GST Appellate Authority Split Verdict on Tea Bag Packing Services
The Appellate Authority for Advance Ruling could not decide if tea bag packing is manufacturing or packaging, leaving the tax rate uncertain.
- Ruling
- Appeal Case No. 04/WBAAAR/APPEAL/2019 dated 28.02.2019 (Order dated 15.05.2019)
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The authority split on whether packing tea bags is manufacturing or packaging.
- No final ruling was issued due to this disagreement.
- The previous advance ruling is no longer in operation.
In short
The Appellate Authority for Advance Ruling (AAAR) in West Bengal was asked to decide if packing tea into bags for a client is a manufacturing service or a packaging service. Because the two members could not agree, they could not issue a final decision. This means the tax rate for this specific activity remains legally unsettled.
What has changed
How it worked before
Businesses were looking to this ruling to clarify whether contract packing of tea bags should be taxed at 5% as a manufacturing service or 18% as a packaging service.
What has changed
The authority issued a split verdict, which means no official guidance was provided. In practice, this leaves the classification of tea bag packing services in a state of ambiguity.
Who this affects
Businesses that provide contract packing services for tea or similar food products.
An example
Imagine a company that packs spices into small sachets for a larger brand. They might hope this ruling tells them whether to charge 5% or 18% GST. Because this ruling resulted in a split decision, it offers no guidance for the spice company. They must continue to assess their own tax position based on their specific contract and the current GST law.
What you should do
Since this ruling provides no final answer, you cannot rely on it to set your tax rate. An advance ruling only binds the specific business that asked for it and their local tax office; it does not set a national law for other businesses.
If you do nothing
If you assume this ruling allows you to choose a lower tax rate, you risk a tax audit. If a tax officer disagrees with your classification, you may be liable for the unpaid tax, interest, and potential penalties. Relying on an inconclusive ruling does not protect you from these consequences.
The terms explained
- Advance Ruling
- A written decision from tax authorities that clarifies how GST applies to a specific business activity.
- Split Verdict
- A situation where the members of a panel cannot agree on a decision, resulting in no official ruling being issued.
- SAC
- Services Accounting Code, a system used to classify services for GST purposes to determine the correct tax rate.
The ruling in detail
Appellate Authority for Advance Ruling
Joint Commissioner (in-situ), CGST & CX, Ballygunge Division, Kolkata South Commissionerate
Appeal Case No. 04/WBAAAR/APPEAL/2019 dated 28.02.2019 (Order dated 15.05.2019) · West Bengal
Questions before the authority
- Classification of the services provided in packing of tea bags
- Rate of GST on the said service
Facts
The Respondent, M/s Vedika Export Tea Pvt. Ltd., acts as a contract packer for M/s Hindusthan Unilever Ltd. (HUL). HUL provides all raw materials, including tea and packaging materials, and the Respondent performs the service of packing the tea into tea bags. The dispute arose over whether this activity constitutes a manufacturing service or a packaging service.
Ruling
The members of the Appellate Authority differed in their opinion regarding the classification of the service. Consequently, as per the provisions of section 101(3) of the GST Act, it is deemed that no Advance Ruling can be issued in respect of the questions under appeal. The original Advance Ruling No. 36/WBAAR/2018-19 is deemed to be not in operation.
Reasoning
The members disagreed on whether the process of filling tea into tea bags constitutes 'manufacturing' under section 2(72) of the GST Act. One member held that the process creates a distinct product and qualifies as a manufacturing service under SAC 9988, taxable at 5%. The other member concluded that the activity does not change the nature of the tea and is a packaging service under SAC 9985, taxable at 18%. Due to this **divergence of opinion** between the two members, the authority could not reach a final ruling.
Provisions relied on
- Section 2(72) of the GST Act
- Section 100(1) of the West Bengal Goods and Services Tax Act, 2017
- Section 101(3) of the GST Act
- Schedule II of the GST Act
- Notification No. 11/2017-CT (Rate) dated 28.06.2017
For the practitioner
This order serves as a **precedent for a split verdict** where no ruling is issued due to a disagreement between members of the Appellate Authority. It highlights the ongoing ambiguity in classifying contract packing of tea bags as either manufacturing or packaging services. Practitioners should note that this specific order does not provide a definitive classification or tax rate for the activity.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/wb_aaar_04_2019_28.02.2019.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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