Temple Packaging (P.) Ltd., In re

1.M/s Temple Packaging Pvt Ltd, Survey No 171/3 &7, Behind Olive Healthcare, Hatiyawad, village- Dabhel, Nani Daman – 396210 having GSTIN Number 251800000005AR4 is engaged in the printing of leaflets (further divided as insert/outsert) .They have made an application on 19.03.2018 under advance Ruling for printed leaflet supplied by the Applicant to ascertain the correct classification as to whether the same falls under the category of supply of goods falling under CHS No. 4901 or supply of service under SAC No.9989 and for that they have paid the required fee amounting to Rs.5,000/- for Central GST and Rs. 5,000/- for UT GST. Vide Challan Identification Number (CIN) -18022500004135 Date -23.02.2018.

2. The application for seeking Advance Ruling was forwarded vide letter dtd 20.03.2018 to the JAC for their report on the classification of the said product considering the prevailing practice by other manufacturer and similar case of the applicant assessee pending before any other appellate forum etc.

2.1The JAC vide their letter issued from F.No. Div-l/Misc/CGST/1/2018-19/87 dtd 13.04.2018 had concluded their report stating that the case of the applicant falls under the category of supply of services falling under heading 9989 of the scheme of classification of services covered under Sr. No. 27 of Notification No. 11/2017-CT(R).

Defense Reply:-

3. The representative of the Applicant vide their letter dtd 15.05.2018 submitted that they had filed the captioned Advance Ruling application for decision on classification of printed leaflet manufactured by them at their Daman factory out of their own raw materials namely paper/ink with the contents supplied by the purchaser of leaflet to whom leaflets were sold by the Applicant on principal to principal basis. The issue to be decided as to whether same had to be considered as supply of goods falling under Chapter Sub-heading No.4901 attracting GST @5% as per Sr.No.201 of Schedule-1 of Notif. No.l/2017-CT (Rate) 28.6.2017 or as a supply of service falling under SAC No.9989 attracting GST @12% as per Sr.No.27 (1) of Notif.No.ll/2017-CT (Rate) dated 28.6.2017, as amended (GST rate 18% up to 12.10.2017 and thereafter 12%)

3.1They submitted that since 2005 they were clearing printed leaflets on outright sale basis and clearing the same under CSH No.4901 as exempted being not chargeable to duty. Accordingly w.e.f. 1.7.2017, the Applicant continued supplying the same under the category of goods falling under Chapter sub-heading No. 4901. However, wef. 29.8.2017 the Applicant after intimating the Assistant Commissioner of CGST & CE vide their letter dated 29.8.2018 started supplying the same under the category of service falling under SAC No.9989. This was done on account of clarification issued by All India Federation of Master Printer through their letter dated 8.8.2017 circulated to the members whereby it was clarified that as per the understanding given during the course of meeting of A.I.F.P delegation with the Officers of the Ministry of Finance the printed matter manufactured by printer with own physical inputs and contents are supplied by the customer, will fall under the category of supply of service, SAC No.9989.

3.2They further submitted that subsequently, CBEC issued Circular No.ll/ll/2017-GST dated 20.10.2017 to provide clarification on taxability of printing contracts. However, the clarification provided by CBEC does not directly deal and does not conclusively provide clarification for leaflet when cleared on sale account. 

3.3 They submitted that according to them the printed leaflet supplied by them Merits Classification under the category of supply of goods falling under CSH No. 4901 only on following grounds.

3.3.1 They submitted that Goods is defined under Section 2(52) of the CGST Act, 2017 as per which goods means every kind of moveable property other than money and security. Service was defined as per Section 2(102) of the CGST Act, 2017 as per which service means anything other than goods. The leaflet sold is nothing but one kind of moveable property and falls under the category of goods only.

3.3.2 They submitted that as per Para No.2 and 3 of CBEC Circular 11/11/2017-GST dated 20.10.2017 the printing contracts falls under the category of composite supply and the classification had to be decided on the basis of supply which constitutes the principal supply. Principal supply was defined at Section 2(90) as per which supply of goods or services which constitutes the pre-dominant element of composite supply and to which any other supply forming part of that composite supply was ancillary. In the given case mere supply of content by the customer was ancillary and the entire manufacturing cost of the products was comprising of own inputs used. Therefore, the principal supply was supply of goods on sale to customer on principal to principal basis.

