In Re: M.D. Mohta
GST
2018 (7) TMI 390 – AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL – 2018 (15) G. S. T. L. 94 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL – AAR
Dated:- 5-7-2018
ARN No. 11 of 2018 and 08/WBAAR/2018-19
GST
VISHWANATH AND PARTHASARATHI DEY MEMBER
Applicant's representative heard: Rahul Dhanuka, Legal Representative
1. The Applicant, stated to be a Manufacturer of the item “Rakhi”, is seeking a Ruling on classification of “Rakhi”, on whether exemption under Notification No. 2/2017-Central Tax (Rate) dated 28/06/2017 (1126-FT dated 28/06/2017 of State Tax), (hereinafter referred to, collectively, as “Exemption Notification”) is applicable for such manufacture, and if not, the taxability of the same.
Advance Ruling is admissible on this question under Section 97(2) (a) of the CGST/WBGST Acts, 2017 (hereinafter referred to, collectively, as “the GST Act”).
The Applicant further submits that the question raised in the Application is n
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lful pasting or attaching decorative items to threads;
c) “Rakhi” is an ancient festival;
d) Traditionally “Rakhi” used to be made up only of Kalava (i.e. cotton threads of red/orange colour);
e) “Rakhi” was exempt from payment of VAT under several States, as well as from Central Excise duty under the earlier Tax Structure since it was considered as “handicraft”;
f) The Exemption Notification exempts Kalava (raksha sutra) from payment of GST since it is listed as “puja samagri”;
g) Reference has been made on FAQ published on CBEC website dated 03.08.2017;
h) Reference has been made to Rule 3(b) of the Rules for Interpretation of the Customs Tariff Act, 1975 (hereinafter referred to as “the Interpretation Rules”);
i) Various judgements have been referred to;
j) If “Rakhi” is not considered to be exempt then it may be classifiable under and taxability determined in accordance to Serial No 224 or Schedule I and Serial No 171 of Schedule II of Notification No 1/2017-CT(Rate)
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ication for Advance Ruling the manufacturing of “Rakhi” had not been begun by the unit. However, the Applicants admitted, that the manufacturing process of “”Rakhi”” has been started in their unit.
Hence, all references in the Application of the Applicant “intending to manufacture” is being taken up in the spirit of “already manufacturing” and discussed accordingly.
It appears from the Partnership Deed dated 31.03.2008 submitted by the Applicant that M/s M D Mohta has been in existence from 13.04.1987, if not earlier, and Partnership Deed dated 31.03.2008 submitted by the Applicant incorporates M/s M D Mohta Rakhi Pvt Ltd as the third Partner with claim to 50% of the share of the profits of the partnership. It appears from the Partnership Deed dated 31.03.2008 submitted with the Application that M/s M D Mohta Rakhi Pvt Ltd with an annual turnover of 10-25 crores is the controlling Partner of M/s M D Mohta.
On being specifically asked the Applicant has stated that till F/Y 2017-18 M/
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Notification No 38/2017-Central Tax dated 13.10.2017, provides a list of articles which are to be considered as “handicraft goods” for the purpose of GST when made predominantly by hand by the craftsmen even though some machinery may also be used in the process.
“Rakhi” does not feature in this list. Hence, “Rakhi” cannot be considered as “handicraft” for the purpose of GST.
6. The Applicant suggests that if “Rakhi” is not considered to be exempt then it may be classifiable under and taxability determined in accordance to Serial No 224 of Schedule I and Serial No 171 of Schedule II of the Rate Notification. The Applicant, on being specifically asked, has also stated that one of its partners, M/s M D Mohta Pvt Ltd clears “Rakhi” under Tariff Heading 6307.
As per Rule 1 of the Interpretation Rules the titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and a
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scarf squares, blankets);
(c) Hemmed or with rolled edges, or with a knotted fringe at any of the edges, but excluding fabrics the cut edges of which have been prevented from unravelling by whipping or by other simple means;
(d) Cut to size and having undergone a process of drawn thread work;
(e) Assembled by sewing, gumming or otherwise (other than piece goods consisting of two or more lengths of identical material joined end to end and piece goods composed of two or more textiles assembled in layers, whether or not padded); or
(f) Knitted or crocheted to shape, whether presented as separate items or in the form of a number of items in the length.
