The West Bengal Authority for Advance Rulings (AAR) has clarified the classification and tax treatment of ruled/lined paper sheets produced by Mangalam Kallani HUF. The company processes uncoated paper reels into notebook-sized sheets with ruling lines, supplying them to notebook manufacturers. They classified these under HSN 48025790, claiming a NIL GST rate based on their exclusive use for notebooks, as per Sl. No. 128 of Notification No. 10/2025-CT (Rate). However, the Revenue disputed this, arguing the exemption hinges on actual use at each supply stage, not merely the final product's use.
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The AAR ruled that uncoated paper falls under tariff heading 480261 when in rolls and 480262 when in sheets. The NIL-rate exemption applies only if the paper is actually used by the recipient for manufacturing specified exercise books or notebooks. Consequently, intermediate processors like Mangalam Kallani cannot claim the exemption solely because the paper will eventually be used for notebooks. The ruling emphasized that each supply is independent, and the exemption applies only when the recipient is a verified manufacturer of the specified products.
Additionally, the AAR clarified that Mangalam Kallani is not liable to pay tax under reverse charge for its inward paper reel purchases, as the goods are not notified under Section 9(3). Their eligibility for Input Tax Credit (ITC) is governed by Section 16 and the relevant rules.
Order Date - 01 September 2026
Facts -
- Mangalam Kallani HUF manufactures ruled/lined paper sheets by processing uncoated paper reels, cutting them into notebook-sized sheets and applying ruling/graph/margin lines and supplies them to notebook and exercise-book manufacturers.
- The Applicant classified its finished ruled sheets under HSN 48025790 and claimed NIL GST under Sl. No. 128 of Notification No. 10/2025-CT (Rate), on the basis that the sheets were exclusively used for making exercise books, graph books and notebooks.
- The dispute arose because the Revenue contended that the NIL-rate exemption was end-use based and applicable independently to each supply, and therefore could not automatically flow through intermediaries merely because the ultimate product was an exempt notebook.
- The Applicant also questioned the NIL-rate treatment on its inward purchase of paper reels from paper mills and sought clarity on its GST liability and eligibility for ITC if tax were subsequently charged.
Issue -
- Whether ruled/lined paper sheets remain classifiable under Heading 4802 and whether the NIL-rate exemption under Sl. No. 128 can be claimed at every stage of the supply chain based on the ultimate end-use of the paper.
Order -
- The Authority determined that the uncoated paper is covered under tariff heading 480261 / tariff item 48026190 when supplied in rolls, and under heading 480262 / tariff item 48026290 when supplied in sheets.
- The NIL-rate exemption is based on actual use, not merely the intention that the goods will eventually be used for notebooks. Each supply in the chain is treated as an independent supply, and exemption is available where the recipient is established as a manufacturer of the specified exercise books/notebooks and the paper is actually used for that purpose.
- Accordingly, the paper mills' supply to the Applicant as an intermediate processor cannot claim the NIL-rate merely because the paper will ultimately reach notebook manufacturers.
- However, the Applicant itself is not liable to pay the tax as recipient under reverse charge because the goods had not been notified under Section 9(3); any ITC would be governed by Section 16 and the applicable rules.
