IMPORTANT POINT
The classification of goods for tax purposes must align with common parlance, and the burden of proof rests with the revenue authority to substantiate its claims.

JUDGMENT :

RAJARSHI BHARADWAJ, J.

1. The present writ petition has been filled in relation to the order passed by the appellate authority wherein Spunbonded Polypropylene Bed Sheets have been classified under the heading 5603 instead of 6304 thereby partially denying the refund of accumulated Input Tax Credit on account of inverted duty structure of Rs. 39,61,030/- for such classification.

2. The facts in a nutshell are that the petitioner is a company duly incorporated under the provisions of the Companies Act, 1956 and are inter alia engaged in manufacturing, exporting and supplying of various non-woven fabrics and Spunbonded Polypropylene Bed Sheets (hereinafter referred to as ‘PPSB Bed Sheet’) since 2007. The petitioner classifies such non-woven fabrics and PPSB Bed Sheet under the chapter headings 5603 and 6304 of the Customs Tariff Act, 1975 respectively.

3. The Petitioner engages in the production of non-woven fabric utilizing Polypropylene Granules (referred to hereinafter as “PP Granules”) through the application of Spun Bond technology. The Spun Bond process, a method employed in non-woven fabrication, involves the transformation of PP Granules into continuous filaments, which are subsequently deposited and fused together to yield non-woven fabric.

4. The aforesaid process of manufacture of polypropylene non-woven fabric and the PPSB Bed Sheet was also verified by the State Tax Officers, Bureau of Investigation, Govt. of West Bengal, during their visit to the petitioner’s factory on 14.02.2019. A copy of the report of the said visit was also prepared under the seal of State Tax Officer, Bureau of Investigation, Govt. of West Bengal.

5. The petitioner supplies the Polypropylene non-woven fabric on payment of GST @ 12% (6% CGST+ 6% SGST) as per SL. No. 135 of Schedule II of Notification No. 01/2017-CT (Rate) dated 28.06.2017.

6. With regard to supply of the PPSB Bed Sheet so manufactured, in the pre-GST regime, the Petitioner was a registered dealer under West Bengal Value Added Tax Act, 2003 and the Central Sales Tax Act, 1956. Bed Sheets were covered under item Sl. No. 3B of Schedule A to the WBVAT Act. For goods covered under Schedule A to the WBVAT Act, no tax was payable. The PPSB Bed Sheet falling under Chapter 63 were also exempt from whole of the Excise Duty in terms of Notification No. 30/2004-CE dated 09.07.2004. Accordingly, the Petitioner was supplying such PPSB Bed Sheets without payment of VAT/CST or Excise Duty.

7. After the implementation of GST w.e.f. July 2017, the Petitioner has been classifying the PPSB under the tariff heading 6304 and discharging GST @ 5% (2.5% CGST+ 2.5% SGST) in accordance with S. No. 224 of Schedule I to the Notification No. 01/2017 CT (Rate) dated 28.06.2017.

8. However, the classification of bed sheets manufactured was disputed under the erstwhile VAT regime. In the proceedings before the Hon'ble West Bengal Taxation Tribunal in the case of the Petitioner with Registration Number 1310/2017, the primary argument put forth by the revenue department was the purported distinction between bed sheets and PPSB Bed Sheet. Consequently, it was asserted that bed sheets crafted from polypropylene non-woven fabric would not qualify for the tax exemption stipulated in Serial 3B of Schedule A to the WBVAT Act, 2003. Nevertheless, the Hon’ble Tribunal, in its order dated 30.11.2018, ruled that the PPSB Bed Sheet manufactured and traded by the Petitioner were exclusively utilized as bed sheets and thus were entitled to the exemption from tax payment pursuant to Serial No. 3B of Schedule A to the West Bengal Value Added Tax Act, 2003.

9. In the present matter, the GST rate applicable to the procurement of PP Granules, as classified under HSN 3901 or 3902, stands at 18%. Conversely, non-woven fabric supplies under HSN code 5603 incur a taxable rate of 12%, while supplies of PPSB Bed Sheet under HSN Code 6304 are taxed at 5%. This incongruous rate structure has led to the accumulation of credit on the pa