5% GST Payable On Biodegradable Bags: AAR

The Rajasthan Authority for Advance Ruling (AAR) has held that biodegradable bags are eligible for 5% GST only if they qualify as ‘biodegradable’ under Notification No. 9/2025-Central Tax (Rate). The bench of Utkarsha and Dr. Akhedan Charan has observed that biodegradable or compostable bags made from plastic or compostable polymers are classifiable under Chapter 39 of the Customs Tariff, while biodegradable bags made from paper would fall under Chapter 48. The products would be eligible for the concessional GST rate of 5% only if they satisfy the condition of being biodegradable as contemplated under the notification. The applicant, M/s Sunita Kohli (SKP Enterprises), a proprietorship concern engaged in the manufacture and sale of various types of carrying and packing bags from its unit located at Chopanki, Bhiwadi, Rajasthan. The applicant sought clarity regarding the correct classification of its biodegradable bags and the applicability of the concessional GST rate introduced through Notification No. 9/2025-Central Tax (Rate) dated September 17, 2025. According to the applicant, it manufactures biodegradable and compostable carry bags which were earlier classified under HSN 3923 and taxed at 18% GST. The applicant relied upon certificates and testing reports issued by agencies such as CPCB and CIPET to contend that its products are biodegradable and compostable in nature. It argued that following the amendment made through Notification No. 9/2025-Central Tax (Rate), effective from September 22, 2025, “Paper Sacks/Bags and bio-degradable bags” falling under Chapters 39 and 48 were specifically included in Schedule I, thereby attracting GST at the concessional rate of 5%. The applicant submitted that the specific notification entry should prevail over any general or residual classification. It contended that biodegradable bags, irrespective of whether they are manufactured from plastic-based compostable polymers or paper, were expressly covered by the concessional entry and therefore entitled to GST at 5%. The applicant also emphasized that the legislative intent behind the concessional rate was to promote environmentally friendly alternatives and reduce plastic pollution. The Authority examined the scope of its jurisdiction under Section 97(2) of the CGST Act and observed that while it is empowered to decide issues relating to classification and applicability of notifications, it is not competent to determine scientific or technical questions concerning whether a product is genuinely biodegradable or compostable. The AAR noted that although the applicant had produced certificates issued by notified agencies, such certificates alone could not authorize the Authority to undertake a technical determination regarding the actual biodegradability or compostability of the product. The AAR observed that the question of whether a product meets environmental, technical or scientific standards of biodegradability falls within the jurisdiction of competent environmental and technical authorities and not within the statutory mandate of the advance ruling authority. Consequently, the ruling proceeded on the basis of classification principles without entering into the scientific merits of the product’s biodegradability claims. On classification, the Authority held that if the bags are manufactured from polymer or compostable plastic material, they would be classifiable under Chapter 39 relating to plastics and articles thereof, specifically under Heading 3923 covering articles for the conveyance or packing of goods. On the other hand, if the bags are manufactured from paper, they would be classifiable under Chapter 48 relating to paper and paperboard articles. The Authority clarified that such classification is determined by the material composition of the product and remains independent of whether the material is biodegradable or not. While addressing the GST rate issue, the AAR referred to Entry No. 319 of Schedule I to Notification No. 9/2025-Central Tax (Rate), which prescribes GST at 5% for “Paper Sacks/Bags and bio-degradable bags” under Chapters 39 and 48. The Authority observed that the concessional rate is conditional in nature and becomes available only when the goods supplied are biodegradable within the meaning and context of the notification entry. The Authority ruled that if the bags supplied by the applicant are in fact biodegradable, the benefit of Entry No. 319 would be available and GST would be payable at 5% (2.5% CGST and 2.5% SGST). However, if the products are not biodegradable, the concessional entry would not apply and the applicable GST rate would be determined according to the general classification provisions applicable to plastic bags or other relevant goods. Ruling Details Applicant’s Name: M/S Sunita Kohli Citation: JURISHOUR-1459-AAR-2026(RAJ) Ruling Date: 27/03/2026 Click Here To Read Ruling Read More: Income Tax Revision Against Charitable Trust Over Rs. 6 Crore Utilisation of Accumulated Funds Quashed: Bombay High Court

5% GST Payable On Biodegradable Bags: AAR

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