Clearly, “Rakhi” cannot be described as a “made up article” under Chapter 63 as per the above Section Note
7. The Applicant has referred to Rule 3(b) of the Interpretation Rules. Rule 3(b) of the Interpretation Rules states that “Mixtures, composite goods consisting of different materials or made up of different components, and goo
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r potential care. The expression “Raksha Bandhan,” Sanskrit, literally, “the bond of protection, obligation, or care,” is now principally applied to this ritual. “Rakhi”, which the Applicant intends to manufacture, is this object which symbolises the bond of protection and is tied round the wrist of the brother. History records variations of this ritual, but whatever the variation the emphasis is to denote the bond between the protector and the person in need of protection. Notable among these variations is the tying of “Rakhi”s among Muslims and Hindus as a form of protest against the Partition of Bengal in 1905. Leonard Elmherst's memoir Poet and Plowman records that Tagore transformed the religious tradition of Rakhsha Bandhan to a secular motif of unity among diversity and resisted Banga Bhanga, the Partition of Bengal, along communal lines.
Newspaper annals, like The Indian Express refer to how Tagore deftly used the concept of brotherhood, togetherness and 'the thread of pro
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or the ritual of “Rakhi” be linked to religious ceremonies or rituals involving deities. References have been found to Sri Radha tying “Rakhi” on Shri Krishna. But here again, the reference is to the symbolic gesture of the need of protection.
“Rakhi”, in other words, is not an essential part of any Puja or Religious Ceremony to pay obeisance to any deity. Mere inclusion of “Rakhi” in a Puja Thali at the discretion of either the Customer or the Supplier does not make it an integral and essential part of Puja Samagri. Serial number 148 of the Exemption Notification lists the items to be considered as Puja Samagri and “Rakhi” is not listed therein.
“Rakhi”, therefore, cannot attract NIL rate of duty under Serial No 9(1) of FAQ dated 03.08.2017 (later, Serial No 92(1) of F. No 332/2/2017-TRU issued by the Tax Research Unit, Govt of India, Ministry of Finance, Department of Revenue) (hereinafter referred to as the “TRU Clarification”).
Nor can it be considered exempt in terms of Serial
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The “Rakhi”s which are being manufactured include Decorative “Rakhi”, Designer “Rakhi”, & Fancy “Rakhi”. This again, is not an exhaustive list of the kind of “Rakhi”s being manufactured. The Applicant may manufacture other variants of “Rakhi” too. The mention of Glass Beads, Plastic Beads, Coloured Stones, Metal Pendants and Rudraksha also clearly points to the fact that what the Applicant intends to manufacture are not merely Cotton threads in the form of yarn of specifically red and yellow in colours, in other words these rachis are not in the form of “Kalava”.
This is also obvious from the pictures submitted by the Applicant of the “Rakhi”s that will be manufactured by them. Serial No 92(2) of the TRU Clarification is not applicable to the “Rakhi”s manufactured by the Applicant.
10. The Application, however, states that the Applicant intends to manufacture, inter alia, Decorative “Rakhi”, Designer “Rakhi”, & Fancy “Rakhi”. Although this is not an exhaustive list of the kinds of “R
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rative/Designer/Fancy/Kid's and not merely to put round the wrist.
12. The various components which go into the making of “Rakhi” are innumerable of no fixed or predetermined ratio and both, the variety and the proportion in which they are used do not follow any fixed formula but are at the Manufacturer's will. The resultant products are identifiable as new items, independent in manner and form of its constituent materials, and cannot be stated to be a mere assemblage of its constituent materials. In other words, “Rakhi” retains its specific identity as a symbol of a bond involving the potential care of the sister by the brother, and not merely a conglomeration of discrete materials, is clearly not classifiable under a single Tariff code.
Moreover, under the GST Act the identity of an item at the point of supply is of paramount importance.
In this case “Rakhi” appeals to the end-consumers because of its specific characteristics which gives the identity of Decorative/Designer/Fancy/K
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specific Tariff Code a “Rakhi” can be considered an article of any of these constituent materials. Rule 3(c) of the Interpretation Rules, requires to be resorted to, then, for the classification of “Rakhi”.
