In Re : Hafele India Private Limited
GST
2018 (8) TMI 523 – APPELLATE AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2018 (15) G. S. T. L. 600 (App. A. A. R. – GST)
APPELLATE AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAAR
Dated:- 2-8-2018
ORDER NO. MAH/AAAR/SS-RJ/02/2018-19
GST
MR RAJIV JALOTA, MEMBER AND SMT SUNGITA SHARMA, MEMBER
PROCEEDINGS
(under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra
Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as
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pending on the nature of supply, the appellant is liable to discharge the applicable tax i.e. Central Goods and Services Tax (“CGST”) and State Goods and Services Tax (“SGST”) or IGST as the case may be.
C. In the pre-GST regime, the, Appellant, being an Importer dealer, was not required to pay Excise duty on its sale to customers. It was merely liable to pay VAT/CST on such sale as per the rate schedule provided in the respective States VAT Act. Further, the rate Schedule under the respective VAT/CST laws was not linked to the HSN classification of the commodity. Under the Maharashtra Value Added Tax Act, 2005 (“MVAT Act”), Caesarstone was taxed at 13.50% VAT in terms of the residuary entry contained in Schedule E to the MVAT Act.
D. GST has been introduced w.e.f. July 1, 2017 which seeks to subsume most of the existing Indirect taxes. Further, the Government has also released various Schedules for classification of goods/services along with applicable GST rates. It is pertinent to
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he Appellant') is to be classified under HSN code 6810.
I. Aggrieved by this Order, the Appellant has filed appeal before this appellate authority based on the grounds expatiated here-in-under:-
GROUNDS OF APPEAL
A. The Impugned Advance Rulinfi has been passed based on an incorrect reading of Heading 2506
1. In the Impugned Advance Ruling, the Learned AARM has read Heading 2506 to say that the kind of “quartz” that would be covered thereunder would be one which may or may not be roughly trimmed or merely cut with the method of cutting being specified as sawing or otherwise. Therefore, in the view of the Learned AARM, said goods can in no way be classified under Heading 2506.
2. In this context, it is pertinent to note that Chapter 25 of the Customs Tariff Act deals with “Salt; Sulphur; earths and stone; plastering materials, lime and cement” whereunder quartz is covered under heading 2506 in the following manner:
“Quartz (other than natural sands); quartzite, whether or not roug
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read as two separate entries and not as a single entry.
4. In any case, it must be noted that scientifically, “quartz” and “quartzite” cannot be used interchangeably. “Quartz” is a mineral comprising silicon and oxygen atoms and having the chemical composition Si02 and is the second most abundant mineral found in the Continental crust of the earth. On the other hand, “Quartzite” is a hard, non-foliated metamorphic rock that was originally “Quartz Sandstone” and underwent metamorphic processes like tectonic compression to form quartzite. From a combined reading of the two, it is evident that quartz and quartzite cannot be used interchangeably and as such the factors relating to quartzite, as mentioned under heading 2506, cannot be applied to products sought to be classified as quartz.
5. In view thereof, it is clear that the Learned AARM has sought to exclude the classification of the said goods as “quartz” based on an incorrect reading of what Heading 2506 actually covers and how the
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g the structure of the product, crushed, powdered etc.” preceding it and does not cover products that have been roasted, calcined or obtained by mixing.
7. At the outset, with respect to the first reason given in the Impugned Advance Ruling, it is important to note that the composition of goods is 93% crushed quartz that is combined with high-quality polyester resins and pigments and is then compacted under intense vibration, vacuum and pressure into dense and non-porous slabs. This is clear from Section 6 of the Technical Data Manual provided by the Appellant's vendor. Similarly, a Guide Specification for these goods, released by the Appellant's vendor, uses the words “Caesarstone” and “quartz” synonymously such that “Caesarstone” and “quartz” are considered to be interchangeable.
8. Reference must be made to Rule 2(a) of the General Rules for Interpretation. A bare perusal of the said Rule provides that a reference to a material or substance shall be taken to include a reference to
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1211) wherein the manner and applicability of the General Rules of Interpretation was discussed. First and foremost, the Apex Court had held that-………………” we can not decide the question of classification of goods under the “Import Tariff” by implications, when there are Rules of Interpretation which are specially framed to aid and assist the classification of goods under appropriate Headings. Those Rules must have precedence over other aids of interpretation.”
