2019 (7) TMI 1335 - AAAR - GST

Classification of goods - Input Tax Credit - waste or not - Mahua De-oiled cake/ De-oiled Rice Bran being used as an ingredient of Cattle Feed, Poultry Feed and other animal feeds - 'Waste generated' during the Solvent Extraction process or not? - scope of supply - HELD THAT - The sale of de-oiled cake is undoubtedly 'supply'. Activities which are not supply are categorically outlined in the GST Act itself. Anything not covered by the exclusion will fall under the ambit of supply. Therefore, it is hard to comprehend the rationale of the appellant in not considering de-oiled cake as supply, since the definition (as quoted above) leaves no ambiguity that anything that is sold with or without consideration, is supply. 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. De-oiled Rice Bran has been fully exempted from CGST vide Entry No. 102A of Notification No. 7/2018-C.T. (R), dated 25-1-2018. 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 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-oiled Mahua cake' is classifiable under Heading 2306 of Chapter 23 of Customs Tariff Act - Since 5% GST is applicable on file goods falling under Chapter Heading 2306, under Notf. No. 1/2017-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.

Issues Involved:
1. Classification of de-oiled Mahua cake under the CGST Tariff.
2. Application of Chapter 23 note for exclusion of Mahua de-oiled cake.
3. Determination of Mahua de-oiled cake as unintended waste or by-product.
4. Overriding of specific entry by residual entry in the tariff.
5. Eligibility for input tax credit on GST paid for Mahua oil cake.
6. Applicability of Section 17(2) of the CGST Act, 2017.

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 2306 90 11 or 2306 90 90 of the CGST Tariff. The authority concluded that de-oiled Mahua cake is not covered under Heading 2304 or 2305 and should be classified under Heading 2306 of Chapter 23 of the Customs Tariff Act. This classification implies that 5% GST is applicable on goods falling under Chapter Heading 2306, allowing the appellant to avail input tax credit on the same.

2. Application of Chapter 23 Note for Exclusion:
The authority discussed whether the chapter note to Chapter 23 of the GST Tariff would exclude Mahua de-oiled cake from Chapter 2309. It was determined that the product is not covered under Headings 2304 or 2305, supporting the classification under Heading 2306. The chapter note does not exclude Mahua de-oiled cake from Chapter 2309.

3. Determination of Mahua De-oiled Cake as Waste:
The appellant argued that de-oiled cake is a waste generated during the solvent extraction process. However, the authority found that de-oiled cake is neither waste nor a by-product. It is a commercially viable product that undergoes a desolventising process, chemical testing, and packaging, making it an intended product. The authority cited the Supreme Court case of State of Karnataka v. M.K. Agro Tech (P) Ltd., where de-oiled cake was considered goods and its sale was significant for revenue generation.

4. Overriding of Specific Entry by Residual Entry:
The appellant contended that the classification under a specific entry should not be overridden by a residual entry. The authority agreed, stating that de-oiled Mahua cake merits classification under the specific entry of Chapter 2306 and should not be consigned to a residual item. This ensures proper classification and applicable tax rates.

5. Eligibility for Input Tax Credit on Mahua Oil Cake:
The appellant sought full input tax credit for GST paid on Mahua oil cake used in the manufacture of solvent extracted oil. The authority ruled that input credit attributable to the supply of de-oiled rice bran cake (an exempted supply) must be reversed in terms of Section 17(2) of the CGST Act, 2017. However, GST @ 5% is payable on the supply of de-oiled Mahua cake, allowing input credit in terms of Section 16 of the CGST Act, 2017.

6. Applicability of Section 17(2) of the CGST Act, 2017:
The appellant argued that Section 17(2) does not apply to the involuntary generation of waste. The authority disagreed, stating that de-oiled cake is not waste but a product resulting from the manufacturing process. As such, Section 17(2) applies, requiring the reversal of input credit for exempted supplies like de-oiled rice bran cake. The authority emphasized that the sale of de-oiled cake is considered a supply under the GST Act, and activities not considered supply are explicitly outlined in the Act.

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

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