In Re: M/s. A.W. Faber-Castell (India) Pvt. Ltd.
GST
2018 (8) TMI 975 – AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – 2018 (16) G. S. T. L. 121 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA – AAR
Dated:- 23-5-2018
GST-ARA-31/2017-18-B-39
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
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 MGST Act”] by M/S. A W. Faber-Castell (India) Pvt. Ltd., the applicant, seeking an advance ruling in respect of the following question :
Whether the product of the applicant i.e. “Modelling dough' will be covered under Chapter 34 or Chapter 95 under the Customs Tariff Act, 1975.
At the outset, we would like to make it clear that the p
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alia engaged in the manufacture of various products taxable under GST law.
2. The present application is filed in respect of one of its products – “Modelling Dough” which is a specially manufactured semi-solid, clay-like structure to be used as a toy tor kids to make various shapes, things, caricatures of animals etc. It is made up of 'maida' i.e. 'refined wheat flour' or 'white flour', Modelling dough is usually supplied in packs containing multiple such dough in various colours to attract kid.
3. The applicant submits that there appears to be an anomaly in the Customs Tariff as well as in the GST Tariff Schedules in so far as 'modelling dough' is concerned. The term 'Modelling pastes, including those put up for children's amusement' finds a mention in Chapter Heading No. 34.07 as Tariff Item No. 34.07 00 10. “Modelling paste' of Chapter Heading No. 34 07 is specified under Sl. No. 63 of- Schedule-III to Notification No. 1/2017-Central Tax (Rate) dated 28 06.2017 as amended by Notif
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al nor any allied industrial product. Therefore, to classify the product in the concerned Section of Customs Tariff and applying the rate of tax applicable to Chemicals cannot be construed to be the intention behind the Tariff.
5. Furthermore, it has been recently brought to the applicant's notice that competitors of the applicant (who are branded players in the stationery items and children's goods sector) are clearing identically placed products under the category of 'Toys' by classifying the same under Chapter 95 (Heading No.95 03) of the Customs Tariff (under the GST regime) and charging CGST @ 6%. Thus, effective rate of GST on the said product is 12%.
6. The present ambiguity regarding product-in-question is because of the aforementioned factors and the mismatch usage and composition of the applicant product in relation to Chapter Heading No. 34.07 of the Customs Tariff The applicant's product may fall under Chapter 34.07 which covers 'modelling pastes'. However, the same produ
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option but to supply our product currently by charging CGST @ 9% in order to avoid any possible litigation with the department, whereas some of our competitors have already started charging CGST @ 6%, to take benefit of lower GST rates, which is affecting fair competition, not allowing a level playing field, resulting in loss of market share and financial loss to us. This can also cause confusion amongst consumers, as there are different GST rates being applied in the market for essentially the same product, under different classification / codes for different brands, in different distribution channels.
9. Under the aforesaid circumstances, the ambiguity regarding the applicable taxation rate on the product in question is affecting our business significantly and hitting our industry badly Under such circumstances, we reiterate our request to expedite the matter at hand and Issue a clarification regarding the same and also grant us with a personal meeting to represent our case in detai
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s under:-
“22. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:”
(Emphasis Supplied)
A.4 The above referred section -can be vivisected into following essentials: –
a. A supplier shall be liable to be registered under CGST Act in the State or Union Territory, from where he makes taxable supply of goods or services or both;
b. If the aggregate turnover in the financial year exceeds rupees twenty lakh.
A.5 The Applicant submits that as on date, it is registered in Maharashtra and also making taxable supplies of goods from the same to its customers located in State of Maharashtra, Further, the turnover of the Applicant exceeds rupees twenty lakhs in the financial year. Given this, it is submitted that Applicant clearly satisfies to be 'applicant' in terms of s
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n respect of,
(a) classification of any goods or services or both;
(b) applicability of a notification issued under the provisions of this Act;
(c) determination of time and value of supply of goods or services or both;
(d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services or both;
(f) whether applicant is required to be registered;
(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.”
