appellants ground of appeals are classification under 73.26 is contested mainly on the issue that a products imported are parts of ball point pen and as per Rule 1 of General Rules for interpretation of the schedule, the classification needs to be determined according to the terms of the headings and any relative Section of Chapter notes. According to the appellant sub-heading No. 9608, parts of pens has been mentioned. Alternatively the classification is sought of the polished steel balls parts of ball point pens under Chapter 8482. We do not find any merits in the grounds taken by the appellant for simple reason that the goods which are imported, are not parts of ball point pen and are used further for manufacturing of ball point pen. The classification sought of appellants under Chapter 8482 is correctly rejected by the lower authorities.
In view of our reasonings, we hold that the items in question namely, polished stainless steel balls for ball point pens would be rightly classifiable under Heading 73.33/40 of the Customs Tariff Act, 1975.
The classification was adopted under Heading 73.33/40 in view of Note 6 of Chapter 84 and Note l(d) of Chapter 98 read with Note 2 of Section XV.
Although in the matter before AAR, it was not clear whether the balls were made of bae metals or otherwise. However, had the decision of CESTAT been brought before AAR, decision of AAR might have been different.
It would be pertinent to highlight that the said decision was given by CESTAT following the decision of Collector of Customs, Bombay Vs. Sanghvi Swiss Refills Pvt. Ltd. 1997 (94) ELT 644 (Tribunal), Pratap Engineering Works v. Collector of Central Excise, 1995 (78) E.L.T.472 and Collector of Central Excise v. Century Steel Balls Pvt. Ltd.
b. Relevance of Entry No. 453 of Schedule III in Notification No. 01/2017-Central Tax (Rate) Dated 28th June 2017-
Entry No. 453 of Schedule III in Notification No. 01/2017-Central Tax (Rate) Dated 28th June 2017 provides that Goods which are not specified in Schedule I, II, IV, V or VI would be taxable at the rate of 18% i.e. 9% CGST and 9% SGST. There has been a lack of clarity with regard to the given entry and AAR in its decision seems to throw some light on the process and clarity of the entry. A Clarification in this regard would be most welcome.
AAR in its judgement held that parts of pen, including “tips and balls of pens” are classifiable under HSN 9608 as discussed above. However, since they are NOT specifically covered under entries of any other schedules as provided under Notification No. 1/2017-Central Tax (Rate) therefore they are to be included under Sl No. 453 of Schedule III. The relevant entries in the notification for Pen under HSN 9608 are as follows:
Chapter / Heading / Subheading / Tariff item
Description of Goods
Pens other than Fountain pens, stylograph pens
Fountain pens, stylograph pens
Goods which are not specified in Schedule I, II, IV, V or VI
The interpretation being made by AAR for the relevant goods seems to be on the following premises:
Step 1: Ascertain the HSN Code under which the goods are falling as per the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).
Step 2: Whetherthe relevant Entry under the Rate Notification specifically covers the said products.
Step 3: If Yes then only relevant entry under the rate notification would be applicable.
Step 4: If No then although product may fall in a particular HSN and some entries of that particular HSN might have been provided in the rate Notification, but if those entries do not specifically cover that product under its ambit, then such goods will fall under the S. No. 453 of Schedule III of Notification 01/ 2017-Central Tax (Rate) -Dated 28th June 2017 (as amended from time to time).
This Article has been authored by CA Arpit Haldia.
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