2019 (12) TMI 1573 - AAAR - GST

Classification of goods - applicable rate of GST - Anaerobic Microbial Inoculurns (AMI) - to be classified under chapter sub-heading 31010099 of the heading 3101 of the GST Tariff or not - HELD THAT - Though the authorized representatives of the party had contended that the alternate use of AMI was as organic manure, the website of the party viz. www.elefobiotech.com , does not show organic manure as one of its manufactured products. The said website, while describing AMI, states inter alia- AMI are bacterial consortium which converts fecal matter into gases and water. From the same site also states inter alia- During the Bio-degradation of the faecal matter, CO 2 , Methane and water are generated along with very little sludge. The capability of AMI to bio-degrade faecal matter is the reason why AMI is used in Bio digester toilets by Indian Railways. The whole process is eco-friendly and waste is broken down into gases and water. The remaining sludge is minimum quantity which may or may not be used as organic manure. The contention put during the time of hearing that the dung with AMI can be used as fertiliser appears to be a weak attempt to justify their claim of the product as fertilizer. The dung is used as the base for the culture of AMI and this AMI growth in no way adds to the fertilizing property of dung. Moreover, the company is manufacturing and selling AMI for bio degrading human waste and not AMI infused dung as fertilizer. Thus, it is not the AMI which is organic manure but at the most the products resulting out of its actions which can be put into use as manure, though that too has not been claimed. Though the Ld AAR has discussed the nature of AMI in their ruling quite elaborately, but appear to have failed to understand the issue in the proper perspective. Obviously, the contention of the authorized representatives is wrong and the inference drawn by the Ld. AAR on the issue is also completely inaccurate and misconceived. Therefore, by no stretch of imagination can AMI be considered as organic manure and hence it cannot be classified under HSN 3101. In the present case, on a detailed scrutiny of the details of AMI as submitted by the party as well as the description given on their website and other relevant information, it is found that the product 'AMI' are not any product of living cell or organism,' rather they are themselves culture/colonies of bacteria put in the medium of dung. They are also not acting as a catalyst in the strict sense rather they digest the waste products releasing water and gases as by products. Therefore. 'AMI' cannot be classified under the heading of 'Enzyme' as contended in the appeal filed by the CGST officer. During the hearing the party's representative Shri Bathla also stated that their product may get covered as live bacteria. Anaerobic Microbial lnoculum (AMI) is to be classified under GST Tariff heading No. 3002 (Sub heading 30029030) on which the applicable rate of GST is 12%.

Summary

Issues Involved:
1. Classification of Anaerobic Microbial Inoculums (AMI) under GST.
2. Applicable GST rate for AMI.

Issue-wise Detailed Analysis:

1. Classification of Anaerobic Microbial Inoculums (AMI) under GST:

The core issue revolves around the correct classification of Anaerobic Microbial Inoculums (AMI) under the GST Tariff. The original ruling by the Authority for Advance Ruling (AAR) classified AMI under chapter sub-heading 31010099, which pertains to animal or vegetable fertilizers or organic fertilizers, attracting a GST rate of 5%. However, the department appealed against this classification, arguing that AMI should be classified under chapter sub-heading 35079069, which covers enzymes and prepared enzymes, attracting a GST rate of 18%.

The department's argument was based on the premise that AMI acts as an enzyme facilitating the decomposition of biological waste, thus fitting more appropriately under chapter heading 3507. They contended that AMI's primary function is to decompose biological waste into usable water and gases, a characteristic of enzymes, rather than functioning as a fertilizer.

Upon review, the Appellate Authority found that AMI is not an enzyme in the strict sense but rather a culture or colony of bacteria that digests waste products, releasing water and gases as by-products. Therefore, AMI does not fit the classification under heading 3507 as enzymes. Instead, the Appellate Authority concluded that AMI should be classified under HSN 3002, which pertains to cultures of micro-organisms (excluding yeasts) and similar products.

2. Applicable GST Rate for AMI:

Given the reclassification of AMI under HSN 3002, the applicable GST rate changes. The Appellate Authority determined that the appropriate GST rate for products under HSN 3002 is 12% (6% CGST + 6% SGST), as specified in SI. 61 of notification No.1/2017-Central Tax (Rate), dated 28th June 2017, as amended from time to time.

Discussion and Findings:

The Appellate Authority analyzed the nature and use of AMI extensively. They noted that while the manufacturers claimed that AMI could be used as organic manure, this was not supported by the product description on their website, which emphasized AMI's role in converting fecal matter into gases and water. The Authority concluded that the primary function of AMI is not as a fertilizer but as a bacterial culture facilitating the biodegradation of waste.

The Authority also considered the department's contention that AMI should be classified as an enzyme but found it lacking. They clarified that enzymes are products of living cells acting as catalysts, whereas AMI consists of bacterial cultures that digest waste. Therefore, AMI does not meet the criteria for classification as an enzyme under heading 3507.

Ruling:

The Appellate Authority ruled that Anaerobic Microbial Inoculums (AMI) should be classified under GST Tariff heading No. 3002 (Sub heading 30029030), with an applicable GST rate of 12% (6% CGST + 6% SGST). Consequently, the original ruling by AAR, Uttarakhand, classifying AMI under chapter sub-heading 31010099 and attracting a 5% GST rate, was set aside and modified accordingly.