19.12.2023: Power To Issue Instructions Or Directions Vests With The Board Not With TRU – Section 168 – Delhi High Court

The Hon’ble High Court of Delhi vide its order dated 16.11.2023 in the matter of Association Of Technical Textiles Manufactures And Processors & Anr. Vs. Union Of India & Ors. in W.P. (C) No. 5933 of 2019, quashed the circular issued by the Tax Research Unit, finding that in terms of Section 168 (Power to issue instructions or directions) of the CGST Act, power to issue instructions or directions vests with the Central Board of Indirect Taxes and Customs (the Board) not with TRU (Tax Research Unit).

The Petitioners filed the writ petition before the Hon’ble High Court seeking quashing of paragraphs 7.1, 7.2, 7.3 and 7.4 of the Circular No. 80/54/2018-GST dated 31.12.2018 issued by the Tax Research Unit of the Respondent No. 1;

Facts of the Case: –

  • The first petitioner, which is an association of technical textiles manufacturers and the second petitioner which is a member of the said association, are principally aggrieved by the Circular dated 31 December 2018 issued by the Tax Research Unit [TRU] constituted under the first respondent, and to the extent that it purports to clarify that polypropylene woven and non-woven bags including those laminated with Biaxially Oriented Polypropylene [BOPP] are liable to be classified as falling under Chapter 39 and more particularly Tariff Heading 3923 forming part of the First Schedule to the Customs Tariff Act, 1975 [CTA].
  • The dispute essentially related to a question of classification of polypropylene woven and non-woven bags under the Harmonized System of Nomenclature [HSN]. The TRU has, on due consideration of the aforesaid issue, clarified that those articles would be classifiable as ‘plastic bags’ under Tariff Heading 3923.
  • The petitioners are aggrieved by the aforesaid Circular, since it contends that polypropylene woven or nonwoven bags are made out of textiles and thus cannot be equated with plastics, which form the subject matter of Chapter 39 of the First Schedule to the 1975 Act.

Petitioners’ Submissions: –

  • Referring to Section 168, it was argued on the behalf of the Petitioners that the power to issue orders, instructions or directions to Central Tax Officers stands vested exclusively in the Central Board of Indirect Taxes and Customs [the Board]. And, no power stands conferred upon the TRU, even if a clarification pertaining to classification were to be issued under the CGST Act, the same could have been achieved only by way of a directive issued by the Board and none other.
  • Further, it was submitted and the attention was drawn of the Hon’ble Court to the title of Chapter 39 of the First Schedule to the 1975 Act and which deals with “Plastics and Articles Thereof” and emphasis was laid on Notes 1 and 2 thereof and which purports to exclude textile materials which would otherwise fall within the ambit of Section XI of the First Schedule to the 1975 Act.
  • Therefore, it was argued that while Tariff Heading 3923 (Articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other closures, of plastics) speaks of articles for the conveyance or packing of goods, it would essentially extend to articles made of plastics and read holistically exclude textiles completely therefrom.
  • The attention of the court was also drawn to Note 3 comprised in Chapter 56 – (Wadding, Felt and Nonwovens; Special Yarns; Twine, Cordage, Ropes and Cables and Articles Thereof). It was submitted that the article in question being classifiable under Chapter 56, it clearly cannot be placed alongside articles of plastic.
  • Reference was also made to the Tariff heading 6305 – ‘Sacks and bags, of a kind used for the packing of goods’
  • Thereafter, reliance was placed on the decisions of the Authority for Advance Ruling in S Polytech 2019 SCC Online WB AAAR-GST 18; JJ Fabrics 2018 SCC Online Ker AAR-GST 2018 SCC Online Ker AAR-GST 9; SMVD Polypack Pvt. Ltd 2018 SCC Online Ker AAR-GST 9; Kanniwadi Nagarajan Sharmila 2018 SCC Online TN AAR-GST 22. It was submitted that certain decisions rendered by the AAR have taken a contrary view, the conflict in opinions so rendered could not have been resolved or laid to rest by the issuance of a circular and that too by a body, which has not been statutorily conferred that power.
  • On the behalf of the Petitioner, an effort was also made to distinguish the decision of Madhya Pradesh High Court in Raj Pack Well Ltd v. Union of India 1989 SCC Online MP 377 relied upon by the respondents.

On the other hand, on the behalf of the respondents, it was submitted that the AAR and the Appellate Authority for Advance Rulings [AAAR] in various States had held that polypropylene bags, whether laminated with BOPP or not, would be liable to be viewed as plastic bags falling under Tariff Heading 3923 as opposed to 6305 as claimed by the petitioners.  Reliance was placed on the rulings in RLJ Woven Sacks Pvt. Ltd 2019 SCC Online WB AAAR-GST 14; Mahalaxmi Polypack Private Ltd 2019 SCC Online Utt AAR-GST 2; Mount Fab Packaging LLP 2020 SCC Online Guj AAR-GST 101.

