Biodegradable Carry Bags and GST: Scope of AAR, HSN Classification and Concessional Rate Conditions

Background of the Advance Ruling

The Authority for Advance Ruling, Rajasthan, in the matter of In re Sunita Kohli, dealt with a specific query on how biodegradable/compostable carry bags are to be classified under GST, and whether they are eligible for the reduced GST rate prescribed for certain “Paper Sacks/Bags and bio-degradable bags” under Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025, effective from 22.09.2025.

The applicant, M/s SKP Enterprises, a proprietorship concern in the name of Mrs. Sunita Kohli, is engaged in manufacturing and supplying various types of packing materials, particularly carry bags, including a substantial line of compostable (biodegradable) bags. Historically, these bags were treated as plastic packing materials falling under HSN 3923 29 90 and subjected to 18% GST.

After the issuance of Notification No. 9/2025-Central Tax (Rate), the assessee sought clarity on:

  1. The correct classification/HSN of its biodegradable bags, and
  2. Eligibility for the 5% GST rate under Entry No. 319 of Schedule I of the said Notification.

The AAR examined the legal framework, the nature of the products, the wording of the notification, and—crucially—the limits of its own jurisdiction under the GST Act.

Applicant’s Business and Factual Submissions

Nature of Activities

  • The assessee manufactures and supplies different kinds of carry bags used as packing material.
  • A major product line consists of bags claimed to be compostable/biodegradable, previously classified as:
    • HSN 3923 29 90
    • Chapter 39 – “Plastics and articles thereof”
    • Description: “Other sacks and bags, of plastics”
  • Up to 21.09.2025, these items were taxed at 18% (9% CGST + 9% SGST).

Evidence of Biodegradability

The assessee placed on record:

  • Certificate issued by CPCB authorising manufacture and sale of compostable bags,
  • Laboratory test reports from CIPET, and
  • Sample tax invoices indicating ongoing supply of such compostable/biodegradable bags.

These documents were presented to demonstrate that the products meet recognised biodegradable/compostable standards.

Trigger for Seeking the Ruling: New Concessional Entry

Relevant Notification

With effect from 22.09.2025, Notification No. 9/2025-Central Tax (Rate) inserted an entry in Schedule I (2.5% CGST, resulting in 5% total GST) in respect of:

“Paper Sacks/Bags and bio-degradable bags” mapped to Chapters 39 and 48.

The assessee relied on this notification to argue that:

  • All biodegradable bags, whether made from plastic/compostable polymers (Chapter 39) or paper (Chapter 48), are specifically covered under this concessional rate entry;
  • Once covered by this specific entry, such products should not be relegated to any higher-rated general/residual entry such as 3923 29 90.

Accordingly, while the precise 8-digit HSN might vary with material composition and dimensions, the assessee contended that the applicable GST rate from 22.09.2025 onwards should be 5%, by virtue of this dedicated entry.

1. Coverage by Specific Entry

The assessee interpreted Notification No. 9/2025-Central Tax (Rate) to mean that:

  • “Paper Sacks/Bags and bio-degradable bags/Compostable Bags” explicitly appear against Chapters 39 and 48 in Schedule I;
  • Therefore, any biodegradable bag—whether polymer-based, compostable, or paper-based—automatically falls under this concessional category.

2. Principle of Specific vs General Entry

Relying on settled classification principles and CBIC guidance, the assessee stressed that: