AAR – GUJARAT 2021 ITL(GST) – Ashima Dyecot Private Limited

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(AAR – GUJARAT) 2021 ITL(GST)

Ashima Dyecot Private Limited

AUTHORITY FOR ADVANCE RULINGS, GUJARAT

ADVANCE RULING NO. GUJ/GAAR/R/90 OF 2020

DATED – 17-09-2020

 BRIEF FACTS

  1. The applicant M/s. Ashima Dyecot pvt. ltd. located at Texcellence Complex, Nr. Anupam Cinema, Khokhra, Ahmedabad-380021 are engaged in the manufacture and supply of fabrics and garments. The present application is filed to determine the classification of the fusible interlining cloth for cotton fabrics which is manufactured by the applicant. The applicant has stated that they are classifying the said product under the HSN Code 5903 attracting 12% rate of Tax. However, the competitors of the Applicant are classifying the said product under the Chapter 52/55 attracting 5% rate of duty depending upon the primary content of the fabric resulting in business loss to the applicant.
  1. The applicant has submitted that Fusible interlining cloth for cotton fabrics is a layer of fabric inserted between the shell fabric and the lining of a garment to give clothing a suitable appearance and stability; that based on the application method, there are two kinds of interlinings: Sewn interlining and fusible interlining; that the interlining which could be fixed with the garments components by sewing is called sewn interlining and for the preparation of sewn interlining a piece of fabric is treated with starch and allowed to dry and finally sewn with the main fabric; that in addition, the fusible interlining which could be fixed with the garments components by applying heat and pressure for a certain time is called fusible interlining.
  2. The applicant has stated that the interlining fabrics is mainly used in the collars, cuffs, etc. that under the erstwhile Central Excise regime, the Applicant classified the said product under the HSN code 5903; that products falling under the HSN 5903 were exempted vide Notification No. 30/2004 dated 9-7-2004.
  3. The applicant has stated that the Chapter Notes were amended from time to time .
  1. The applicant has submitted that CBEC has issued circulars from time to time for clarifying the classification of the interlining fabrics; that prior to the introduction of Note 2(c) in the Chapter 59, CBEC had issued a Circular No.24/Coated Fabrics?88- CX.1 dated 2-9-1988, wherein the relevant para is reproduced hereunder:

“7.From the above definition of the term ‘coated fabrics’ it is obvious that in the case of plastic coated fabric (i) the polymer is coated to give a continuous and adherent film or layer on the fabric and (ii) the fabric has an impervious surface.

  1. The applicant has further submitted that in the HSN at Page 816 under the Heading 59.03 it is stated that in many of the textile fabrics classified under this heading, the plastic material forms a surface layer; that according to Chapter Note 2(a)(1) of Chapter 59, fabrics in which the impregnation, coating or covering cannot be seen with the naked eye (usually Chapters 50 to 55, 58 or 60) are excluded from the purview of Heading 59.03; that as per Note 2(a)(3) of Chapter 59, fabrics entirely coated with plastic material on both sides are not covered in Heading 59.03 but are covered in Chapter 39; that similarly according to Chapter Note 2(a)(1) of Chapter 59, fabrics partially coated or partially covered with plastics and bearing designs are also excluded from the purview of Heading 59.03; that in view of the above, textile fabrics including the fusible inter-lining cloth to merit classification as coated fabrics under Heading 59.03 of Central Excise Tariff, that accordingly, CBEC had clarified that the fabrics which are partially coated or covered with plastics and bearing designs are also excluded from the purview of Heading 5903 and covered under the Chapter 52-55; that the product under dispute manufactured by them bears design which can be easily viewed from the naked eye.
  1. The applicant has submitted that after introduction of Note 2(c) in the Chapter Notes, CBEC vide Circular No. 5/89 dated 15-6-1989 had clarified that before the introduction of Note 2(c), fusible interlining fabrics were classified under the Chapter 52-55 depending upon the textile materials used.
  1. The applicant has stated that CBEC had clarified that before the introduction of Note 2(c), CBEC had again issued Circular No. 433/66/98-CX dated 27th November, 1998, wherein they had stated that the interlining cloth would be appropriately classified under Chapter Heading59.03 of the Central Excise Tariff.
  1. The applicant has submitted that the said Circular was challenged before the Hon’ble High Court of Madras who in their judgement reported in 2004(163)ELT 164 (Mad.) had stated that the said circular is illegal and ultra-vires and liable to be quashed; that w.e.f. 1-7-2017, that accordingly, Customs Tariff Act, 1975 is to be referred for the classification of the goods under the GST regime; The applicant has asked the following question seeking Advance Ruling on the same:

“Whether fusible interlining cloth used in cotton fabrics is classifiable under HSN code 5903 or under Chapter 52/55 (depending upon the weightage of Cotton)?”

