2019 (3) TMI 1867 - AAAR - GST

'Waste generated' during the Solvent Extraction process or not - Mahua De-oiled cake/ De-oiled Rice Bran being used as an ingredient of Cattle Feed, Poultry Feed and other animal feeds - input tax credit of GST paid on purchase of Mahua Oil Cake/Rice Bran Oil cake - HELD THAT - The de-oiled cake is neither a waste nor a by product and hence all the cited case laws become irrelevant to the present case. In fact two equally and completely commercially viable products emerge during the manufacturing process of solvent extraction viz. the oil and the de-oiled cake. Both these products are sold by a company with equal emphasis and both are commercially lucrative to the solvent extractor. In fact, the pellets undergo Desolventising process i.e. separation of normal-Hexane from the De-oiled bran subsequent to which the de-oiled bran is chemically tested for their oil and silica content to meet clients' specifications and finally it is sent to the bagging section for packing into branded unit packaging. It is unimaginable that investment into a desolventising plant and bagging unit will be made for a product which is allegedly 'unintended' or 'mere technical necessity'. In fact the de-oiled cake is a very much intended product in as much as it may affect the overall financial health of the company. Thus, through an elaborate process, chemical testing and packing, the de-oiled cakes are finally manufactured made marketable. So, the appellant's contention that the de-oiled cake is not manufactured but is generated during the course of manufacture of extracted oil, is contrary to the technical position and facts. Having settled the issue of sale of de-oiled cake being supply, it can be concluded that Section 17(2) of the GST Act 2017 is very much applicable. But first it has to be decided as to whether the specific items are exempted - De-oiled Rice Bran has been fully exempted from CGST vide entry no. 102A of Notification No.07/2018-CT(R) dated 25.01.2018. So, in terms of Section 17(2) of CGST Act 2017, the input credit attributable to the supply of this exempted goods i.e. de-oiled rice bran has to be reversed by the appellant. Classification of product de-oiled mahua cake - HELD THAT - The product de-oiled mahua cake is not covered under heading 2304 or 2305 as different products have been classified under the same. Accordingly, we find support in the claim of the noticee that de-oilded mahua cake' is classifiable under heading 2306 of chapter 23 of Customs Tariff Act - Since 5% GST is applicable on the goods falling under chapter heading 2306, under nod. No. 01/2017 Central Tax (rate) dated 28 June, 2017, as amended, the appellant is required to pay GST @5% on the supply of de-oiled Mahua cake accordingly entitled to avail input tax credit on the same.

Summary

Issues Involved:
1. Classification of de-oiled Mahua cake under the CGST Tariff.
2. Whether the chapter note to Chapter 23 of the GST Tariff excludes Mahua de-oiled cake from Chapter 2309.
3. Whether Mahua de-oiled cake is an unintended waste/solid residue.
4. Applicability of residual entry over specific entry for classification.
5. Eligibility of input tax credit on the purchase of Mahua oil cake.
6. Applicability of Section 17(2) of the CGST Act, 2017 when classification under Chapter 2306 is final.

Issue-wise Detailed Analysis:

1. Classification of De-oiled Mahua Cake:
The appellate authority examined whether de-oiled Mahua cake should be classified under Chapter 23069011 or 23069090 of the CGST Tariff. The authority concluded that de-oiled Mahua cake falls under Chapter 2306, which covers "Oil-cake and other solid residues, whether or not ground or in the form of pellets, resulting from the extraction of vegetable fats or oils, other than those of heading 2304 or 2305." This classification aligns with the Customs Tariff Act and ensures that the product is not misclassified under residual entries.

2. Chapter Note to Chapter 23 of GST Tariff:
The authority deliberated on whether the chapter note to Chapter 23 has an overriding effect that excludes Mahua de-oiled cake from Chapter 2309. It was found that the specific classification under Chapter 2306 should prevail, and the chapter note does not exclude Mahua de-oiled cake from being classified under this heading.

3. Mahua De-oiled Cake as Waste:
The appellant argued that Mahua de-oiled cake is an unintended waste generated during the solvent extraction process. However, the authority determined that de-oiled cake is not waste but a commercially viable product. The manufacturing process includes desolventising, chemical testing, and packaging, indicating that the de-oiled cake is an intended product, not merely a by-product or waste.

4. Specific vs. Residual Entry for Classification:
The authority emphasized the importance of classifying products under specific entries rather than residual ones. It was concluded that de-oiled Mahua cake should be classified under the specific entry of Chapter 2306, as it fits the description provided and should not be relegated to a residual category.

5. Input Tax Credit on Mahua Oil Cake:
The eligibility for input tax credit on the purchase of Mahua oil cake was scrutinized. The authority ruled that input tax credit is partially allowed as per the provisions of Chapter V of the GST Rules, 2017. Since the appellant manufactures both taxable and exempted goods using common inputs, they must reverse the credit proportional to the exempted supplies.

6. Applicability of Section 17(2) of the CGST Act, 2017:
The authority confirmed that Section 17(2) of the CGST Act, 2017, applies to the case. This section mandates the reversal of input tax credit attributable to exempted supplies. Given that de-oiled rice bran is exempted, the appellant must reverse the input credit related to its supply. For de-oiled Mahua cake, classified under Chapter 2306, GST at 5% is payable, and input tax credit is allowed.

Ruling:
- Input credit attributable to the supply of de-oiled rice bran cake (exempted supply) must be reversed by the appellant as per Section 17(2) of the CGST Act, 2017.
- GST at 5% is payable on the supply of de-oiled Mahua cake, with input credit allowed in terms of Section 16 of the CGST Act, 2017.