Biodegradable Bags Attract 5% GST, Subject To Biodegradability Claim: Gujarat AAR

The Gujarat Authority for Advance Ruling (AAR) has ruled that biodegradable and compostable bags manufactured by Greenomers Private Limited attract GST at the concessional rate of 5%, provided the company's claim that the products are biodegradable is valid.

The two-member Authority comprising SGST Member Sushma Vora and CGST Member Vishal Malani observed that the Government introduced the concessional rate to encourage the production of biodegradable bags as an eco-friendly alternative to conventional plastic bags.

“The very purpose of the Government in inserting this entry appears to be to promote the production of paper sacks/bags and bio-degradable bags which are eco-friendly and environmental friendly,” the Authority observed.

Greenomers manufactures biodegradable and compostable bags used for packaging, carrying and storing goods. According to the company, the bags are made using materials such as polylactic acid (PLA), starch-based polymers, polybutylene adipate terephthalate (PBAT), calcium carbonate and additives.

The company submitted that the bags are manufactured through a controlled blending and film-forming process and are designed to break down under industrial or home composting conditions.

The Authority rejected the company's proposed classification under HSN 39079990. Examining Chapter 39 of the Customs Tariff Act, 1975, it noted that Heading 3907 covers certain plastic raw materials in primary form, while the finished bags were not specifically covered under headings 3915 to 3925.

Heading 3926, which covers other articles of plastics, was therefore the appropriate classification. The Authority held that the bags fell under sub-heading 39269099.

On the applicable GST rate, the Authority examined Notification No. 09/2025-Central Tax (Rate), dated September 17, 2025. Entry 319 of Schedule I covers paper sacks/bags and biodegradable bags falling under Chapters 39 and 48, attracting GST at 5%. In comparison, Entry 127 of Schedule II covers other articles of plastics under Heading 3926 and attracts GST at 18%.

The Authority also examined discussions at the 54th GST Council meeting held on September 9, 2024, to understand the background behind introducing the concessional entry. During the meeting, the Maharashtra representative had proposed promoting paper bags as an alternative to plastic bags. The Meghalaya representative also highlighted the use of starch-based biodegradable bags and requested their inclusion in the proposal.

The Authority observed that the inclusion of Chapter 39 in Entry 319 appeared to be aimed at encouraging the production of biodegradable plastic bags.

To support its claim, Greenomers submitted a certificate issued by TÜV Rheinland, Germany, dated May 26, 2026, and an analysis report issued by the Institute of Petrochemicals Technology, Chennai, concerning a sample of compostable film.

The company also submitted documents issued by the Gujarat Pollution Control Board and proof of having applied to the Central Pollution Control Board for the requisite certification. The CPCB certificate was still awaited.

The Authority held that the bags were covered under Entry 319 of Schedule I and attracted GST at 5% (2.5% CGST and 2.5% SGST). The benefit was, however, made strictly conditional upon the validity of the company's claim that the bags were biodegradable.

Applicant's Representative: Maheshkumar K. Patel