  1. As per the submission of the applicant, their interpretation of law in the proposed factual situation is as under:

(i) ‘Interlining fabrics’ is not defined under the GST regime.. Therefore, in absence of any specific definition of the term ‘interlining fabrics ‘,references as given under the erstwhile Central Excise regime can be taken for classifying the said product under the GST regime.

(iii) The interlining fabrics manufactured by the applicants do not have continuous and adherent film or layer of plastic on one side of fabrics surface. The fabric is partially coated with thermoplastic. Therefore the product would not fall under the HSN code 5903.

(iv) The coating done is not impervious because the design created due to interlining can be easily penetrated. Therefore, the product under dispute cannot be classified under the HSN code 5903 and will be classified in the Chapter 52.

(vi) The fabric manufactured by the applicants cannot be said to be impregnated, coated, covered or laminated with plastic.. Hence also the fabric cannot be classified under chapter 5903.

vii) The fusible interlining cloth manufactured by the applicant is identical to the one manufactured by M/s. Madura Coats pvt. ltd.. In Madura Coats pvt .ltd., Hon’ble Tribunal of Chennai held that the fusible interlining cloth would not be classified under the HSN code5903. The applicant would also rely upon recent Advance Ruling in the case of  M/s. Goodswear Fashion pvt .ltd. by the Uttarakhand Advance Ruling Authority which also held that the classification of the polyster viscose fusing interlining woven fabric is required to be classified under Chapter 52/55, 58 or 60 and the applicants crave liberty to rely on the same at the time of hearing.

(viii) The cotton fusible interlining fabric manufactured by the applicant is also partially covered with plastic coated pattern on one side that is easily visible from the naked eye. Therefore, it is submitted that the product in dispute is classified in the Chapter 52 and not classifiable under the HSN code 5903.

(xi) The applicant further craves liberty to rely upon following judicial decision/Advance Ruling, wherein the said product is classified under the Chapter 52-55 depending upon the primary content of the fabric:

(a) Madura Coats private limited v. Commissioner of Central Excise, Tirunelveli (2019(365) ELT 345 (Tri. Chennai)).

(b) Uttarakhand Advance Ruling authority under the GST regime in the Application made by M/s. Goodswear Fashion private limited.

Discussion & findings:

  1. We have considered the submissions made by the applicant in their application for advance ruling as well as the arguments/discussions made by their representative at the time of personal hearing.
  1. Based on the submission of the applicant as well as the arguments/discussions made by the representative of the applicant during the course of personal hearing, we find that the issue to be decided is whether the product ‘Fusible Interlining Fabrics of Cotton’ is correctly classifiable under Chapter 52 or Chapter 59.
  1. We have gone through the aforementioned order issued by the Appellate Tribunal, Chennai. It is found that the order dated 19-6-2018 is with regard to an appeal filed by M/s. Madura Coats pvt . ltd. against Order-in-Appeal No. 330/2011 dated 17-10-2011 passed by the Commissioner of Central Excise(Appeals), Madurai i.e. it pertains to an issue of pre-GST regime. The issue involved in this case is that the appellant M/s. Madura Coats pvt .ltd. had originally classified their product ‘coated fusible interlining fabrics of cotton’ under Heading 5903 consequent to insertion of Note 2(c) in Chapter 59 of the Central Excise Tariff Act, 1985(CETA) w.e.f 1-3-1989. The said chapter note was omitted w.e.f 16-3-1995 following which the appellants sought reclassification under Heading 5207. After hearing both sides, the Appellate Tribunal came to the conclusion that since Chapter Note 2(c) itself is no longer in existence and the impugned goods otherwise did not satisfy the requirements in Chapter Note 2(a) read with CBEC Circulars, impugned goods will not get classified under CETH 5903. We find that the applicant has relied upon this order of CESTAT in support of their contention. We also find that they have relied upon the order of the Advance Ruling Authority of Uttarakhand under the GST regime in the Application made by M/s. Goodswear Fashion private limited also. In this context, we have to mention that as per Section 103 of the CGST Act, 2017 any Advance Ruling is binding on the Applicant who has sought it and on the concerned officer or the jurisdictional officer in respect of the Applicant only. Accordingly, AARs Ruling as cited above can’t be relied upon in the present case of the Appellant.
  1. The purpose of classification is to ascertain the applicability of any entry, specifying the rate of tax or exemption from payment of tax and under the present regime of GST, the classification of products are based on the First Schedule to the Customs Tariff Act, 1975(51 of1975. 
  1. To begin with, we will be required to refer to the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) for referring to Heading5903. Heading 5903 appears in Chapter 59 of the said Tariff which reads as “Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use” and reads as under:

5903            TEXTILE FABRICS, IMPREGNATED, COATED,COVERED OR LAMINATEDWITH PLASTICS, OTHER THAN THOSE OF HEADING 5902

590310            With polyvinyl chloride :

590310 10        Imitation leather fabrics of cotton

590310 90        Other

590320            With polyurethane :

590320 10        Imitation leather fabrics, of cotton

590320 90       Other

59039             Other:

590390 10       Of cotton

590390 20       Polyethylene laminated jute fabrics

590390 90       Other 

  1. Chapter Notes to Chapter 59 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) reads as under

NOTES :

  1. Heading 5903 applies to:

(a) textile fabrics, impregnated, coated, covered or laminated with plastics, whatever the weight per square metre and whatever the nature of the plastic material (compact or cellular), other than:

(1) fabrics in which the impregnation, coating or covering cannot be seen with the naked eye (usually Chapters 50 to 55, 58 or 60); for the purpose of this provision, no account should be taken of any resulting change of colour;

(2) fabrics partially coated or partially covered with plastics and bearing designs resulting from these treatments (usually Chapters 50 to 55,58 or 60);

(b) fabrics made from yarn, strip or the like, impregnated, coated, covered or sheathed with plastics, of heading 5604.

  1. Explanatory notes to HSN in respect of Heading 5903 reads as under:

This heading covers textile fabrics which have been impregnated, coated, covered or laminated with plastics (e.g., poly(vinyl chloride)).

Such products are classified here whatever their weight per m2 and whatever the nature of the plastic component (compact or cellular), provided:

(1) That, in the case of impregnated, coated or covered fabrics, the impregnation, coating or covering can be seen with the naked eye otherwise than by a resulting change in colour.

Textile fabrics in which the impregnation, coating or covering cannot be seen with the naked eye or can be seen only by reason of a resulting change in colour usually fall in Chapters 50 to 55, 58 or 60. Examples of such fabrics are those impregnated with substances designed solely to render them crease-proof, moth-proof, unshrinkable or waterproof (e.g., waterproof gabardines and poplins), Textile fabrics partially coated or partially covered with plastics and bearing designs resulting from these treatments are also classified in Chapter 50 to 55, 58 or 60. 

  1. We have thoroughly gone through the above and find that the dispute regarding classification of fusible interlining cloth, which is partially coated with plastic by the dot printing process i.e. whether it is covered under Chapter 52 to 55 or Chapter 59, has repeatedly come up before different authorities. In it’s Circular No. 24/Coated Fabric/88-CX.1 dated 2-9-1988, CBEC has referred to the production process. .CBEC concluded that the fusible interlining merited classification under Heading 5903 if the above printing process covered one side of the fabric with a continuous and adherent film or layer of plastic that made the fabric impervious.
  1. In Circular No. 5/89 dated 15-6-1989, CBEC discussed the significance of the insertion of Chapter 2(c) in Chapter 59 by the Finance Act, 1989. After the insertion of the said note, the fusible interlining cloth made by discrete coating with plastic by dot printing process became classifiable under Heading 5903.

20.1 The Appellate Authority for Advance Ruling, West Bengal in order dated 19-3-2020 in the case of Appeal Case No.15/WBAAAR/APPEAL/2019 dated 26/09/2019 filed by M/s. Sadguru Seva Paridhan pvt .ltd. stated as under in respect of Circular No.433/66/98-CX.6 dated 27-11-1998 in Para-3(v) to (vii) of the said order:

“(v) While striking down the above mentioned Circular No. 433/66/98-CX-6 dated 27/11/1998 as ultra vires and contrary to Section 37B o fthe Central Excise Act, 1944, the Ld. Single Bench of Madras High Court in the case of Madura coats reported in 2004(163) ELT 164(Mad.), took no notice of the applicability of the Explanatory Notes to the HSN Code in deciding a classification issue under the Excise Tariff. Although not stated explicitly, the court held the interpretation of the law, as made in Circular No. 5/89 dated 15/06/1989, a binding legal provision, and the contrary view is illegal and ultra vires.