Emphasis Supplied
A.8 In view of the above, it is submitted that advance ruling may be sought by the Applicant on the questions concerning classification of goods or services or both, on the question involving determination if anything done by the applicant with respect to a good or services or both amounts to or results in a supply of goods or service
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17, reads as under:
“96. (1) The Government shall, by notification, constitute an Authority to be known as the Maharashtra Authority for Advance Ruling :
Provided that the Government may, on the recommendation of the Council, notify any Authority located in another State to act as the Authority for the State.
(2) The Authority shall consist of-
(i) one member from amongst the officers of central tax; and
(ii) one member from amongst the officers of State tax,
to be appointed by the Central Government and the State Government, respectively.
(3) The qualifications, the method of appointment of the members and the terms and conditions of their services shall be such as may be prescribed.”
Emphasis Supplied
A.11 The Applicant submits that in terms of the above referred section 96 of the Maharashtra Goods and Service Tax Act, 2017, the Government of Maharashtra has issued a Notification No. MGST-1017/CR 193/Taxation dated 24.10.2017, which constitutes this authority as Maharasht
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'MODELLING DOUGH' AS MANUFACTURED AND SUPPLIED BY THE APPLICANT ARE CLASSIFIABLE UNDER CHAPTER 95 OF THE CUSTOMS TARIFF AND COVERED BY SL. NO. 228 OF SCHEDULE-II TO NOTIFICATION NO. 1/2017-CENTRAL TAX (RATE) DATED 30.06.2017
C.1 In terms of Section 9(1) of CGST Act subject to Section 9(2), there shall be levied a tax called the Central Goods and Service Tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
C.2 The Central Government has issued Notification No. 1/2017-Central Tax (Rate) dated 28.6.2017 in exercise of the powers under Section 9(1), This Notification in Schedule I to VI specifies goods which will be levied to tax at the rate of 2.5% 9%, 14%
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or similar forms; other preparations for use in dentistry, with a basis of plaster (of calcined gypsum or calcium sulphate):
3407 00 10
Modelling pastes , including those put up for children 's amusement
3407 00 90
Other
Chapter Heading No. 95.03
Tariff Item
Description of goods
Unit
Rate
Standard
Preferential Areas
1
2
3
4
5
9503
TRICYCLES, SCOOTERS, PEDAL CARS AND SIMILAR WHEELED TOYS; DOLL'S CARRIAGES; DOLLS; OTHER TOYS; REDUCED-SIZE (“SCALE”) MODELS AND SIMILAR RECREATIONAL MODELS, WORKING OR NOT ; PUZZLES OF ALL KINDS
9503 00
–
Tricycles, scooters, pedal cars and similar wheeled toys; dolls' carriages; dolls; other toys; reduced-size (“scale”) models and similar recreational models, working or not; puzzles of all kinds:
9503 00 10
Of wood
9503 00 20
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foresaid Notifications contains the following explanation:
(i)………………….
(ii)…………………..
(iii) “Tariff Item”, “sub-heading”, “heading” and “Chapter” shall mean respectively a tariff item, heading, sub-heading and Chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).
(iv) The rules for the interpretation of the First Schedule to the said Customs tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.
C.6 A perusal of the aforesaid provisions read with explanation to the Notification No. 1/2017-Central Tax (Rate) shows that in order to determine the rate of CGST leviable on the product in question, it is paramount to determine the classification or the product in question under Customs Tariff Act. 1975.
C.7 The Custom Tariff is generally based on the tariff classification adopted by World Cust
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and kaolin and are slightly greasy to the touch.
Other are mixtures of cellulose pulp and kaolin with binders.
These pastes are usually coloured and are presented in bulk or in cakes, sticks, plates. etc,
Assorted modelling pastes, including those put up in sets for the amusement of children, are also covered by this heading.”
………….emphasis supplied
C.9 From a perusal of the above, it is observed that the goods of Chapter Heading No 34.07 are preparations or plastics or plastic preparation generally used by artists or goldsmiths. Even those modelling pastes which are used by children for amusement purposes are classifiable under this Heading only. However, Chapter Heading No. 34.07 only covers goods made of plastics and not of other materials Therefore, it can be said that the modelling pastes that are used by children for amusement purposes and made specifically from plastics shall only be covered by Chapter Heading No 34.07,
C.10 However, it is clear that the mo
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only but the said definition is applicable throughout the nomenclature. Therefore, if any goods covered under Heading No. 3407 generally be preparations of plastics or plastics preparation shown content the ingredients from materials of Heading No.3901 to 3914. In the present case, the product in question is made entirely out of maida i.e. preparations of wheat flour and none of the contents/materials as covered under Heading No. 3901 to 3914 are present. Thus, the question of product in question Falling under Heading 3407 is clearly ruled out.
