2024 (8) TMI 135 - AAAR - GST

Classification of goods - Mangala Borosan and Mangala G1 - classifiable under Chapter Heading 3105 as Fertilisers or not - HELD THAT - It is clearly evident that as per said Chapter Notes, for a product to be classified under Heading 3105 as Other Fertilisers, the same should contain at least one of the fertilizing elements namely - Nitrogen (N), Phosphorus (P), or Potassium (K). Further, in all the headings referring to Fertilizers, there is a clear necessity that the said products should contain one or more of the fertilizing elements viz. Nitrogen, Phosphorous or Potassium . The appellant is aware that their product does not contain the essential constituents of Nitrogen, Phosphorous or Potassium as stipulated by the Chapter Notes. This is also evidenced by the constituents furnished by the Appellant and which was reproduced above. While the Appellant is claiming the same to be Fertilisers, yet for the purpose of taxation, the relevant Entry in the Tariff determines the Tax rate - Further, while Fertilizers are classified under Chapter 31 of the Tariff, however, classification of a product is a function of not only the description of the Entries therein, but the inclusion / exclusions mentioned in the Section Notes and Chapter Notes further read with the General Rules of Interpretation. Thus, the appellant's contention that the Nitrogen is emanated during the use of the products in question and thus eligible for classification under Chapter 31 of the Customs Tariff is not tenable. Products are to be assessed based on the form and contents at the time of presentation / supply and not on the results of their usage. In the Explanation under the said Section 2(h) it is clarified that for the purpose of Fertilizer, Essential plant nutrients include Primary Nutrients (Nitrogen, Phosphorous and Potassium) ... It may be noted that in the definition under Section 2(h) cited, Fertiliser means any essential substance used or intended to be used to provide essential plant nutrients . As per the Explanation, such essential plant nutrients should contain Nitrogen, Phosphorous and Potassium. Relying on this definition does not change the ingredients required under the Customs Tariff / GST Rate Notification for determination of a product as Other Fertilizer / Fertilizer - It may be a fact that micronutrients mentioned by the Appellant are those Notified by the State Government, However, this does not change the classification of the product under the GST law.

Issues Involved:
1. Classification of products Mangala Borosan and Mangala G1 under Chapter Heading 3105 as Fertilisers.
2. Appropriate classification of the said micronutrient Fertilisers if not under Chapter Heading 3105.
3. Determination of GST rate applicable to the products.

Detailed Analysis:

1. Classification of Products Mangala Borosan and Mangala G1 under Chapter Heading 3105 as Fertilisers:
The appellant, M/s. Zuari Farmhub Limited, argued that their products Mangala Borosan and Mangala G1 should be classified under Chapter Heading 3105 as Fertilisers. They contended that these products are nothing but Fertilisers, as defined under the Fertiliser (Control) Order, 1985 (FCO, 1985). According to Section 2(h) of FCO, 1985, a Fertiliser includes any substance used to provide essential plant nutrients, which can be primary, secondary, or micronutrients. The appellant emphasized that their products are approved by the Andhra Pradesh state government for use as Fertilisers and contain micronutrients such as Zinc, Manganese, and Iron, which are listed under the FCO, 1985.

2. Appropriate Classification of the Said Micronutrient Fertilisers:
The Authority for Advance Ruling (AAR), Andhra Pradesh, in its ruling dated 15.12.2023, held that the products Mangala Borosan and Mangala G1 are not classifiable under Chapter Heading 3105 as Fertilisers. Instead, the AAR classified them under Heading 2833 29 90, which falls under Schedule III with an 18% GST rate (CGST-9% and SGST-9% or IGST-18%). The appellant argued that the most appropriate classification for their products should be under Chapter 31 of the Customs Tariff Act, 1975, specifically under HSN 3105 9090, which pertains to mineral or chemical Fertilisers containing two or three of the fertilising elements nitrogen, phosphorus, and potassium. They cited various tribunal decisions supporting the classification of micronutrients used as Fertilisers under Chapter 31.

3. Determination of GST Rate Applicable to the Products:
The appellant contended that if their products are classified under Chapter 31, they should attract a GST rate of 5% under HSN 3105 9090. However, they also argued that even if their products are considered as mixtures of micronutrients as per the FCO, 1985, the GST rate should be 12% under Chapter 38. The appellant provided detailed compositions of their products and argued that resorting to classification under Chapter 38, which includes miscellaneous chemical products, would be inappropriate. They emphasized that their products are blends of micronutrients specified under serial number 1(g) of Schedule 1, Part (A) of the FCO, 1985, and are meant to be used as Fertilisers.

Findings and Observations:
1. The Appellate Authority reviewed the appeal, submissions, and additional documents, including the Certificate of Confirmation by Mangalore Chemicals and Fertilizers Limited (MCFL). The MCFL confirmed that the products Mangala Borosan and Mangala G1 are mixtures of micronutrients and are Fertilisers meant for use in agriculture.
2. The Authority noted that for a product to be classified under Heading 3105 as "Other Fertilisers," it must contain at least one of the fertilising elements: nitrogen, phosphorus, or potassium. The appellant's products do not contain these essential constituents, as evidenced by their compositions.
3. The Authority also noted that the classification of products should be based on their form and contents at the time of presentation/supply, not on the results of their usage. The appellant's argument that nitrogen is emanated during the use of the products was not tenable.
4. The Authority concluded that reliance on the FCO, 1985, for classification under Chapter 31 or Chapter 38 was not appropriate. The essential plant nutrients as per the FCO include nitrogen, phosphorus, and potassium, which are not present in the appellant's products.

Decision:
The Appellate Authority upheld the ruling passed by the Authority for Advance Ruling, Andhra Pradesh, in Order AAR No. 11/AP/GST/2023 dated 15.12.2023. The products Mangala Borosan and Mangala G1 are not classifiable under Chapter Heading 3105 as Fertilisers but under Heading 2833 29 90, attracting an 18% GST rate.

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