In Re : Hafele India Private Limited
GST
2018 (5) TMI 646 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – 2018 (13) G. S. T. L. 65 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – AAR
Dated:- 20-3-2018
GST-ARA-10/2017/B-13
GST
Shri B.V. Borhade, Joint Commissioner of State Tax and Shri Pankaj Kumar, Joint Commissioner of Central Tax
PROCEEDINGS
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and the MGST Act”] by Hafele India Pvt. Ltd., seeking an Advance Ruling for determination of the correct classification of Caesarstone under the MGST Act.
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
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icant is engaged in the business of importation of kitchen and bathroom fittings along with furniture and other home accessories (hereinafter called as goods) for onward selling. The Petitioner while importing these goods is subject to Basic Customs Duty and Integrated Goods and Services Tax (“IGST”) under Customs Tariff Act, 1975 on goods cleared for home consumption.
3. The Applicant also imports Caesarstone quartz surfaces (hereinafter referred to as “Caesarstone/impugned goods”) for onward sale to domestic customers in India. The Applicant while importing the impugned goods is liable to pay Basic Customs Duty, Integrated Goods and Services Tax (“IGST”) under Customs Tariff Act 1975 on goods cleared for home consumption. Further on making the outward supply of the impugned goods, depending on the nature of supply, the applicant 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.
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goods as per the GST rate Schedules has been aligned as per the classification adopted in the tariff entries provided under the First Schedule of the Customs Tariff Act, 1975 (hereinafter referred to as the “Customs Tariff Act”). However, in certain cases, there is an inconsistency in classification, resulting in a situation wherein the goods could be classified in a different heading for import whereas the same may fall in the different entry under the respective states schedule for levy of tax on outward supply. Considering the said inconsistency between the classification of the product as per the GST rate Schedule vis-a-vis the Customs Tariff Act Schedule, it becomes necessary for the Applicant to re-determine classification of Caesarstone under the GST regime instead of continuing the classification adopted under the pre-GST era.
7. Based on the examination, the Applicant realized that Caesarstone merits classification under HSN 2506 or 6810 of the GST Schedule. At t
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tions for filing the Advance Ruling in terms of Section 97 of the Central Goods and Services Tax Act 2017 (“CGST Act”). For ready reference, these conditions are reproduced hereunder:
a. The Applicant has obtained registration in Maharashtra and would therefore be covered within the scope of the term “applicant” as defined under Section 95(c) of the CGST Act;
b. The question on which advance ruling is sought is in relation to the classification Of Caesarstone thereby fulfilling the condition provided under Section 97(2) of the CGST Act; and
c. The question raised in the application is neither pending nor decided in any proceedings in the case of the Applicant under any provisions of the CGST Act.
2. Having complied with the pre-requisite conditions for filing the present Advance Ruling Application, we may now proceed to determine the classification of Caesarstone under the GST regime. The guiding principles determining the classificat
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lity polyester resins and pigments and is then compacted under intense vacuum and pressure into dense and non-porous slabs.
4. The previously mentioned fact is substantiated from the Technical Data Manual – Section 6 (“TDM”) issued by the Applicant's vendor. A copy of the TDM issued by the vendor is attached and annexed as Exhibit F.
5. Quartz is a mineral composed of silicon and Oxygen atoms in a continuous framework of SiO4 Silicon-Oxygen tetrahedra. It is the second-most abundant mineral in Earth's continental crust behind feldspar,
6. Section V of the First Schedule to the Customs Tariff Act deals with various Mineral Products. Section V is further bifurcated into 3 Chapters viz., Chapter 25, Chapter 26 and Chapter 27. Chapter 25 covers “Salt; Sulphur-, earths and stone; plastering materials, lime and cement”. The Customs Tariff provides that quartz of the following description can be classified under Chapter heading 2506 of the
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sarstone imported by the Applicant shall be construed as a Quartz.