3.3.3 They submitted that SAC 9989 covers only publishing matter attended on a fee or a contract basis and did not cover printing matter other than publishing matter. This was also clear from Para no.4 of CBEC Circular No. 11/11/2017-GST dated 20.10.2017 which reads as follows.

In the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of services.

3.4They submitted that as per the above clarification the printed matter will fall under SAC No.9989 when the content was supplied by the publisher or a person who owns users right to the intangible inputs. The SAC No.998911 covers publishing on a fee or a contract basis and SAC No. 998912 covers printing and reproduction service of recorded media on a fee or a contract basis. There was no coverage of printed leaflet in SAC No.9989. Accordingly Sr.No.27 (1) of Noti.No.ll/11/2017-CT (Rate) only covers publishing matter like news paper/books/generals/periodicals made on the basis of content supplied by publisher and Sr.No.27(2) inter-alia covers printing and re-production services of recorded media.

3.5They submitted that accordingly printed leaflet manufactured with their own raw materials and as per content supplied by customer (other than publisher or person who owns the users right to the intangible input) does not fall under SAC No.9989 and merits classification under the category of goods only falling under CSH 4901. In other words, the above circular of CBEC supports applicant's case for classification under the category of goods. 

3.6  They submitted that undisputedly the product was classifiable as excisable goods prior to introduction of GST from 01.07.2017. The CBEC under their Cir.No.1052/1/2017- CX dated 23.2.2017 provided clarifications for various printed matters falling under 48 or 49 depending upon the applicability of Chapter Notes. Further they referred follows case laws/Circulars in their defence.

They submitted that as per the ratio of the above circulars/judgments, the concept of principal supply for the purpose of Section 2(90) of the CGST Act, 2017 had to be decided and thereby the principal supply was supply of goods only and had no connection with supply of service. 

3.7They submitted that for printed matters, SAC 9988 or 9989 was relevant. SAC 9988 covers only when job work was attended on physical inputs (goods) owned by others. In this case there was no job work on inputs (goods) owned by the others and manufacturing of printed leaflet was with own inputs (goods). SAC 9989 only covers publishing matters which was evident from para No.4 of CBEC circular No.11/11/2017- GST dated 20.10.2017 and as per the pattern of levy under Sr.No. 27(1) of Noti.No.ll/2017-CT (Rate). There was no any other SAC entry which was applicable to impugned goods. Therefore, the question of classification under the category of supply of service was out of context.

3.8They submitted that under GST, the classification of products had to be decided on the basis of Custom Tariff. There was no dispute that on importation of printed leaflet supplied by overseas supplier with content given by the importer, the custom department will levy custom duty as importation of goods and not as importation of service. This also support applicants contention made in the application.

3.9They submitted that based on the above the products merit classification under the category of supply of goods only.

3.10 They submitted that that applicant have been granted zero rated EPCG license whereby the applicant is supplying printed leaflets to SEZ units and EOU and fulfilling their export obligation by way of supply of goods under deemed export scheme. As per the EPCG license the applicant need to fulfill the export obligation by delivering the goods falling under 4901. SEZ and custom portal do not support service code dropped down for making GRN and lodging the Bill of Entry (BOE). Under no circumstances the impugned goods falls under the category of supply of service but the government was also needed to clarify as to how export obligation be fulfilled in the event of classification held under the category of services.

3.11 They finally requested that the applicants Advance Ruling application may be allowed by holding that the printed leaflets manufactured from own raw materials with contents supplied by customer and supplied on sale account to customers on principal to principal basis falls under the category of supply of goods falling under CSH No. 4901 attracting 5% GST as per Sr.No.201 of Schedule-1 of Noti.No.1/2017-CT (Rate) dated 28.6.2017.

4. Records of Personal hearing,

To abide by the law of natural justice, the applicant was given chance to be heard in person and personal hearing in this case was fixed on 15.05.2018. However, the advocate of the applicant requested to postpone the date of PH on 16.05.2018. Their request was accepted and they were allowed to appear for PH on 16.05.2018. Shri Dinesh H. Mehta, advocate of the applicant appeared for the PH on 16.05.2018. During the PH he submitted that the supply in question is only of the goods and not of the service, as the recipient is only providing the content to be printed. Further, as per the Customs Tariff Act, applicable to GST, the items in question are classified as goods in the Customs Tariff Act.

