Manufacturing Tea Bags attract 5% GST: AAR [Read Order]

The Authority for Advance Rulings (AAR), Haryana has ruled that the manufacturing of tea bags by the contract would be subject to 5% GST.

The Applicant is a contract packer of tea bags, seeks a ruling on the classification of the services provided in way of packing of tea bags and the rate of GST. They approached the authority for a clarification as to whether their services to HUL are classifiable as packaging service or manufacturing service or both.

The authority noted that the Applicant’s service to HUL for manufacturing tea bags is service for manufacturing a product classified under Tariff item 0902 40 40, where physical inputs are owned by the recipient.

According to the Agreement the Applicant shall manufacture and/or process and pack tea bags of Taj Mahal, Lipton and Brook Bond brands at his plants.

“The supply is, therefore, to be classified under SAC 9988 and taxed under Sl No. 26(f) of the Rate Notification. The Applicant also provides service of packaging the manufactured tea bags in cartons, wraps them up and put them in specially designed boxes. HUL owns and provides all such packaging materials also. These two services (service for manufacturing tea bags and the service for packaging of the manufactured tea bags) are supplied in terms of a single contract (refer to the Agreement) and at a single price (as may be ascertained from the invoices). The flow chart shows that the services are supplied as processes in a continuous assembly line, where packaging of tea bags in cartons and wrapping is ancillary to manufacturing tea bags. The tea bags, of course, cannot be delivered unless they are suitably packed. The Applicant is, therefore, making a composite supply to HUL where the service of manufacturing tea bags from the physical inputs owned by HUL is the principal supply,” the authority said.