C.12 It is pertinent to note that the applicant's product i.e. Modelling Dough is a clay-like semi-solid product which is primarily made of 'maida' or refined wheat flour. Although it is made for the use of children as a growth stimulating, creativity toy and may be termed to be for the amusement of children; it is specifically made from edible substances including maida so as to make it safe for children and not have any harmful effects even i
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s Tariff which provides for 'Products of the Chemical or Allied Industries'. Section VI covers chemicals or allied industry products only and not children educational products. Therefore, it shall be wrong to classily the applicant's product which is an educational toy made of maida under Section VI of the Customs Tariff along with other products of Chemicals or other allied industries.
C.15 The principle of ejusdem generis specifies that like items should be treated likely i.e. goods of the same kind should be clubbed and treated similarly. Extending the same principle to 'modelling dough', it is submitted, that modelling dough should not be treated in law as to be of the same kind as other plastic preparations and chemicals. Rather, it is submitted, that the applicant's product i.e. modelling dough should be classified along with similar educational toys for kids and clubbed with the same for the purpose of taxation under GST.
C. 16 Chapter Heading No. 9503 covers toys of various k
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under the Chapter Heading No. 95.03 of the Customs Tariff Act, 1975 attracting CGST on supply ot- such goods @ 6% by virtue of Sl. No. 228 of Schedule-II to Notification No. 1/2017-CentraI Tax (Rate) dated 30.06.2017 as amended by Notification No. 41/20 17- Central Tax (Rate) dated 14.11.2017.”
03. CONTENTION – AS PER THE CONCERNED OFFICER
The relevant portion of the submission, as reproduced verbatim, could be seen thus-
“2. It is submitted at the outset that the applicant ought to have furnished all the relevant information and details in his application necessary to decide the classification issue. For determination of classification number of factors are required to be examined like raw materials/inputs used and their proportion; desired characteristics of the final product and in turn function, essential characteristics of different raw materials used /the purpose of using each input, manufacturing process, intended as well as alternate use of the product, manufacturing proces
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8(2) of the Central Goods and Services Act, 2017 of at least may be kept in abeyance till all essential information/material is produced before the Authority and made available to the Respondent.
4. With reference to said application of the applicant following further submissions are made as preliminary submissions and detailed response would be submitted at later stage after getting above discussed information from the applicant:-
a) It may be true that the product “moulding/modelling dough is manufactured by the applicant using wheat flour. But wheat flour used appears to be a base material. To enable any material to be used as 'moulding/nodelling dough', that too which shall be reusable, it must have elasticity. pliability and non perishable nature. These three characteristics appear to be essential for any material for using it as 'moulding/modelling dough'. Wheat flour/Maida does not contain any of these characteristics. As such mere use or wheat flour in product, even If predom
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ium. By itself, “alum” often refers to potassium alum, with the formula KAl(SO4) 2*12H 2O. Other alums are named after the monovalent ion, such as sodium alum and ammonium alum.
The name “alum” is also used, more generally, for salts with the same formula and structure, except that aluminium is replaced by another trivalent metal ion like chromium(III), and/or sulfur is replaced by other chalcogen like selenium. The most common of these analogs is chrome alum KCr(SO 4) 2*12H 2O. In some industries, the name “alum” (or “papermaker's alum”) is used to refer to aluminium sulfate Al 2(SO 4) 3*nH 2O. Most industrial flocculation done with “alum” actually uses aluminium sulfate. In medicine, “alum” may also refer to aluminium hydroxide gel used as a vaccine adjuvant ****
c) From above it appears that while manufacturing 'moulding /modelling dough' on commercial basis, certain chemical must be being used to give essential characteristics like elasticity, pliability and non perishable n
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nce the applicant has not provided vital details essential to determine classification, as discussed above at paragraph 2 above the application filed may be rejected or it shall not be admitted till the applicant furnishes full facts.