The supply in question will therefore, not fall under the SAC 9988 or SAC 998912 and will only be considered as supply of goods. This is also applicable as per the CBEC Circular dtd 24.10.2017. He also made further written submission and provided the copies of various case laws in their defense. He finally requested that the product in question may be considered as supply of goods only & not as service.

5. Discussion and Findings

In the present case we, the members of Advance Ruling, have to decide as to whether the goods/service (under question) has to be considered as supply of goods falling under Chapter Sub-heading No.4901 or as a supply of service falling under SAC No.9989 .

5.1To decide the issue, it is in the interest of justice to discuss the nature of product in question and its use. As per the evidence available before us, the applicant is engaged in the process of printing of the contents, supplied by the recipient of such printed goods (client), on the paper, purchased and owned by the applicant assessee, using the ink also purchased and owned by the applicant In simple language they are engaged in printing works for which the contents of prints are supplied by their client whereas materials needed for their printing are being purchased by the applicant.

5.2It is on record that the applicant have submitted one of the sample of a printed pamphlet along with their defence reply which is made for "Norethindrone tablets USP,0.35 mg" . On simple reading of the said pamphlet it appears that the buyer of the product wanted to convey certain message through the said pamphlet which is supplied alongwith their product In fact, the product pamphlet in itself is nothing but a media to convey the message and the message or script what is to be printed , is supplied by the buyer of the product We note that the said supply is a mixed supply as per Section 2(74) of the CGST Act, 2017 and in the mixed supply dominance is the message printed on the pamphlet We further note that the applicant have referred a Circular issued by the All India Federation of Master Printers to its member dtd 08.08.2017 interpreting the correct classification of the product which are as under-

" When the printing units are using content given by the customers, according to the department, they are prima facie engaged in producing customized printed materials and would be treated under "Supply of service'....

5.3We note from the said Pamplets/leaflets referred in the above para that the said pamplets have been printed to give the understanding of specific medicine. In normal parlance it is mandatory in the part of manufacturer of P.P.Medicaments to give the details of the product along with actual product This detail is supplied in order to make aware the consumer about the contents, uses and side effects etc. of the product Therefore, we find that primary nature of the product (leaflets) is to convey the message which is a form of Service and merits classification under SAC 9989.

5.4The applicant have relied upon Circular No. 11/11/2017-GST dtd 20.10.2017 and has contended that SAC 9989 covers only the publishing matter attended on a fee or a contract basis and did not cover printing matter other than publishing matter. We have gone through the said Circular which read as under-

F. No. 354/263/2017-TRU

Government of India 

Ministry of Finance

Department of Revenue 

Tax research Unit **** North Block, New Delhi 20th October 2017

To

The Principal Chief Commissioners/Chief Commissioners/Principal 

Commissioners/Commissioner of Central Tax (All)/

The Principal Director Generals/Director Generals (All)

Madam/Sir,

Subject: Clarification on taxability of printing contracts

Requests have been received to clarify whether supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc, printed with design, logo, name, address or other contents supplied by the recipient of such supplies, would constitute supply of goods falling under Chapter 48 or 49 of the First Schedule to the Customs Tariff Act, 1975 (51ofl975) or supply of services falling under heading 9989 of the scheme of classification of services annexed to notification No. 11/2017-CT(R).

2. In the above context, it is clarified that supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc. printed with logo, design, name, address or other contents supplied by the recipient of such printed goods, are composite supplies and the question, whether such supplies constitute supply of goods or services would be determined on the basis of what constitutes the principal supply.

3. Principal supply has been defined in Section 2(90) of the Central Goods and Services Tax Act as supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.

4. In the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of services.

5. In case of supply of printed envelopes, letter cards, printed boxes, tissues, napkins, wall paper etc. falling under Chapter 48 or 49,. printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore such supplies would constitute supply of goods falling under respective headings of Chapter 48 or 49 of the Customs Tariff

4. Difficulty if any, in the implementation of the circular should be brought to the notice of the Board. Hindi version would follow.