11. The clear implication that follows this statement of the Apex Court is that in cases where there exists uncertainty over classification of products based on the wordings of headings in the Customs Tariff Act, the Rules of Interpretation must be resorted to before any other extraneous sources for interpretation. Moreover, while dealing with the question if classification of brass, which is a mixture of copper and zinc such that the component of copper maybe anywhere between 67% to 70%, the Apex Court held that Copp
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ties. Thus, it cannot be said that Heading 2506 does not envisage a mixture of quartz in any form. In view thereof, the observation of the Learned AARM that Heading 2506 does not contemplate mixtures of any sort is incorrect and without proper understanding of the facts.
14. Additionally, it must be noted that even though Explanatory Note 1 to Chapter 25 does state that the products that have undergone processes other than those provided by the relevant Heading are excluded from the ambit of Heading 2506, it is important to note that the only exclusion provided in the first part of Heading 2506 is “natural sand”. Sand is a naturally occurring material composed of finely divided rock and mineral particles. Sand is characterized by the size which is finer than gravel and coarser than silt. However, the said goods is the processed form of quartz in the form of slabs and thus, the same would not be construed as a natural sand. Thus, it is clear that the goods in question does not fall wit
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ed Advance Ruling, we refer to the Chapter Notes provided under Chapter 25 of the Customs Tariff Act. Chapter Note 1 to Chapter 25 provides the various processes that are permitted to be conducted on a product to qualify for classification under this Chapter. The relevant extract of the said Chapter Note 1 is reproduced hereunder:
“1. Except where their context or Note 4 to this Chapter otherwise requires, the headings of this Chapter cover only products which are in the crude state or have been washed (even with chemical substances eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, concentrated by floatation, magnetic separation or other mechanical or physical processes(except crystallization), but not products that have been roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in that heading.”.
(emphasis added)
18. In order to understand the entire import of Chapte
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case of Indian Medical Association v Union of India [AIR 2011 SC 2365], the word “or” has been said to denote “an alternative in a series of exclusive arrangements”.
19. From a plain reading of the above interpretations, it is clear that the use of the word “or” in a sentence denotes that the words coming before “or” and after/or” are mutually exclusive of each other. The Explanatory Note to Chapter 25 provides the “positive conditions” on the fulfillment of which goods may be classified thereunder. Applying the above-mentioned principles of interpretation, it is clear that the words preceding “or” and succeeding it should be read in the alternative. In view thereof, the phrase “or other mechanical or physical processes” are to be read separately from the first part of the explanatory note that states that only quartz in its crude state is covered under heading 2506 of Chapter 25 of the Customs Tariff. In other words, products that have undergone inter-alia the mechanical or physical
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or produced by machines [The Concise Oxford Dictionary-
Tenth Edition, Page 884];
ii. Pertaining to the science of mechanics or mechanism; depending upon mechanism or machinery [Advanced Law Lexicon (5 Edition)];
b. Process: –
i. A series of actions or steps towards achieving a particular end; perform a series of operations to change or preserve [The Concise Oxford Dictionary – Tenth Edition, Page 1139]
ii. A method, operation, or series of actions intended to achieve some end or result; The natural meaning of the word “process” is a mode of treatment of certain materials in order to produce a good result, a species of activity performed on the subject matter in order to transform or reduce it to a certain-stage; “Process” connotes a substantial measure of uniformity of treatment or system of treatment. According to the Oxford English Dictionary, it means 'a continuous and regular actions, taking place or carried on in definite manner' [Advanced Law Lexicon (5th Edition
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s ultimate strength and solidity.
f. Polishing: Slabs are then gauged, calibrated and polished to a perfect finish in a wide range of colors and designs in one of our three textural surface finishes: Polished, Honed or Viento.
The processes explained above have also been elaborated by the Appellant's vendor in its website. –
23. On a combined reading of the definition of the term mechanical process with the manufacturing process carried on by the Appellant's vendor, it can be construed that entire manufacturing process is within the scope of the term mechanical process. Consequently, in terms of Chapter Note 1 to Chapter 25, the manufacturing operations conducted by the Appellant's vendor are within the ambit of permissible processes.
24. Besides this, the Appellant further submits that the HSN system of coding goods is based on the HSN developed by the World Customs Organization (“WCO”). The WCO, periodically releases an Explanatory Note to each of the Chapters/Products of the HS
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ere was no link between the applicable rate of VAT/CST with HSN classification, the Appellant had no reason to determine the same. Subsequently, GST was introduced w.e.f. 1 July, 2017, the GST rates were aligned to the HSN classification of the goods. Since, under the GST regime, the Appellant will be liable to pay CGST, SGST and/or IGST, as required, and accordingly pass credit from the same to its customers, it has become imperative for the Appellant to ensure that the impugned product is classified correctly. Accordingly, since there was no actual classification of the said goods under the Customs Tariff Act at the behest of the Appellant, the question of automatic classification under Heading 6810 under the GST Act does not arise.
