2021 (10) TMI 59 - AAAR - GST

Classification of goods - HSN Code - Organic manure - classified under Chapter subheading No.31059090 on which GST liability was 5% or otherwise - Bio-fertilizers - classified under Chapter sub-heading No.30029030 on which GST liability was 12% or otherwise - Nitrogeneous mixture fertilizers - classified under Chapter sub-heading No.31029090 on which GST liability was 5% or otherwise? - Mixture of fertilizers - classified under Chapter sub-heading No.31059090 on which GST liability was 5% or otherwise? - HELD THAT - From the submission of the appellant, especially the composition of the inputs contained in their products i.e. Bio-fertilizers and comparing the same to the definitions of Bio-fertilizers , it does not appear to meet the criteria of bio-fertilizer particularly because Organic manure (main source of which is animal waste) is a major input constituting 50% of the mixture whereas Bio culture contained therein is only 2%. Further, the appellant themselves have submitted that they are presently manufacturing only two types of Bio-fertilizers namely Phosphate Solubilising Bacteria and Potassium mobilising Bio-fertilizers. Hence, it can be presumed that the composition of inputs submitted by them pertains to these two products only and therefore the classification to be decided is in respect of these two products only - in the instant case, the two products i.e. Phosphate Solubilising Bacteria and Potassium mobilising Bio-fertilizers contains a mixture of various inputs in which Organic manure is the main input since it constitutes 50% of the final product. Since the two products i.e. Phosphate Solubilising Bacteria and Potassium mobilising Bio-fertilizers contains a mixture of various inputs, reference will be required to be made to Rule 3(b) of the General Rules for the interpretation of Customs Tariff, in order to sort out the matter. As per Rule 3(b), mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as the criterion is applicable. Since the two products are mixtures that constitute of 50% organic manures, it can be construed that organic manure is the main component in the mixture and therefore, it is Organic manure which gives the mixture it s essential character - in light of Rule 3(b) of the General Rules for the interpretation of Customs Tariff, the products of the appellant would be rightly classifiable under the Chapter Sub-heading applicable to Organic manure only. The appellant has accepted the classification of their product Organic manure as given in the impugned order of Advance Ruling. Hence it can be concluded that the two products namely Phosphate Solubilising Bacteria and Potassium mobilising Bio-fertilizers manufactured and supplied by the appellant are classifiable under Chapter subheading No.31059090 of the First Schedule to the Customs Tariff Act, 1975(51 of 1975) and liable to GST at 5% in terms of Sl.No.182D of Schedule-I of Notification No.01/2017-Central Tax(Rate) dated 28.06.2017 (as amended from time to time). The two products namely Phosphate Solubilising Bacteria and Potassium mobilising Bio-fertilizers manufactured and supplied by the appellant M/s. G.B. Agro Industries, Bharuch are classifiable under Chapter sub-heading No.31059090 of the First Schedule to the Customs Tariff Act, 1975(51 of 1975) and liable to GST at 5% in terms of Sl.No.182D of Schedule-I of Notification No.01/2017-Central Tax(Rate) dated 28.06.2017 - the classification of the products is entirely based on the composition of inputs as given by the appellant and any alteration/change in the composition of the inputs would also result in alteration of the classification of the aforementioned products.

Summary

Issues Involved:
1. Classification of Bio-fertilizers.
2. Applicable GST rate for Bio-fertilizers.

Detailed Analysis:

Classification of Bio-fertilizers:
The appellant, M/s. G.B. Agro Industries, filed an application seeking the classification of various fertilizers, including Bio-fertilizers, under the GST regime. The Gujarat Authority of Advance Ruling (GAAR) initially classified Bio-fertilizers under Chapter sub-heading 30029030, making them liable to 12% GST. The appellant challenged this classification, arguing that Bio-fertilizers should be classified under Chapter Heading 3101, which pertains to fertilizers used for agricultural purposes and attracts a GST rate of 5%.

The appellant contended that Bio-fertilizers are agriculturally useful products containing living microorganisms that enhance soil productivity. They argued that the classification under Chapter 30, which deals with pharmaceutical products, was incorrect since their Bio-fertilizers are not intended for pharmaceutical use but for agriculture.

The appellant provided detailed descriptions of the Bio-fertilizers, their manufacturing process, and their composition. They emphasized that the main ingredient is organic manure, which constitutes 50% of the product, while Bio-culture (microorganisms) constitutes only 2%. They argued that this composition aligns more closely with Chapter Heading 3101, which covers animal or vegetable fertilizers.

The appellate authority examined the definitions of Bio-fertilizers from various sources, including Wikipedia and Vikaspedia, and the Fertilizer Control Order (FCO) 1985. They noted that Bio-fertilizers are defined as substances containing living microorganisms that enhance nutrient availability to plants. The authority also considered the composition of the appellant's Bio-fertilizers and concluded that the primary component is organic manure, which gives the product its essential character.

Applicable GST Rate for Bio-fertilizers:
The appellate authority referred to the General Rules for the Interpretation of the Customs Tariff, particularly Rule 3(b), which states that mixtures should be classified based on the material or component that gives them their essential character. Given that organic manure constitutes 50% of the appellant's Bio-fertilizers, the authority determined that these products should be classified under Chapter sub-heading 31059090, which pertains to organic manure.

The authority also noted that the GAAR had previously classified the appellant's product "Organic manure" under Chapter sub-heading 31059090, attracting a GST rate of 5%. Since the Bio-fertilizers in question contain a significant proportion of organic manure, the classification and applicable GST rate should be consistent.

The authority emphasized that the classification is based on the composition of inputs as provided by the appellant. Any change in the composition would necessitate a re-evaluation of the classification.

Conclusion:
The appellate authority modified the GAAR's ruling, classifying the appellant's Bio-fertilizers (Phosphate Solubilising Bacteria and Potassium Mobilizing Bio-fertilizers) under Chapter sub-heading 31059090. Consequently, these products are liable to a GST rate of 5%, in line with the classification for organic manure.

The authority also clarified that decisions from other Advance Ruling Authorities, such as those from Rajasthan and Uttarakhand, are not binding in this case. The classification is specific to the appellant's product composition and the applicable GST rate is determined accordingly.