In a significant development on November 16, 2023, the Delhi High Court declared the Tax Research Unit’s (TRU) clarification on the classification of polypropylene woven and non-woven bags as invalid. The court emphasized that the TRU, a body under the Ministry of Finance, lacks the authority to provide such clarifications, pointing to the exclusive jurisdiction vested in the Central Board of Indirect Taxes and Customs (CBIC) by Section 168 of the Central Goods and Services Tax Act, 2017.

Basis for Quashing Circular No. 80/54/2018-GST

The court scrutinized Circular No. 80/54/2018-GST, issued on December 31, 2018, and highlighted its shortcomings. Notably, the Circular failed to consider Section XI of the Customs Tariff Act, 1975, and neglected references to Chapter 56 or 63. Moreover, the court pointed out the Circular’s omission of acknowledgment of the Notes in Chapter 39, which explicitly exclude textiles from its scope.

Court’s Rationale and Precedent

In the case of Association of Technical Textiles Manufacturers and Processors v. Union of India, the court asserted that conflicting views from Appellate Authorities for Advance Ruling (AARs) cannot be resolved through directives or clarifications like the challenged Circular. Citing the Supreme Court’s decision in Union of India v. Bharat Forge Ltd. [2022 SCC Online SC 1018], the court stressed the importance of a more comprehensive resolution.

Classification Issue Left Open for Competent Authority

While allowing the writ petition, the court decided to leave the matter of classification open for consideration by the competent authority in future proceedings. This decision marks a crucial stance against unauthorized clarification and underscores the need for adherence to statutory procedures in matters of taxation.