2019 (3) TMI 1954 - AAAR - GST

Classification of goods - rejected wheat seeds - rejected paddy seeds - to be classified under Chapter 12 of the GST Tariff - HELD THAT - A seed is liable to be rejected for not fulfilling any or all of the above characteristics. But this rejection only means that it has failed to pass the set parameters for a good quality seed. Such rejections cannot change its inherent character of being a grain of 'seed quality'. A pair of shoes manufactured by a branded company often gets rejected on quality issues, but it still will remain a pair of shoes, albeit with an added adjective 'rejected'. So, Sri Chandra's reasoning that once the seed is rejected it no longer remains a seed, is also not acceptable. For these reasons, 'rejected wheat or paddy seeds' cannot be covered by Entry Serial 63 covering Chapter 12 of the GST Tariff. The seeds of both wheat and paddy, rejected or otherwise, are also appropriately classifiable under Chapter 10 of the tariff ibid. In fact there are specific entries in the tariff. Chapter sub heading 1001 11 00 covers seeds of Durum wheat while 1001 91 00 covers seeds of other varieties of wheat. Similarly, Chapter sub heading 1006 10 10 covers paddy (rice) of seed quality. However, we find that 'NIL' rate of GST is applicable on these goods. If the rejected seeds are put up in a unit container and bearing a registered brand name or bearing a brand name on which an actionable claim or enforceable right in respect of such brand name has been foregone voluntarily, then the effective CGST SGST rate on both will be 2.5% 2.5%.

Summary

Issues:
Classification and applicability of GST rate on 'Rejected Wheat Seed' and 'Rejected Paddy Seed'

Analysis:
The judgment involves a reference to the Appellate Authority for Advance Rulings due to divergent views of the members of the Advance Ruling Authority for the state of Uttarakhand regarding the classification and leviability of GST on the supply of 'Rejected Wheat Seed' and 'Rejected Paddy Seed'. One member opined that these seeds should be taxed at 5%, while the other member suggested a 'Nil' tax rate based on the Customs Tariff classification. The Appellate Authority delved into the matter to resolve the discrepancy.

The Appellate Authority scrutinized the arguments presented by both members of the Advance Ruling Authority. It was noted that the GST Tariff specifically covers all cereals, including wheat and rice, under Chapter 10. The term 'seed quality' indicates a distinct category of grains that are controlled cultivated with specific characteristics. Rejected seeds, although failing certain quality parameters, do not lose their inherent character as grains of 'seed quality'. Therefore, the rejected wheat and paddy seeds cannot be classified under Chapter 12 of the GST Tariff but are appropriately classifiable under Chapter 10.

The Appellate Authority partially agreed with the view that 'rejected wheat seeds' and 'rejected paddy seeds' fall under specific sub-headings in the GST Tariff, namely 1001 11 00 and 1001 91 00 for wheat seeds, and 1006 10 10 for paddy seeds. It was determined that a 'Nil' GST rate is applicable to these goods. However, if the rejected seeds are packaged in unit containers with a registered brand name, the effective CGST & SGST rate would be 2.5% each.

In conclusion, the ruling provided by the Appellate Authority states that 'Rejected Wheat Seed' is classified under Chapter subheadings 1001 11 00 (Durum) and 1001 91 00 (Others) of the GST Tariff 2017, while 'Rejected Paddy Seed' is classified under 1006 10 10 of the GST Tariff 2017. The applicable CGST & SGST rate for both goods is 'Nil', with a provision for a 2.5% rate if specific packaging conditions are met.