26. In the Impugned Advance Ruling, the Learned AARM has made use of a ruling dated 27 August 2002 under the Harmonized Tariff Schedule of the United States to hold that agglomerated quartz sheets are classified under subheading 6810.99.00, which provide
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agstone clarifies that the same is different from Caesarstone.
b. We would also refer to the meaning of the term “concrete boulder”. The word concrete boulder has not been defined anywhere and thus, we would refer to the dictionary definitions. As per The Concise Oxford Dictionary, the word concrete refers to the building material made from a mixture of gravel, sand, cement and water. Further, the word boulder refers to a large rock. Thus, on a combined reading of both the aforementioned definitions, it can be construed that a concrete boulder would mean a large rock made from a mixture of gravel, sand, cement and water.
In view of the above, the product can merit classification only under the residuary category of tariff entry 68109990.
28. Further, it would be worthwhile to refer to Chapter Note 1 to Chapter 68 which clearly provides that Chapter does not cover goods falling under Chapter 25. The relevant extract of the same is as follows:
“1. This Chapter does not cover:
(a)
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3(a) of the General Rules for Interpretation, the said rule provides that a specific description should be prevailed over a generic description. In the instant case, the two headings that merit consideration is Quartz – In lumps (2506) and Other Artificial Stones (6810). In the instant case, the most specific description that relates to the nature of the said goods is under tariff entry 2506.
c The Hon'ble Apex Court, in plethora of judgments held that the heading that provides a more specific description shall be preferred to the headings providing a more general description.
i. ln Indian Metals & Ferro Alloys Ltd., Cuttack v. Collector of Central Excise, Bhubaneshwar, [1991 Supp (1) SCC 125], the Hon'ble Apex Court held that a residuary item can be referred to and such item can be applied only when goods are shown to be not falling under any other specific item. If they are covered by a specific item, residuary item has no application. It was further held that unless the departme
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s juncture, it must be noted that Heading 6810.99.00 under United States Customs law is a residuary entry whereby all articles that cannot be classified under other Headings under Chapter 68 are classified under Heading 6810.99.00. In view of our above submissions, it is clear that when a product is classifiable under two Headings, one of which is specific and one generic, the latter will give way to the former.
33. The Learned AARM has relied on the US Ruling that has classified agglomerated quartz sheets under subheading 6810.99.00 which is the residuary clause. However, upon a reading of the aforementioned New York Ruling, it is clear that even within the United States, there exists legitimate confusion as to the manner in which products can be classified under Chapter 25 and Chapter 68. In such a scenario, where conflicting rulings exist, the Learned AARM as erred in relying on the US Ruling, which can at best have persuasive value.
Personal Hearing
34. A hearing was fixed in th
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ce the product is made of 93% quartz and quartz is mentioned against HSN 2506, the classification of the said goods should be decided under HSN 2506 as specific entry will prevail over generic entry. The Advocates also submitted that their product is made from 93% of natural stone(quartz), hence same can not be classified under HSN 6810 as Artificial Stone.
36. The Jurisdictional Officer opposed the argument of the Advocate citing that 250610 covers Quartz in Lumps and the goods in question are in no way in Lumps as the same are in form of slabs. He further argued that Chapter 25 pertains to Minerals and the goods in question are a manufactured product after undertaking number of processes and thus cannot be classified under 2506 as the said Heading covers natural goods in crude state with minor processes permitted in the Chapter.
Discussions
37. The issue involved in the matter is classification of the product 'Caesarstone^iTnpwfTed by the Appellant, under HSN code 2506 or 6810 for
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iscussed as under.