9. Further the tariff entry 2506 specifically excludes 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, Caesarstone is the processed form of quartz in the form of slabs and thus, the same would not be construed as a natural sand.
10. Although the GST' regime do not seek to classify goods in excess of 4-digit classification, for a better co-relation of classification under the Customs Tariff Act, we are hereby evaluating the 8-digit classification provided under the Customs Tariff Act. In this connection, it is pertinent to note that Quartz under heading 2506 can either be in powder form or in the form of lumps.
11. The term lump has not been defined under the Customs Tariff Act. Therefore, recourse needs to be made to the dictio
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ed, screened, concentrated by flotation, 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 each heading.”
13. In view of the above, it can be construed that only such products that are in crude form or have undergone inter alia the mechanical or physical processes are permitted to be classified under Chapter 25 of the Customs Tariff. Thus, while a product may not be supplied in crude form, if the same is subjected to the processes mentioned under Chapter Note 1 to Chapter 25, such product would also be construed to form part of Chapter 25 of the Customs Tariff Act Schedule. For this, it needs to be evaluated whether the processes carried on by the Applicant's vendor falls within the purview of the term “mechanical process” as specified in Chapter Note 1 to Chapter 25.
14. The term “mechanical
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g 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 Edition)].
Copies of the relevant extract of the aforesaid definitions have been collectively attached and annexed as Exhibit G.
15. In view of the above, the term mechanical process can be understood to mean a series of operations with the use of machines. We shall co-relate this with the manufacturing processes carried on by the Applicant's vendor. The entire process of manufacturing Caesarstone is set out hereunder:
a. Inspection of raw materials: The manufacturing process begins with a rigorous inspection of
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A copy of the same is attached an annexed as Exhibit H.
16. On a combined reading of the definition of the term mechanical process with the manufacturing process carried on by the Applicant'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 I to Chapter 25, the manufacturing operations conducted by the Applicant's vendor are within the ambit of permissible processes.
17. Besides this, the Applicant 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 HSN.
18. We refer to the Explanatory Notes released by the WCO which are annexed to Chapter heading 2506 of the HSN Code. The relevant extract of the same is as under:
“Quartz is the naturally occurring crystal form of silica.
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ng or otherwise, into blocks or slabs of a rectangular (including square) shape. ”
19. It is pertinent to note that Chapter Note 1 to Chapter 25 of the HSN is identical to the Chapter Note 1 of the Customs Tariff Act and hence, the same is not replicated again for the sake of brevity, Therefore, on a harmonious reading of the Customs Tariff Act and HSN Explanatory note, it can be construed that the impugned goods merit classification under tariff heading 2506 of the Customs Tari ff Act.
20. It may also be noted that the description of the product used by the vendor in its invoice is “Agglomerated Fabricated Quart: Slab”. Thus, further substantiating classification under Chapter heading 2506 of the Customs Tariff Act.
21. In light of the aforesaid analysis, it is beyond doubt that Caesarstone merits classification under Chapter 2506 of the Customs Tariff Act. However, before concluding on the classification, it would be imperative to evaluate tariff heading 6
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crete boulder”.
a. As per Rule 22 of the Madhya Pradesh Mineral Rules 1996, Flagstone is a natural sedimentary rock which is used for flooring, roof top, etc. and used in the cutting and polishing industry. The meaning of the term flagstone 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 be 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 6810
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the manner of determination of classification when the goods are classifiable under two or more headings. The analysis pertaining to the same is as follows:
a. At the outset, it is submitted that due to a specific exclusion of goods falling under Chapter 25 in Chapter Note I to Chapter 68, it appears that there does not exist a possibility of a scenario where a particular product can be classified under Chapter 25 as well as Chapter 68 of the Customs Tariff Act.
b. Without prejudice to the aforesaid argument, if one intends to apply Rule 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 impugned goods is under tariff entry' 2506,
c. The Hon&
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0008 (SC) = 2002 (5) TMI 51 – SUPREME COURT OF INDIA] has laid down the principle that while determining the classification of a product, the specific entry provided under the Tariff should prevail and overrule a general entry.