(vi) Upon appeal, the division Bench of the Madras High Court, in its order dated 05/01/2009 in WA No. 507 of 2005, refrained from expressing any view on the legality of the said Circular so that the assessing officer could apply his judgment without any bias. The court however, set aside the impugned Circular that the assessing officer had quoted in a show cause notice in violation of the provisions of Section37B of the CEA’44. Such setting aside of the impugned Circular restored the SCN. The Division Bench however, categorically stated that it was not done on the ground that the circular is ultra vires.

(vii) It therefore, appears that reference to the Single Bench judgment in the above mentioned case does not help in deciding the classification of the applicant’s. The fact that CBEC appealed against the Single Bench judgment in 2005 also indicates that it continues defending Circular No. 433/66/98-CX-6 dated 27/11/1998 and has not made any further course correction. Circular No. 433/66/98-CX-6 dated 27/11/1998, therefore, reflects CBEC’s view on the classification of fusible interlining cloth as on date.”

20.2 In view of the above, we find that CBEC Circular No. 433/66/98-CX-6 dated 27/11/1998 is relevant even today and has persuasive value. At the same time, according to the Explanatory notes to the HSN code, textile fabrics which are spattered by spraying with visible particles of thermoplastic material and are capable of providing a bond to other fabrics or materials on the application of heat and pressure are classifiable under heading 5903. Also, the process of manufacture of the fusible interlining cloth of cotton fabrics as submitted by the applicant appears to be similar to the one mentioned hereinabove. It is also seen that the applicant has, nowhere in their application or in their written or oral submissions, taken the view that Circular No. 433/66/98-CX-6 dated 27/11/1998 has erred in treating fusible interlining cloth as a category of textile. In the absence of any such submission, it is reasonable to agree with the views expressed by CBEC in Circular No. 433/66/98-CX-6 dated 27/11/1998 that fusible interlining cloth is classifiable under Heading 5903. In view of the facts mentioned above, we find that the applicant’s product ‘fusible interlining cloth of cotton fabric’ would undoubtedly be classifiable under Heading 5903 only. We, therefore, conclude that the product ‘fusible interlining cloth of cotton fabric’ of the applicant is classifiable under Heading 5903 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

  1. Having decided the classification of the product ‘Fusible interlining cloth for cotton fabrics’ of the applicant, we would also like to rely on a few judgements which support our view. The same are mentioned hereunder:

(1) Order No. 33/WBAAR/2019-20 dated 11-11-2019 issued by the West Bengal Advance Ruling Authority in respect of M/s. Sadguru Seva  Paridhan  Pvt Ltd. wherein it was held that fusible interlining fabric of cotton is classifiable under Heading 5903 in Chapter 59 ofthe First Schedule to the Customs Tariff Act, 1975.

(2) Order No. 11/2019-20 dated 12-3-2020 issued by the Uttarakhand State Advance Ruling Authority in respect of M/s. The Ruby Mills ltd. wherein it was held that fusible interlining fabric of cotton is classifiable under Heading 5903 of the GST Tariff Act, 2017.

(3) Order dated 19-3-2020 of the Appellate Authority for Advance Ruling, West Bengal in the case of Appeal Case No.15/WBAAAR/APPEAL/2019 filed by M/s. Sadguru  Seva Paridhan  pvt. ltd. wherein the Order No. 33/WBAAR/2019-20 dated 11-11-2019 issued by the West Bengal Advance Ruling Authority was upheld.

  1. In light of the foregoing, we rule, as under –

RULING

Question: Whether the article ‘Fusible Interlining cloth for cotton fabrics’ manufactured by the applicant falls under Chapter 5903 or under Chapter 52 or 55 of the HSN?”

Answer: The product ‘Fusible Interlining cloth for cotton fabrics’ manufactured by the applicant M/s Ashima Dyecot Private Limited, Ahmedabad is correctly classifiable under Heading 5903 of Chapter 59 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

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