2022 (7) TMI 500 - AAR - GST

Classification of goods - Rate of tax - solvent Extracted spent Earth oil - whether spent earth oil merits classification under HSN 1518 0039 on which GST tax rate is 12 % as per SI.No. 27 of Schedule II of Notification No.1/2017? - HELD THAT - Recovery of oil adsorbed in the spent bleaching earth (SBE) is extracted by solvent extraction method using hexane as the solvent. The extracts obtained from the process will be filtered and the solvent will be removed under reduced pressure and at defined temperature in a rotary evaporator. In this extraction method, it is very vital to choose the most suitable solvent for extracting the targeted components because different solvent polarity will dissolve different compounds. The boiling point of hexane is 65 0C which makes it used widely as a solvent. After the extraction, the oil-solvent is then separated between the oil from hexane which requires large amount of energy. To remove the hexane from crude oil, the miscella (the oil/solvent mixture leaving the solvent extractor is commonly referred to in the industry as 'miscella') is treated in a vacuum distillation process. The hexane evaporated during the distillation is condensed and separated from water in a decanter. The recovered hexane is then reused in the extractor. Sl.no 90 is examined in light of the solvent extraction method. The processes adopted as per the entry are boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified. In the instant case, Spent Earth Oil is obtained/ extracted by or blown by heat at certain temperatures, in the presence of food grade solvent Hexane, which is an inert gas. Hence, the processes indicated above apply to the present case on hand. Coming to the Sl.no 27, the first limb of the entry deals with 'Animal fats and animal oils', which is irrelevant to the case at hand, as it's a vegetable oil - the Revenue argues that the second limb is applicable to the present case that spent earth oil is inedible in nature as it's end use is intended for 'soaps and poultry feed'. But, as a matter of fact, the above entry describes 'inedible mixtures or preparation of Vegetable fats or Oils'. Considering the basic characteristics of the spent earth oil, it's merely a vegetble oil extracted from spent earth and it is certainly neither a 'mixture of vegetable oils' nor 'a preparation of vegetable oils'. Even more, it becomes immaterial in the present context, whether it's further qualified by the parameter of being 'inedible' or not. Thus, 'spent earth oil' merits classification under Heading 1518, and taxable at 5 % as per SI.No.90 of Schedule I of notification No. 01/2017 Central Tax (Rate) Dt.28.06.2017.

Summary

Issues Involved:
1. Classification of 'solvent extracted spent earth oil' under the appropriate HSN code.
2. Determination of the applicable GST rate for 'solvent extracted spent earth oil'.

Detailed Analysis:

1. Classification of 'solvent extracted spent earth oil':

The applicant, M/s. Coastal Fats & Oils Private Limited, manufactures 'spent earth oil' and sought clarification on its classification and applicable GST rate. The primary input, 'spent earth', is taxable at 18% under GST. The applicant contended that 'spent earth oil' should be classified under HSN 15159040, arguing that it is a residual vegetable oil recovered from spent bleaching earth, which is used in industries such as soap and poultry feed manufacturing. They claimed that it falls under Chapter 15, specifically under HS Code 15159040, which includes other fixed vegetable oils not chemically modified and used for technical or industrial purposes, thus taxable at 5%.

The Revenue, however, argued that 'spent earth oil' should be classified under HSN 1518 0039, which pertains to inedible mixtures or preparations of animal or vegetable fats or oils, and thus taxable at 12%. They emphasized that the oil is used in non-edible applications like soap and poultry feed manufacturing, making it inedible.

2. Determination of the applicable GST rate:

The Authority for Advance Ruling (AAR) examined the classification of 'spent earth oil' by considering the general process of refining vegetable oils and the characteristics of the product. The AAR noted that 'spent earth oil' is a residual vegetable oil recovered from spent bleaching earth using a solvent extraction process involving food-grade Hexane. This process does not chemically modify the oil, aligning with the characteristics of oils classified under Chapter 15.

The AAR analyzed various headings under Chapter 15:

- Heading 1515: Covers other fixed vegetable oils not chemically modified. The AAR concluded that 'spent earth oil' does not fit here as it is not a direct extract from oilseeds.
- Heading 1516: Involves oils that undergo processes like hydrogenation, inter-esterification, re-esterification, or elaidinization. The AAR found that 'spent earth oil' does not undergo these processes.
- Heading 1517: Pertains to edible mixtures or preparations of fats or oils. The AAR ruled this out as 'spent earth oil' is neither a mixture nor a preparation of oils.
- Heading 1518: Includes vegetable oils that are boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or inert gas, or otherwise chemically modified. The AAR found that 'spent earth oil' fits this heading as it is extracted using heat and Hexane, an inert gas, without chemical modification.

The AAR further examined Schedule I and Schedule II of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017:

- Schedule I, SI.No. 90: Lists vegetable fats and oils and their fractions, processed as described, taxable at 5%.
- Schedule II, SI.No. 27: Lists inedible mixtures or preparations of vegetable fats or oils, taxable at 12%.

The AAR concluded that 'spent earth oil' is not a mixture or preparation but a residual vegetable oil, and thus, it does not fit the description in Schedule II, SI.No. 27. Therefore, it merits classification under Heading 1518 and is taxable at 5% as per SI.No. 90 of Schedule I.

Ruling:

The solvent extracted spent earth oil is taxable at 5% as per SI.No. 90 of Schedule I of Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017.