28. From the above, it is evident that Caesarstone merits classification under heading 2506 of the GST Schedule on account of the following reasons:
a. Although the manufacturing process carried on by the Applicant's vendor involves use of machines, the same is purely within the ambit of the term “mechanical process” and accordingly, is within the scope of the processes permitted by Chapter Note 1 to Chapter 25 of the Customs Tariff;
b. Chapter Note I to Chapter 68 specifically excludes goods falling under Chapter 25. Thus, if the goods are capable to be classified under Chapter 25, classification under Chapter 68 is automatically excluded;
c. On analyzing the dominant-composition test, it appears that the
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de in the forgoing paragraphs;
b. Any other relief as this Hon'ble Advance Ruling Authority may deem fit.”
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus –
“1n case of above mentioned Advance Ruling Application No 10 dated 21.12.2017 filed by M/s Hafele India Pvt Ltd. Mumbai 400 042, it is respectfully submitted as under:
1. M/s Hafele India Pvt Ltd.(hereinafter referred to as the applicant) are registered with Central Government under GST Act with GSTIN No 27AABCH2762A1Z5
2. The applicant has filed an application with the Advance Ruling Authority (hereinafter referred to as “authority” for brevity) for determination of classification of the product '”Caesarstone” imported and sold in domestic market by the applicant.
3. The question before the authority is to decide whether the product “Caesarstone” imported by the applicant can be classified under HSN Code 2506 or
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n of any product is governed by Section & Chapter Notes, HSN explanatory notes and General Rules for interpretation. For classifying any product in particular chapter, the chapter notes are of utmost importance. Therefore it is very much essential to examine the chapter notes of both the chapters i.e. Chapter 25 & Chapter 68 before deciding to classify the product under particular chapter.
7. The Chapter Note 1 of Chapter 25 clearly states that “, the headings of this Chapter cover only products which are in the crude state or which 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 flotation, 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 each heading.”
8. A
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classification of the product under any particular sub-heading of Chapter 25, the processes mentioned against the chapter sub heading are only required to be carried out and not beyond that. The processes mentioned against Chapter sub-heading are only cutting or mere trimming by sawing or otherwise and not beyond that. In the instant case as more processes are carried out than mentioned in chapter sub heading 2506, the product cannot be classified under chapter 2506.
10. Thus, the classification of the product under Chapter 25 is ruled out in view of Chapter note 1 of Chapter 25.
11. The Chapter 68 includes Articles of Stone, plaster, Cement, asbestos, mica or similar material. Quartz being similar product, the articles made of quartz i.e. “Caesarstone” can be classified under Chapter 68. Chapter 6810 specifically mentions “Articles of Cement, of concrete or of artificial stone, whether or not reinforced” and includes Tiles, flagstones, bricks and similar articles. The p
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nbsp;31.01..2018 Ms. Farah Zachariah, Assistant Commissioner appeared and made oral submission. On dt.15.02.2018, Sh. Sudhakar Pandey, Dy. Commissioner GST & Central Excise, Div- II, Navi Mumbai attended and furnished a writ-ten submission.
05. OBSERVATIONS
We have gone through the facts of the case. We have been called upon to decide the classification of the product 'Caesarstone' under the GST Act. Before we move on to determine the classification, we need to understand the product. Let us see how the product has been described –
Composition Caesarstone is 90 percent crushed quartz (silicon dioxide – SiO2), one of nature's hardest minerals. Quartz is combined with high-quality polyester resins and pigments, and then compacted under intense vibration, vacuum, and pressure into dense, non-porous slabs. The slabs are gauged to precise thickness, and polished to an enduring shine or attractive honed finish, After passing inspection, the back of each Caesa
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lants.
Concrete TM matte, textured finish which introduces an industrial aged feel to the surface. This unique finish never requires sealing and is designed to acquire a natural patina over time which adds to the character of the surface, yet remains easy to clean and maintain.
