2018 (12) TMI 142 - AAR - GST

Classification of goods - rate of GST - Neem Seed - neem seeds in frozen or dried form - neem seed powder - classification under HSN Code 1211 - whether classified under 0% GST Rate or 5% CST Rate - Held that - From the entries under HSN code 1211 there is no ambiguity that Plants and parts of plants (including seed and fruits) used as fresh or chilled would be tax free, whereas plants and parts of plants (including seed and fruits) used as frozen or dried, whether or not cut, crushed or powdered would be taxable @ 5% GST - It is also observed that under HSN code - 1209, the Seed useful for sowing i.e. Seeds, fruit and spores of a kind used for sowing is tax free. The crucial determination point here in this entry is the word sowing . Thus in case the quality of seed is not suitable for sowing, it cannot be treated as of seed quality, thereby making it exigible to GST @ 5%. Currently in commercial sector dry neem fruit is not identifiable with seed for sowing . The Neem fruit is known as Nimouli in Chhattisgarh and is collected in both fresh and dry forms and is used for making neem oil only, after drying the neem seed. Dry neem fruit is not generally used for trading for horticulture or agro-based commercial purpose i.e. dry neem fruit is not identifiable with seed commercially. Thus on the basis of common parlance or trade parlance theory too propagated by the applicant, the goods intended to be supplied by the applicant can by no stretch of imagination be categorized as those attracting tax @ 0%. The said goods to be supplied by the applicant does not fulfill the conditions mentioned under HSN code 1209 and 1211 neither in the specific form nor specific use , as stipulated under GST Act to be categorized as attracting tax @ 0%. Ruling - Supply of neem seeds in frozen or dried form for the purpose as specified by the applicant and the said seeds being not of seed quality, supplied by the agro-division business of the applicant would merit being taxable at 2.5% SGST and 2.5% CGST. Supply of neem seed powder for the intended purpose as specified by the applicant, supplied by the agro-division business of the applicant would be taxable at 2.5% SGST and 2.5% CGST.

Issues Involved:
1. Classification of Neem Seed under GST.
2. Applicable GST rate for Neem Seed.
3. Interpretation of "seed quality" under GST legislation.
4. GST rate on Neem Seed powder.
5. GST rate on Neem oil extraction and sale.
6. GST rate on organic manure made from Neem.

Comprehensive, Issue-Wise Detailed Analysis:

1. Classification of Neem Seed under GST:
The applicant, M/s G.N. Chemicals, sought clarification on the classification of Neem Seed under HSN Code 1211, which includes "Plants and parts of plants (including seed and fruits), of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal or similar purpose, frozen or dried, whether or not cut, crushed or powdered." The applicant contended that Neem Seed should be classified under 0% GST as it falls under "All goods of seed quality."

2. Applicable GST Rate for Neem Seed:
The applicant argued that Neem Seed, whether used for sowing, industrial, or medicinal purposes, should be classified under 0% GST. However, the Advance Ruling Authority clarified that Neem Seed in "fresh or chilled" form falls under 0% GST, whereas in "frozen or dried" form, it attracts 5% GST (2.5% CGST and 2.5% SGST). The classification depends on the form in which the Neem Seed is supplied.

3. Interpretation of "Seed Quality" under GST Legislation:
The term "seed quality" was not defined in the GST legislation. The applicant argued that in the absence of a specific definition, common parlance or trade parlance should be used. The Authority, however, emphasized that "seed quality" refers to seeds suitable for sowing, possessing attributes like purity, germination, and health standards. The Seeds Act, 1966, provides guidelines for determining seed quality, which includes the capacity for germination and meeting certification standards.

4. GST Rate on Neem Seed Powder:
The Authority ruled that Neem Seed powder, being a processed form of Neem Seed, would attract 5% GST (2.5% CGST and 2.5% SGST). This classification is consistent with the treatment of other processed forms of plants and parts of plants under HSN Code 1211.

5. GST Rate on Neem Oil Extraction and Sale:
The Authority confirmed that Neem oil extraction and its sale would also attract 5% GST (2.5% CGST and 2.5% SGST). This decision aligns with the classification of Neem Seed under HSN Code 1211, which includes parts of plants used for various purposes, including oil extraction.

6. GST Rate on Organic Manure Made from Neem:
The Authority did not provide a ruling on the GST rate for organic manure made from Neem due to insufficient information about the procedure involved in making the manure. The classification and applicable GST rate would depend on whether the manure meets the criteria for being classified as organic.

Conclusion:
The Authority for Advance Ruling concluded that:
1. Supply of Neem Seed in "frozen or dried" form would be taxable at 5% GST (2.5% CGST and 2.5% SGST).
2. Supply of Neem Seed powder would be taxable at 5% GST (2.5% CGST and 2.5% SGST).
3. Neem oil extraction and its sale would be taxable at 5% GST (2.5% CGST and 2.5% SGST).
4. The classification of organic manure made from Neem could not be determined due to a lack of procedural details.

The ruling emphasized the importance of the form and quality of Neem Seed in determining the applicable GST rate.

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