04. HEARING
The case was taken up for preliminary hearing on dt.28.03.2018 with respect to admission or rejection of the application when Sh. Nirav Karia, Advocate appeared and orally contended for admission of application as per their contentions made in the Advance Ruling application and additional written submissions made. Sh. S. S. Bhide, Superintendent GST/CX, Mumbai East Commissionerate, Mumbai Zone, Jurisdictional Officer appeared and made written submissions and orally stated that the applicant has not given detailed contents of the product and should not be therefore admitted till full details of product are given.
The application was admitted and a final hearing was held on dt.17.04.2018 when Sh. Nirav Karia, Advocate alongwith Sh. R. Nambira
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cks containing multiple such dough in various colours to attract kids.
During hearing, the applicant was asked to submit the ingredients of the product which have been informed as being thus –
CONTENTS
% CONSUMPTION
HYDONTOIN DMDM (PRESERVATIVE)
**%
POLYSORBATE 80
**%
MD-002- POTTASIUM DIHYDROGEN ORTHO PHOSPATE
**%
MD-003(SODIUM CHLORIDE)
**%
MD-004- MAIDA
47.57%
MD-006-CALCIUM CHLORIDE DIHYDRATE
**%
MD-008- BUTYL STEARATE
**%
PETROLIUM JELLY -OP – 304
**%
CR-010-LIQUID PARAFFIN OIL
**%
PC-005-SODWM BENZOATE
**%
PG-002-ALUMlNIUM SULPHATE
**%
HEATED DM WATER
34.58%
POLYBUTENE-950
**%
FLUORO ROYAL BLUE- IXT
**%
VANILLA SP FLAVOUR
**%
DRM-105 (2 PHYNOXY ETHANLO) – LOCAL
**%
TOTAL
100.00%
The Table above reveals that the ingredients consist of maida, water and chemicals. The percentages of various chemicals used by the app
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in packings for retail sale or in plates, horseshoe shapes, sticks or similar forms; other preparations for use in dentistry, with a basis of plaster (of calcined gypsum or calcium sulphate):
3407 00 10
Modelling pastes, including those put up for kg. 10% children 's amusement
3407 00 90
Other
Heading 9503
9503
TRICYCLES, SCOOTERS, PEDAL CARS AND SIMILAR WHEELED TOYS; DOLL'S CARRIAGES; DOLLS; OTHER TOYS; REDUCED-SIZE (“SCALE”) MODELS AND SIMILAR RECREATIONAL MODELS, WORKING OR NOT ; PUZZLES OF ALL KINDS
9503 00
–
Tricycles, scooters, pedal cars and similar wheeled toys; dolls' carriages; dolls; other toys; reduced-size (“scale”) models and similar recreational models, working or not; puzzles of all kinds:
9503 00 10
Of wood
9503 00 20
Of metal
9503 00 30
Of plastics
9503 00 90
Other
As can be seen, the CTH 34.07 covers modelling pastes and includes modelling pastes for children's amusement. While Heading 9503 is about toys. A toy is an object
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of 'Toys' by classifying the same under Chapter 95 (Heading No 95.03) of the Customs Tariff (under the GST regime) and charging CGST @6%.
* The applicant's product may pall under Chapter 34.07 which covers 'madelling pastes'. However, the same product is actually used as a 'toy' for kids and maybe more aptly covered under Chapter 95 of the Customs Tariff which covers Toys, games and sports requisites; parts and accessories thereof.