Motivo (R) is a pattern-design application applying a patented embossed effect.
Caesarstone (R) is the original engineered quartz surface. Use it as an attractive, versatile, and distinctive finish for residential, commercial and institutional buildings.
Manufacturing Process Caesarstone has three state-of-the-art production facilities and five fully automated production lines servicing a global distribution network.
We use advanced Breton technologies, and employ highly skilled and trained staff members to ensure a quality product that is unrivaled in the industry today.
Caesarstone quartz surfaces meet exacting standards of excellence from the initial procurement of raw materials to the final quali
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ction to ensure our customers receive a top quality product.
Labelling
Each slab is then marked and labelled with all relevant information necessary for the smooth operation of fabrication and logistics _
Use Caesarstone for:
* Countertops and backsplashes * Shower and tub surrounds * Lavatory and sinks * Interior wall cladding * Table and desk tops * Wainscots and wall bases * Toilet compartment partitions * Fireplace mantles and surrounds* * Elevator cab walls * Service counters * Stair and mezzanine railing systems*
Sustainable Standards and Certifications
ISO 14001 and 9001 Certification: Caesarstone IS the first quartz surfacing company to receive ISO 14001 and 9001 Environmental Management Systems certification.
Sustainable Composition of Product
* Approximately 90% quartz, an abundant natural resource and by-product from mining other minerals.
* Low volatile organic compound (VOC) emissions, contributing to indoor-air quality.
* Less toxic than wood according to the
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rectangular (including square) shape. A look at the information reproduced above reveals that the impugned product is not “quartz” per se. “Quartz” is one of the raw materials to produce the impugned product which is an engineered quartz surface and which has use as an attractive, versatile, and distinctive finish for residential, commercial and institutional buildings. Such a finished product containing polyester / polymer resins and pigments alongwith quartz is but certainly not envisaged by the description of the Heading 2506. Any arguments about composition of quartz in the impugned product being about 90% would lead to no different inference than the one had in the preceding sentence. It would be far-fetched a proposition to say that the impugned product surface containing quartz as its major raw material is covered by the natural quartz as falling in the Heading 2606. What we say finds confirmation from the Harmonized Commodity Description and Coding System Explanatory Notes (HSN
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und, powdered, levigated (polish, smooth, to grind to a fine smooth powder), sifted, screened, concentrated by flotation, magnetic separation or other mechanical or physical processes. The words “other mechanical or physical processes” in the Note cannot be taken to cover the manufacturing of the impugned product. These words take colour from the words “crude state, without changing the structure of the product, crushed, powdered, etc.”. The Chapter Note, by specific mention, states that it does not cover products that have been roasted, calcined or obtained by mixing. The impugned product is obtained by blending the raw materials which consist of quartz aggregates, pigments and polymer resins in a mixer. This mixture is put through processes which includes heating in a kiln. We see above that even roasting is not allowed by the Chapter Note. The General Notes of this Chapter further say that-
“Minerals which have been otherwise processed (e.g., purified by re-crystallisation, o
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r Note 1.
(b) It must not be of a variety and quality suitable for the manufacture of gem-stones (e.g., rock crystal and smoky quart, amethyst and rose quart). Such quart is excluded (heading 71.03), even if intended to be used for technical purposes, e.g„ as pie-electric quartz or for the manufacture of parts of tools.”
All above help us understand that the Chapter 25 covers the naturally occurring quartz which has undergone changes without changing the structure of the product. The way the impugned product comes into existence should leave no doubt that the same would not be covered by the Chapter 25 and the Heading 2506. The rules for interpretation of the Customs Tariff would not apply herein as the Chapter 25 specifically excludes goods of the nature as the impugned product. None of the arguments and case laws in support of this Heading fail to make a point. Without any further discussion, we would conclude that the impugned product would not be covered b
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990
Other
We have reproduced hereinabove the description against the Heading 6810 for the purposes of the schedule entry under the GST Act. The entire description as appearing in the Customs Tariff Heading 6810 has been taken for the purposes of the GST entry. It, therefore, means that all item falling in the Customs Tariff Heading 6810 would fall in the description against the Heading 6810 for the purposes of the schedule entry under the GST Act.
