GST Classification and 5% Tax Rate for Biodegradable Bags
The Authority for Advance Ruling clarified that biodegradable bags are taxed at 5% only if they meet specific technical standards.
- Ruling
- RAJ/AAR/2025-26/24, dated 27.03.2026
- Dated
- 27 Mar 2026
- Authority
- 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 company asked for the correct HSN classification for their biodegradable bags.
- The Authority ruled that classification depends on whether bags are plastic or paper.
- The 5% GST rate applies only if the bags are truly biodegradable.
- The Authority will not certify if a product meets environmental standards.
In short
M/s Sunita Kohli asked the Authority for Advance Ruling (AAR) in Rajasthan to classify their biodegradable bags and confirm if they qualify for a 5% Goods and Services Tax (GST) rate under Notification 9/2025-CTR.
What has changed
How it worked before
Businesses were often unsure if the 5% concessional rate applied automatically to any bag labeled as biodegradable or if they needed specific proof.
What has changed
The Authority decided that it cannot verify if a bag is technically biodegradable. It confirmed that plastic bags fall under Chapter 39 and paper bags under Chapter 48, but the 5% tax rate is conditional. You must prove your product meets the required standards to claim the lower rate.
Who this affects
Manufacturers and sellers of biodegradable or compostable packing materials.
An example
Imagine a business, GreenPack Solutions, sells bags made of compostable polymer. They want to apply the 5% GST rate. Based on this ruling, they must hold valid test reports proving the bags are biodegradable. If they simply apply the 5% rate without proof, the tax department may demand the difference if the bags are later found not to meet the standard.
What you should do
If you sell these bags, obtain independent technical certification that your product meets the required standards. Remember that this ruling only binds the company that asked; your local tax officer may still challenge your classification if you lack proper documentation.
If you do nothing
If you apply the 5% rate without proof and a tax officer disagrees, you may be liable for the tax shortfall, interest, and penalties. An Advance Ruling is not a blanket law, so assuming it protects your business could lead to costly disputes during an audit.
The terms explained
- HSN
- Harmonized System of Nomenclature is a code used to classify goods for taxation purposes.
- Advance Ruling
- A decision by tax authorities on a specific question asked by a business to clarify how tax rules apply to their situation.
- Chapter 39
- A section of the tax classification system that covers plastics and articles made of plastic.
- Chapter 48
- A section of the tax classification system that covers paper, paperboard, and articles made of paper pulp.
The ruling in detail
Authority for Advance Ruling
M/s Sunita Kohli
RAJ/AAR/2025-26/24, dated 27.03.2026 · Rajasthan
Questions before the authority
- Whether the Applicant's biodegradable bags are classifiable under Chapter 39 (if of plastic/compostable polymer) or Chapter 48 (if of paper), and the appropriate HSN therein.
- Whether supplies of the said biodegradable bags are covered by the entry 'Paper Sacks/Bags and bio-degradable bags' (Ch. 39, 48) in Schedule I of Notification 9/2025-CTR, attracting 5% GST (2.5% CGST + 2.5% SGST), w.e.f. 22-Sep-2025.
Facts
The applicant is a proprietorship concern engaged in the manufacturing and selling of various types of packing material, including biodegradable and compostable bags. They sought a ruling on the correct HSN classification and the applicability of a concessional 5% GST rate under Notification No. 9/2025-Central Tax (Rate) for these products. The applicant claims their products conform to IS/ISO 17088 standards.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification/HSN | Classifiable under Chapter 39 (if plastic/compostable polymer) or Chapter 48 (if paper). The Authority did not determine the specific material composition of the applicant's products. |
| Applicability of 5% GST rate | Applicable if the goods are biodegradable. The benefit is conditional; if the product is not biodegradable, the general classification and rate apply. |
The Authority held that it lacks the jurisdiction to certify whether a product meets specific environmental or technical standards for biodegradability. It ruled that if the bags are made of polymer or compostable plastics, they fall under Chapter 39, and if made of paper, they fall under Chapter 48. The concessional 5% GST rate is applicable only if the goods are indeed biodegradable as per the notification.
Reasoning
The Authority determined that its mandate under Section 97(2) of the CGST Act is limited to classification and notification applicability, not technical certification of product standards. It observed that bags made of polymer are classified under Chapter 39 (specifically 3923) and paper bags under Chapter 48, regardless of their biodegradability. It further noted that the concessional rate under Entry 319 of Schedule I to Notification No. 9/2025-Central Tax (Rate) is **conditional in nature**, applying only if the goods satisfy the requirement of being biodegradable.
Provisions relied on
- Section 97(2) of the CGST Act, 2017
- Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025
For the practitioner
This ruling clarifies that the AAR will not verify technical claims regarding biodegradability, leaving that burden on the taxpayer. It confirms that the **concessional 5% GST rate** is strictly conditional upon the product meeting the definition of biodegradable. Practitioners should ensure they have independent, valid technical certifications to support the application of this concessional rate.
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/AAR/order_sunita_kohli.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
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