12% GST Applicable On Geo Membrane For Waterproof Lining Fabrics, Not 18%: Gujarat High Court Directs Refund Of Excess GST Paid

The Gujarat High Court has ruled that the Geo Membrane, a textile fabric used for waterproof lining, is subject to a 12% GST rate rather than the previously applied 18%. The court has directed the GST department to refund the excess 6% GST paid by the petitioner.

The case involved a partnership firm that manufactures Geo Membrane, a type of textile fabric. The firm is registered under the Central and Gujarat Goods and Services Tax Act, 2017. The petitioner contended that Geo Membrane, being a textile product, should be taxed at the rate applicable to textile fabrics. However, the GST department classified the product as a plastic Geomembrane, thus applying an 18% GST rate.

Geo Membranes are used primarily for the reinforcement of ponds, canals, and similar structures. The petitioner argued that the product supports Biofloc technology, which enhances aquaculture practices by maintaining water quality and reducing the need for frequent water exchanges. Biofloc technology creates a beneficial bacterial colony that consumes nitrogen produced by aquatic animals, thereby supporting a more sustainable and cost-effective farming system.

The Geo Membrane is described as a fabric made from polyester yarns, manufactured using a weaving process. It falls under Chapter 59 of the GST tariff, which covers "Impregnated, Coated, Covered or Laminated Textile Fabrics," specifically under Heading Nos. 5901 to 5910. The petitioner's position was that Geo Membrane, being a coated textile fabric for technical use, should be classified under Heading 5911, which includes such textile products.

The petitioner began producing and supplying Geo Membrane in August 2020, which brought the product under GST regulations. To clarify the correct classification, the petitioner applied for an Advance Ruling on November 20, 2020, to determine whether Geo Membrane should be classified under HSN Code 59039090 or HSN Code 59119090.

The Gujarat Authority for Advance Ruling ruled that Geo Membrane should be classified under HSN Code 39269090, subject to an 18% GST rate, referencing a Madhya Pradesh High Court decision regarding plastic tapes and bags. However, the petitioner contested this decision, arguing that Geo Membrane is a textile product and should be classified under HSN Code 59111000, attracting a lower 12% GST rate.

The petitioner highlighted that other manufacturers of similar products, including CTM Technical Textiles Ltd., had successfully challenged the classification of Geo Membrane as a plastic article in Special Civil Application No. 8332 of 2020. In that case, the High Court ruled that Geo Membrane was a textile product, not a plastic article, and directed the Union of India to review related circulars and orders.

Despite this ruling, the Union of India and the GST Board did not update their guidance, leaving the petitioner subject to the higher GST rate. Consequently, the petitioner sought judicial intervention to challenge the Advance Ruling Authority's decision and align the GST rate for Geo Membrane with the lower rate applicable to textile fabrics.

The key question before the Court was whether the product Geo Membrane, manufactured by the petitioner, should be classified under Chapter 59 or Chapter 39 of the Tariff.

The Division Bench, consisting of Justices Bhargav D. Karia and Niral R. Mehta, referred to a previous decision by the Coordinate Bench in the case of M/s. CTM Technical Textiles Ltd. v. Union of India, decided on December 24, 2020, in Special Civil Application No. 8332 of 2020. The Court observed that this matter was no longer open for debate in light of the earlier ruling.

Expounding on this precedent, the Court stated, “we do not think fit to reiterate the same and adopting the same reasoning, we hold that the product manufactured by the petitioner being Geo Membrane is classifiable would fall under Chapter 59 and not under Chapter 39 as held by the respondent No.4 – the Gujarat Advance Ruling Authority relying upon the decision of the Hon'ble Madhya Pradesh High Court in case of Raj Packwell Ltd. The petitioner, therefore, is liable to pay the GST @ 12% from 15.11.2017 onwards and not @ 18%.”

The Court instructed the respondent authority to, “apply the discounted rate of 12% of the GST on the product manufactured by the petitioner under HSN Code 59111000 of the Tariff. The petitioner is entitled to claim the refund on the excess GST @ 6% paid pursuant to the order of the respondent No.4 – the Gujarat Advance Ruling Authority, without claiming any interest thereon.”

The petition was thus allowed in favor of the petitioner based on these findings.

Case Title: United India Insurance Co. Ltd. Versus Kevalji Lumbaji Harijan(Dabhi) & Ors.

LL Citation: 2024 LiveLaw (Guj) 114

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