Rule 3(c) of the Interpretation Rules, states that “When goods cannot be classified by reference to 3(a) [heading most specific] or 3(b) [applicable to mixture, composite goods and goods put up in sets for retail sale] they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration”.
A typical “Rakhi”, as evidenced in the pictures submitted by the Applicant of “Rakhi”s intended to be manufactured by them, will have a i) cord/twine or any material to enable it to be put round the wrist; ii) one or many items made of different materials which will form the part of the embellishments of the “Rakhi” and give the “Rakhi” its defining characteristic as Decorative or Designer or Fancy, or even decide that the target consumer
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metal pendant, stone ring, metal moti, cotton thread and plastic beads falling under Chapter 71 to 81 (depending on the metal), Chapter 70/71 (depending on the nature of the stone), Chapter 52, Chapter 39. Assuming that there are no other constituent materials undeclared in the literature submitted by them, under Rule 3(c) this “Rakhi” will be classifiable under Chapter 71 to 81 (depending on the metal) and attract GST accordingly.
14. The Applicant states that the intention is to supply “Rakhi”, including but not limited to, decorative “Rakhi”, Designer “Rakhi”, & Fancy “Rakhi” and these “Rakhi”s consist of, inter alia, Cotton thread, Zari thread, Silk Thread, Nylon Thread, Glass Beads, Plastic Beads, Coloured Stones, Metal Pendants and Rudraksha. On being asked specifically whether or not the list of materials constituting the “Rakhi”s is a complete list, the Applicant has admitted that the list provided in the Application is not a complete list and while it more or less covers most
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Venkateswaran, Collector of Customs, Bombay vs Ramchand Sobhraj Wadhwani And Another [1983 (13) ELT (1327 (SC)] too, is not relevant to the instant case since “Rakhi” is an independently identifiable item and it is not a case of a general classification gaining precedence over a specific classification.
The judgement in the case of A. Nagaraju Bros vs State of Andhra Pradesh [1994 (72) ELT 801 (SC)] again, is not relevant to the instant case since “Rakhi” is known as such in both, common and commercial parlance and the predominant material that goes into the making of a “Rakhi” varies at the manufacturer's will.
The judgement in the case of Kemrock Industries & Exports Ltd vs Commr of C. Ex, Vadodara [2007 (210) ELT 497 (SC)] held that composite goods are to be classified on the basis of material or component that gives the product its essential character. As has been discussed in the earlier paragraphs the essential character of “Rakhi” though traditionally may be for putting round
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ing the potential care of the sister by the brother, and not merely an assemblage of discrete materials. “Rakhi” cannot be termed as a “handicraft” item under GST under Notification No 32/2017- Central Tax dated 15.09.2017, (later amended as Notification No 38/2017-Central Tax dated 13.10.2017).
It is also seen that “Rakhi” is not purely puja samagri as it is not an essential and integral part of any Puja or Religious Ceremony to pay obeisance to any Hindu deity, and that “Rakhi” has been historically used to emphasise the bond between Hindus and Muslims. “Rakhi”, therefore, cannot attract NIL rate of duty under Serial No 92(1) of the TRU Clarification, nor can it be considered “exempt” in terms of Serial no. 148 of the Exemption Notification since it is not listed therein.
With reference to the list of various materials submitted along with the Application for the “Rakhi”s the Applicant intends to manufacture, though it is stated that the list is not an exhaustive one, and also with
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o GST accordingly.
17. The case laws referred to by the Applicant have been considered carefully. It is seen that “Rakhi” is an independently identifiable product and is also known to be so in common and commercial parlance. The multifarious constituents that go into the making of the “Rakhi” cannot be considered as accessories; the material which provides the essential character to “Rakhi” is varied and the buyer may also be motivated to purchase the same as much for its for its designer/decorative/fancy part, as for its symbolic characteristic of a bond of protection. In view of the foregoing we rule as under
RULING
The Applicant has to classify the goods “Rakhi” as per its constituent materials in accordance with Rule 3(c) of Rules for Interpretation of the Customs Tariff Act, 1975, as laid down in Explanatory Notes (iv) of Notification No 1/2017-CT(Rate) dated 28.06.2017 (Note (v) of 1125 – FT dated 28/06/2017 of State Tax).
Rakhi will attract GST in accordance to its classific
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