39. Advance ruling has been passed based on an incorrect reading of heading 2506.
At the outset here we note that to avoid classification disputes under the GST regime, the Customs Tariff has been adopted for descriptive classification of goods under GST. Further, although the tariff entries for the purposes of GST have been kept at 4 digits, in case of any doubt, for exact classification reference will always be need to be made to 6 to 8 digit entries of the HSN, as also the Explanatory Notes provided therein, which have been held to be binding in nature by the courts. Reliance is placed on the following two judgments of Hon'ble Supreme Court in this regard:
(a) Collector of Customs, Bombay v. Business Forms Ltd. [2002(142) 18 E.LT.(S.C)]
“Classification of goods – Explanatory Notes to HSN not only of persuasive value but entitle to the greater consideration in classifying goods under Central Excise & Customs Tariff”
(b) O.K. Play(lndia) Ltd. v. Com
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en classified under 2506 in the above two forms only. However, the form in which the goods are imported, even if we presume for the sake of argument that these are quartz, are neither in form of 'LUMPS' nor in the form of 'POWDER', but are Agglomerated/Fabricated/Engineered stone in slab form, which is evident from the literature provided by the Appellant themselves. Therefore, the argument of Appellant that AAR has passed the order on an incorrect reading of Heading under 2506, holds no ground.
40. The said goods fall squarely within the provisions of Heading 2506.
The Appellant has claimed that the composition of goods is 93% crushed quartz and it should be classified as quartz only. And yet, if composition is the only criterion for classification, then all manufactured goods would merit classification in the headings of their raw materials. For example- All furniture of wood will find classification under the heading of wood only as it contains more than 90% of wood and there wou
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rocessing beyond that mentioned in each heading. –
The Explanatory Notes to HSN 2506, state that,
Quartz is naturally occuring crystal form of silica.
Any product falls in this heading onlyif it complies with both of the following two conditions:
(a) It must be in crude state or have not undergone any process beyond that allowed in Note 1 to this Chapter; for this purpose, heat treatment designed solely to facilitate crushing is regarded as a process permitted by Chapter Note 1.
(b) It must not be of a variety and quality suitable for the manufacture of gem stones……..
To classify their product as quartz, the Appellant has referred to Rule 2(a) and Rule 3(b) claiming that the said goods are a mixture or combination of quartz. It appears that Appellant had intended to refer to Rule 2(b) in place of Rule 2(a) as Rule 2(a) refers to incomplete or unfinished article, which is not the case here as the goods in question are complete and finished product. As per Rule 2(b), t
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oxy-3,5,5-trimethylhexanoate, Pigment mixture”. The manufacturing process is also available on the website of the manufacturer which inter-alia includes that 'Caesarstone Quartz Surfaces' are manufactured through a highly automated yet strictly monitored process. Two steps of the said manufacturing process are reproduced hereunder-
a. Moulding and Pressing-
The mixture is then poured into a mould and formed into slab sizes of 306×144 cm, or 120×57 inches. It is compressed under very high pressure(nearly 100 tons psi) and vibrated in a vacuum. This removes all the air and creates a compressed surface.
The slabs are then moved to the curing kiln and heated to 90 degree C for 45 minutes which provides the finishes levels of strength and solidity.
From the above, it is evident that Caesarstone is not a natural stone, as its registered name appears to suggest, but is an engineered product, manufactured after a series of processes which are in no way simple mechanical or physical pr
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ure of quartz combined with other materials. Therefore the quartz contained in the goods in question i.e. Caesarstone , is not in crude state and has undergone processes beyond those allowed in Note 1 of Chapter 25, and hence fail to comply with the conditions required for classification under 2506. The reference to other Rules is unwarranted when classification can be decided under Rule 1.
We therefore observe from all the evidences before us that the processes being undertaken by the manufacturer for this product are much beyond the processes mentioned in Chapter Note 1 to Chapter 25, and thus the said goods cannot be classified under this Chapter. All other arguments relating to the semantics of semi colon etc. are disposed of accordingly.
Now, we turn our attention to the competing entry HSN 6810, which covers Articles of Artificial Stones. As per the Explanatory Notes to HSN 6810,
'Artificial Stone is an imitation of natural stone obtained by agglomerating pieces of natural sto
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ngineering Works, cited by the Appellant, pertains to application of Rules of Interpretation in cases where there exists uncertainty over classification of products. Firstly, there is no uncertainty over classification here. Secondly, the classification has been decided relying on the Rules of interpretation only. (Rule 1). Therefore, the said judgment is of no help to the Appellant.
Two other judgments of Apex Court, cited by the Appellant, are also not relevant in this matter as both pertain to classification of products based on specific entry over general entry. When the goods in question are excluded from Chapter 25 based on the Chapter Notes, there is no question of considering the same under that Chapter as specific entry. Moreso, the said goods are specifically classified as Articles of Artificial Stone under HSN 6810.
The Rulings of other countries, referred by the Appellant and Authority for Advance Ruling, are for the purpose of reference only and have no binding effect in
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