Now, we see that the Heading covers artificial stone. Artificial stone is understood thus-
https://en.wikipedia.org/wiki/Artificial stone
Artificial stone is a name for various kinds of synthetic stone products used from the 18th century onward. As well as artistic uses, they have been used in building construction, civil engineering work, and industrial uses such as grindstones.
Engineered stone
See also: Engineered stone
Engineered stones are the latest development of artificial stones, it was invented in the early 1980s
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ed stone
Reconstituted stone (also known as Engineered, re-composed agglomerated and synthetic stone) is manufactured from a mix of stone aggregate chips (most commonly quartz or marble, but also igneous rocks such as granite und basalt); mineral fillers (generally the ground aggregate); a resin binder (typically an unsaturated polyester); pigments and additives.
The impugned product is described as ” Caesarsrone(R) is the original engineered quart surface”. It also contains quartz aggregates, pigments and polymer resins. We may also view some other information as available on the Internet –
https://www.washingtonpost.com/realestate/with-countertops-quartz-has-supplanted-granite-as-the-peoples-choic/2017/01/19/16a89ac2-dec9-11e6-acdf-14da832ae861 story.html?utm term=1d10fd5c785f
To fabricate the artificial stone, manufacturers such as Caesarstone, Silestone and Cambria blend crushed quartz with resins and pigments, pour the mixture into molds and apply pressure to compact the slabs
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from naturally forming quartz, a difference of up to two shade tones can be viewed between sample and slab, i.e. the sample you see may not be exactly the same as the slab. This is an important consideration if choosing engineered stone – which is a different process to if selecting natural stone, (where you can chose the specific slab).
A look at all above helps understand that the impugned product is an article made from artificial stone. It is a product made using artificial or engineered stone. The product certification explains things, beyond doubt –
It can, therefore, be understood as to why the impugned product is being cleared under the Heading 6810. We have also found a Ruling in respect of the product classification of Silestone TM (as seen above) agglomerated stone slabs under the Harmonized Tariff Schedule of the United States (HTSUS). The information about the product was thus – The slabs are composed of 93% quartz and 7% resm binder. Afte
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ortations of worked stone classifiable in Chapter 68 are more common than importations of crude and slightly worked stone classifiable in Chapter 25.
Chapter 25 vs. Chapter 68
While headings 2515 and 2516 cover crude or roughly trimmed monumental/building stone and monumental/building stone merely cut into rectangular (including square) blocks or slabs, stone worked beyond this point is classifiable in heading 6802. Any cutting that goes beyond simple cutting from the quarry block requires classification in Chapter 68.
Operations that dictate classification in Chapter 68 include honing and other processes designed to create a smooth or flat surface; the same operations applied to the edges of a stone; polishing applied to either the face or edges of the stone; dressing, grinding, chamfering, molding, carving, etc. All workings which goes beyond the simplest cutting associated with the quarry shifts the classification of stone from Chapter
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classifiable in heading 6802, assuming the stone is natural. However, artificial stone is classifiable in heading 6810.
Artificial stone is formed when pieces of natural stone, or crushed or powdered natural stone, is agglomerated with plastic resins, cement or other binders. In artificial (agglomerated) stone, the binding material and the natural stone are uniformly agglomerated throughout the body of the article.
The classification of floor and wall tiles of agglomerated stone is dependent on the precise type of binding material used in the products. Subheading 6810.19.12 provides for floor and wall tiles of stone agglomerated with binders other than cement (e.g., plastic resins). Floor and wall tiles of stone agglomerated with cement are classifiable in subheading 6810.19.14.
All above leads to the inevitable inference that the impugned product would merit classification in Chapter 68 and the Heading 6810.
05. I
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