Yours Faithfully,

Rachna Technical Officer (TRU)

Email: rachna. irs@gov. in

5.4.1 We note that the Para 4 of the said Circular specifically clarifies that in the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of services. Accordingly pamphlets, brochures annual reports etc are covered under the services and the applicant is engaged in printing of pamphlets etc. hence, the correct classification of the product of the applicant is 9989. It is worth mention here that printed Pamphlets/leaflet are useless except otherwise used in the use specific purpose of giving knowledge of the particular medicine to its user. Therefore, dominance of supply in the said goods is proved which lead its correct classification under the supply of service (SAC 9989)

5.5In view of the above, we hold that the CBEC vide Circular No. 11/11/2017-GST dtd 20.10.2017 had clarified the ambiguity arisen out of simultaneous prevalence of goods or service in the printing industry and the dominance of service in the mix supply..

5.5.1 The Circulars issued by CBEC are commonly binding on the departmental officer as is held by the Hon'ble Supreme Court in the cases of Dhiren Chemical Industries 2002 (139) E.L.T. 3 (S.C). Relevant extract of the judgment is reproduced below:

"9. We need to made it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue"

5.5.2 Further in the case of Madras Steel Re-Rollers Association2012(278) ELT 584 (SC), Hon'ble Supreme Court has held as under:

"7. Considering the facts and circumstances of the case and relying on the aforesaid decision of this Court, we hold that the Assessing Authorities as well as the Appellate and the Revisional Authorities are creatures of the Act and they perform the functions of the Quasi-judicial Authorities and the orders passed by them are also Quasi-judicial Orders. Therefore, such orders are required to be passed by exercising independent mind and without impartiality and while doing so, such Authorities are required to consider various evidences made available to them. The Circulars issued by the Department which are in the nature of guidance to such Authorities and, therefore the contents of such circulars could also be considered as evidence available before them. On the basis of all the materials available on record including the evidence, the Assessing Authority has come to an independent finding on its own, and therefore, in our considered opinion, the matter can now be allowed to be determined by the Assessing Authority in the light of the aforesaid observations."

In view of the above, the said CBEC circular is legally binding on the departmental officers; I therefore, abide by the said CBEC Circular.

5.5.3 Further in the case of M/s Ratan Melting decision v. Binding nature of board circulars. the Circular No. 1006/13/2015-CX dated 21.09.2015 is issued in the context of decision of Apex Court in the case of Ratan Melting & Wire Industries, the decision although rules out that circulars contrary to the statutory provisions of law are not binding even on the departmental officers from the date of judgment but at the same time this decision also pronounces that even the revenue department has right to appeal against the clarifications issued by a board circular. This leads that the board circulars are binding on the revenue authorities till the provisions of the circular are not proved contrary to law by High Court or Supreme Court.

5.6The applicant relied upon the Circular No. 1052/1/2017-CX, dtd 23.02.2017 to support their claim, However, on going through the contents of the said Circular it is noted that the referred Circular belong to pre GST era, hence, not applicable in the GST cases. Similarly, it is further noted that the applicant in their defence relied upon plethora of judgments while contending that their product is goods. We have gone through all the cases and found no force in any of the judgment applicable in their defence. Further the crux of all judgment referred by the applicant either pertain to Central Excise or Customs cases and the circumstances/issue referred in the cases relied are different from the issue in hand, hence not applicable. Thus we find that the judgments relied upon by the applicant assessee are not applicable in present case and the product Pamphlet/leaflet has the dominance of service and correctly classifiable under SAC 9989 if the contents are supplied by the customer as in the present case.

6. In view of the above discussing and findings, we hereby pronounce Advance Ruling under Sub Section 4 of Section 98 using power vested in us under sub Section 6 of Section 98, Section 96 of the Central Goods and Service Tax Act, 2017 read with Rule 103 of the Central GST Rules, 2017 and defined under Section 14 of the UTGST Act, 2017, as under-

Order/Advance Ruling

In the present case against Application dtd 22.07.2017 of M/s Temple Packaging Pvt Ltd, behind Olive Healthcare, Hatiyawad, village- Dabhel, Nani Daman, Advance Ruling is given that printing of Pamphlet/leaflet falls under the category of Supply of Service falling under SAC No.9989. The case is disposed off accordingly.