2022 (2) TMI 1210 - AAR - GST

Classification of goods - Distillers Wet Grain Solubles (DWGS) - DWGS is by-product or residues? - to be classified under Tariff Entry 2309 of GST Tariff or otherwise? - DWGS which is sold as Cattle Feed in the Trade are to be classified under Tariff Entry 2309 of GST Tariff? - HELD THAT - Entry no. 102 of the N/N. 2/2017-Central Tax (Rate), dated 28th June, 2017 clarifies the picture of feeds, supplement husk of pulses, concentrates additives, wheat bran de-oiled cake etc. As far as relevancy of term 'cattle feed' in the case, it is opined that DWGS (Distillers Wet Grain Solubles) cannot be categorized as cattle feed mere being slight valuable in the market and mere installation of huge machinery for its production. The items/description of goods falling under entry No. 102 is quite different from DWGS and only for the purpose of just availing the benefits of exemption under Notification No. 2/2017-Central Tax (Rate), dated 28th June, 2017, it cannot be termed as 'cattle feed'. Entry No. 102 of the said notification is separate entry and items pertaining to this entry do not fit in the frame as by-product or residue whatever name it called of brewery, generated during the process of manufacturing of alcohol - As per meaning provided in Wikipedia, the Brewing is the production of beer by steeping a starch source (commonly cereal grains, the most popular of which is barley/wheat) in water and fermenting the resulting sweet liquid with yeast. In the instant case, it is fact that in the process of manufacturing of alcohol, the 'starch portion' present in the wheat grain is utilized through distillation process. Means 'starch present in the wheat grain' is being processed in brewery. Hence, main key element i.e. 'starch' is present here. Further, the applicant company is a kind of brewery where brewing or distilling process are being undertaken. In the result of manufacturing process of alcohol, several residues, dregs and waste are come into picture - As far as nature of DWGS (Distillers Wet Grain Solubles) is concern, it is nothing but brewing or distilling dregs and waste as it is come out in the picture as a result of brewing or distilling process. DWGS (Distillers Wet Grain Solubles) is an inevitable outcome in the process of manufacturing of alcohol. Apart from nomenclature whether it is residue or by-product, we find that it is a kind of brewing or distilling dregs waste and is classifiable under Chapter / Heading/Sub-heading / Tariff item 2303 of GST Tariff.

Summary

Issues Involved:
1. Whether DWGS (Distillers Wet Grain Solubles) is a by-product or residue.
2. Classification of DWGS under GST Tariff.
3. Whether DWGS, sold as cattle feed, should be classified under Tariff Entry 2309 of GST Tariff.

Issue-wise Detailed Analysis:

1. Whether DWGS (Distillers Wet Grain Solubles) is a by-product or residue:

The applicant, ADS Agro Industries Private Limited, operates a grain-based distillery producing alcohol using grains such as broken rice. During the distillation process, only the starch portion of the grain is utilized for alcohol production, leaving behind other components like protein, fiber, and oil. These components are further processed into DWGS, also known as "Wet Cake," which is used as cattle feed. The applicant argues that DWGS is a by-product, not a residue, as it has a marketable value and is specifically produced using additional equipment, such as Centrifuge Decanters, which are not part of the distillation process.

The Authority for Advance Ruling (AAR) reviewed the definitions and industry norms for by-products and residues. By-products are incidentally recovered during the manufacture of main products and have a relatively low net realizable value compared to the main product. Residues, on the other hand, have no value or even negative value if disposal costs are involved. The AAR concluded that DWGS is an inevitable outcome of the alcohol manufacturing process and is a kind of brewing or distilling dregs and waste. Therefore, DWGS is classified as a residue.

2. Classification of DWGS under GST Tariff:

The applicant sought clarification on the GST classification of DWGS. The relevant GST Tariff entries considered were:

- Entry 2303: "Residues of starch manufacture and similar residues, beet pulp, bagasse, and other waste of sugar manufacture, brewing or distillery dregs and waste, whether or not in the form of pellets," which attracts a GST rate of 5%.
- Entry 2309: "Aquatic feed including shrimp feed and prawn feed, poultry feed & cattle feed, including grass, hay & straw, supplement & husk of pulses, concentrates & additives, wheat bran & deoiled cake other than rice bran," which is exempt from GST.

The AAR analyzed the nature of DWGS and found that it fits the description of brewing or distilling dregs and waste under Entry 2303. The process of manufacturing alcohol involves the utilization of the starch portion of the grain, and the remaining components are processed into DWGS. The AAR concluded that DWGS is classifiable under Chapter/Heading/Sub-heading/Tariff item 2303 of the GST Tariff.

3. Whether DWGS, sold as cattle feed, should be classified under Tariff Entry 2309 of GST Tariff:

The applicant contended that DWGS should be classified under Entry 2309 as cattle feed, which is exempt from GST. They argued that DWGS is sold as cattle feed in the market and has no other use. The AAR, however, noted that the items described under Entry 2309 are different from DWGS. The mere market value and installation of machinery for DWGS production do not qualify it as cattle feed under Entry 2309. The AAR emphasized that DWGS is a result of the brewing or distilling process and is classified as brewing or distilling dregs and waste under Entry 2303.

Ruling:

- Question A: DWGS is a kind of brewing or distilling dregs and waste.
- Question B: DWGS is not to be classified under Tariff Entry 2309 of the GST Tariff.
- Question C: DWGS, sold as cattle feed, is to be classified under Chapter/Heading/Sub-heading/Tariff item 2303 of the GST Tariff.