The Tamil Nadu Authority for Advance Ruling (AAR) has held that kraft paper bags manufactured using kraft paper and adhesive glue attract 5% GST, with input tax credit available on inputs and input services used in their manufacture, subject to statutory conditions.
The bench of R.V. Pradhamesh Bhanu and B. Suseel Kumar classified the kraft paper bags under HSN 48194000 and held that they fall within the entry for paper sacks/bags and biodegradable bags under Serial No. 319 of Schedule I to Notification No. 9/2025-Central Tax (Rate), dated September 17, 2025.
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The bench also clarified that the products are not wholly exempt from GST.
The application was filed by Nagamanickam Sasipriya, trading as Priya Paper Products, a manufacturer based in Pollachi, Tamil Nadu.
The applicant manufactures kraft paper bags primarily used for packaging goods at pharmaceutical stores, grocery shops, sweet shops and other small businesses. The bags were described as plain or printed, uncoated, unbranded and without handles. They contain neither plastic nor lamination.
The applicant submitted that these bags are biodegradable and compostable, providing an environmentally friendly alternative to plastic packaging. It also highlighted that paper bag manufacturing is undertaken as a cottage industry and supports small-scale workers.
At the personal hearing, the applicant’s authorised representative, Advocate R. Hemalatha, stated that the enterprise was classifying its products under HSN 48193000 and paying GST at 18%.
It sought clarification on whether the bags qualified for the lower rate introduced through the September 2025 rate notification.
Dispute Over Competing Tax Entries
The uncertainty arose from two entries in Notification No. 9/2025-Central Tax (Rate).
Serial No. 319 of Schedule I covers paper sacks/bags and biodegradable bags falling under Chapters 39 and 48, attracting central tax at 2.5%. With the corresponding State tax, the total GST rate is 5%.
Serial No. 185 of Schedule II covers goods under heading 4819, except subheadings 481910 and 481920, attracting central tax at 9%, resulting in total GST of 18%.
The applicant argued that its bags should attract 5% GST because they are biodegradable, even though it understood them to fall within the broader entry attracting 18%.
It also asked whether the products were exempt from GST and whether input tax credit would remain available if they were taxable.
The Authority examined Chapter 48 of the tariff, which covers paper, paperboard and articles made from these materials. Heading 4819 includes bags and other packing containers made of paper, paperboard, cellulose wadding or webs of cellulose fibres.
It distinguished between HSN 48193000, covering sacks and bags having a base width of 40 cm or more, and HSN 48194000, covering other sacks and bags, including cones.
Although the applicant had classified its products under HSN 48193000, the Authority found that the bags did not have a base width of 40 cm or more.
Accordingly, it held that the applicant’s kraft paper bags were appropriately classifiable under HSN 48194000.
The Authority separately considered the applicant’s claim for exemption.
It examined Notification No. 10/2025-Central Tax (Rate), dated September 17, 2025, and the corresponding State exemption notification.
Finding that the products classified under HSN 48194000 were not covered by those notifications, the Authority ruled that the applicant’s paper bags were not exempt from GST.
The decision therefore distinguished between complete exemption and eligibility for a reduced tax rate.
While examining the applicable rate, the Authority found that Serial No. 319 of Schedule I expressly covered paper sacks/bags and biodegradable bags.
On a plain reading of that entry, it concluded that the applicant’s paper bags manufactured using kraft paper and adhesive glue were squarely covered by the description.
The Authority also observed that the reduced rate reflected the promotion of environmentally friendly alternatives to plastic. It discussed how paper made from natural plant fibres biodegrades through the action of microorganisms without leaving toxic microplastics in the environment.
Consequently, it held that the applicant’s bags attract 5% GST, comprising 2.5% CGST and 2.5% SGST, under Serial No. 319 of Schedule I to Notification No. 9/2025-Central Tax (Rate).
The Authority answered the applicant’s question on input tax credit in its favour.
It held that, since the outward supply of kraft paper bags is taxable at 5%, the applicant is eligible to claim input tax credit on inputs and input services used in their manufacture.
However, this entitlement remains subject to satisfying all conditions prescribed under Section 16 of the CGST/TNGST Act, 2017.
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