Held: –

  • The Hon’ble Court after considering the submissions made, facts of the case and provisions of the law applicable, found that the respondents could not draw our attention to any provision of the CGST Act, in terms of which the TRU could be said to have been clothed with the authority or jurisdiction to render a clarification with respect to classification of goods and articles. That power clearly appears to stand conferred upon the Board exclusively. We are thus of the considered opinion that no authority vested in the TRU to issue the clarification impugned before us.
  • The Hon’ble Court found it sufficient to dispose of the writ petition on this short ground alone, however, the court proceeded further in light of the detailed submissions which were addressed by respective sides with respect to the classification of the article itself.
  • The Hon’ble Court found that the various decisions referred by both the sides, were neither cited nor placed before us for our consideration. Thus, the Hon’ble Court desist from rendering any observation or comment on the correctness or otherwise of the opinions so rendered.
  • Thereafter, the Hon’ble Court took note of the decision of the Calcutta High Court in Mega Flex Plastics Ltd & Anr v. Union of India & Ors 2023 SCC Online Cal 311. The Calcutta High Court, on the facts of the said case, while dealing with the aspect of classification of polypropylene leno bags under the 1975 Act, held that polypropylene leno bags were classifiable under Chapter 39 of the 1975 Act, rather than Chapter 63. Although the aforesaid decision presently forms subject matter of an appeal preferred before a Division Bench of the Calcutta High Court, no stay operates thereon.
  • Referring to the decision of Praveen Mittal vs. UOI 2009 SCC Online Del 2643 by the Division Bench of this Court, which was relied upon on the behalf of the respondents, the Hon’ble Court found that in our considered opinion, the aforesaid decision cannot possibly be viewed as being determinative of the issue before us. It was noted by the Hon’ble Court that the aforesaid judgment was rendered in the context of a ban imposed upon plastic bags by the Government of National Capital Territory of Delhi [GNCTD] in terms of the provisions of the Environment Protection Act, 1986.
  • In the said case, while dealing with the question of whether nonwoven bags containing polypropylene would fall within the ban that stood imposed, the Department of Environment of the GNCTD took the position that since non-woven bags containing polypropylene to the tune of 98.3% would also constitute a non-biodegradable material, those articles would also fall within the scope of the ban. It was this decision which was ultimately upheld by the Division Bench. The observations as appearing in Praveen Mittal are thus liable to be understood and appreciated in the aforesaid backdrop.
  • Therefore, it was concluded by the Hon’ble Court that in the absence of a conferral of any power upon the TRU, or it being recognized as being statutorily enabled to issue any clarification or directive under Section 168 of the CGST Act, the circular is liable to be quashed and set aside on this ground alone.
  • Thereafter, the Hon’ble Court referring to the decision of Hon’ble Supreme Court in Union of India & Ors. vs. Bharat Forge Ltd & Anr 2022 SCC Online SC 1018, found that all that needs to be observed in this regard is that the conflict of opinion that may exist would have to be resolved by parties taking appropriate steps as contemplated under the CGST Act.
  • It was further noted by the Hon’ble Court that that the impugned circular while purporting to convey a position with respect to the classification of non-woven polypropylene bags has rested its conclusions solely on the basis of the provisions contained in Chapter 39. It has neither mentioned to Section XI of the First Schedule to the 1975 Act nor has it referred to Chapter 56 thereof.  The contention of the petitioners that non-woven polypropylene is an article which would fall within Tariff Heading 5603 was neither questioned nor contested before us by the respondents.
  • Further, the impugned Circular also fails to examine the impugned Circular with respect to distinction which the 1975 Act appears to construct when it places plastics under Chapter 39 and textiles and articles thereof separately in Section XI, and more particularly, as was contended by the petitioners in Chapters 56 and 63 of the said enactment. Moreover, the impugned Circular also fails to advert to the Notes placed in Chapter 39, and which in unambiguous terms, exclude textiles from the ambit thereof. For the aforenoted additional reasons, we find ourselves unable to uphold the impugned circular.
  • However, the Hon’ble Court while rendering a final verdict found that the failure of parties to address the question comprehensively constrains us to desist from rendering a definitive opinion in that respect bearing in mind the industry wide ramifications that may ensue. Courts should avoid expressing an opinion on questions of classification unless they are directly raised and adequate and cogent material placed on the record. Bearing in mind the impact that such a ruling may have, findings in that respect, in any case, should not be founded on material which is tenuous and inadequate.
  • The Hon’ble Court noticing that since the writ petition itself stood restricted to the validity of the circular, it would be imprudent for us to hand down a verdict imbued with attributes of finality. Thus, the Hon’ble Court kept the issue of classification open for consideration of the competent authority in the appropriate proceedings.

The Hon’ble Court with the above observations and findings, allowed the writ petition by quashing the impugned circular.  However, the Hon’ble Court left it open to the petitioners to adopt such measures, insofar as the issue of classification is concerned, as may be permissible in law.

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