* The prevailing ambiguity has led to two separate Tariff Item Nos. being used for the product in question with contradictory usages thereby levying two different rates of CGST applicable on them. While some cautious sellers are charging CGST @ 9% on the product in question whereas some registered persons are using the ambiguity to charge CGST @ 6% only. The above ambiguity results in unfair market practices being adopted by certain registered persons in an attempt to reduce effective price of product and increase their market share and profits. Further
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o many other chemicals as given in table above are also added to it . Neither can “maida” alone be used for preparing the various shapes as various chemicals are needed to be added to “maida” for it to be used and reused as modelling dough for making the various shapes. These chemicals are needed to give the needful firmness, elasticity, plasticity and non perishability to the shapes. The dough needs to be mouldable and flexible to make the various shapes. There needs to be some safeguard against cracking, crumbling. [I GOT THIS FROM A PATENT RELATED ARTICLE – A MODELING DOUGH COMPRISING A POLAR POLYMERIC RESIN, WATER, A GELLANT, AND A FILLER PROVIDES A DOUGH RESISTANT TO FLAKING, CRACKING, AND CRUMBLING. SO NOT COPIED IT ENTIRELY]. In view thereof, the use of chemicals in the modelling dough is significant. And therefore, the product can very well fall in the Section VI for “Products of the Chemical or Allied Industries”.
Then we come to the Harmonized Commodity Description and Codin
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he Nomenclature the expression “plastics” means those materials of headings 39.01 to 39.14 which are or have been capable, either at the moment of polymerization or at some subsequent stage, of being formed under external influence (usually heat and pressure, if necessary with a solvent or plasticiser) by moulding, casting, extruding, rolling or other process into shapes which are retained on the removal of the external influence.
It is essential here to mark the difference in the words used. Chapter 39 says “plastics' while Chapter 34 says ” plastic”. “Plastics” is not the same as “plastic”. The meaning of “plastic” is not given by the HSN and nor the Customs Tariff Act of India. Hence, we refer to the meaning of “plastic” as normally understood thus –
We find that the word Plastic is a noun as well as an Adjective..
AS NOUN…..
noun: plastic; plural noun plastics
1. a synthetic material made from a wide range of organic polymers such as polyethylene, PVC, nylon, etc
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:
rigid
* offering scope for creativity.
“the writer is drawn to words as a plastic medium”
* relating to moulding or modelling in three dimensions. or to produce three-dimensional effects.
* “the plastic arts”
In view of the above meanings of the word PIASTIC and PLASTICS we find that in the HSN Explanatory notes of the CTH 3407 under the heading “Modelling pastes” it is stated that these are “Plastic Preparations” generally used by Artists or goldsmiths for making models and also by children for amusement purposes. Here in these explanatory notes it is apparent that the word “Plastic” used in phrase “Plastic preparations” is used as an Adjective which denotes the Plastic property of modelling pastes i.e. their malleability, mouIdability, shapability, pliability, flexibility etc as per synonyms of this property mentioned under its meaning above when used as an adjective.
From the extracts reproduced and detailed discussions above it is clear that the meaning of 'plastic” is
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“, The Notes Chapter 39 say that the expression 'Plastics' means those materials of headings 39.01 10 39.14 which are or have been capable, either at the moment of polymerization or at some subsequent stage of being formed under external influence (usually heat and pressure, If necessary with a solvent or plasticiser) by moulding, casting, extruding_rolling or other process into shapes which are retained on the removal of the external Influence. Whereas Notes to Heading 3407 Say that modelling pastes are plastic preparations generally used by artists or goldsmiths for making models and also by children for amusement purposes.
Thus we find that the applicant in their contentions have taken “Plastics” and “Plastic” as one and the same and are therefore not able to be certain of the correct classification of their product which would be under CTH 3407 as per detailed discussions above once we are able to differentiate between the word “Plastic” and “Plastics”.
The impugned product is a
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r amusement of children, the Heading 3407 would be the correct classification. The description against CTH 3407 being applicable to the impugned product, we refrain from engaging ourselves in any exercise of what constitutes a “toy” and whether the impugned product is a toy”.
We find that the CTH 3407 is covered by the Schedule III of the Notification No. 1/2017-Central/State Tax (Rate) [as amended from time to time] thus –
63
3407
Modelling pastes, including those put up for children's amusement: Preparations known as “dental wax” or as “dental impression compounds”, put up in sets, in packings for retail sale or in plates, horseshoe shapes, sticks or similar forms; other preparations for use in dentistry, with a basis of plaster (of calcined gypsum or calcium sulphate)
06. In View of the deliberations as held hereinabove, we pass an order as under :
ORDER
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
No
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