2018 (10) TMI 306 - AAR - GST

Classification of goods - Waste/by-product - Mahua De-oiled cake - input credit - Whether Mahua De-oiled cake (De-oiled Rice Bran being used as an ingredient of Cattle Feed, Poultry Feed and other animal feeds and is Waste generated during the solvent extraction process? - Whether the applicant is eligible to get entire tax input credit of GST paid on purchase of Mahua Oil Cake/ Rice Bran Oil cake used in the manufacture of solvent extracted oil? Held that - When common inputs are being used for both taxable and exempted supplies, the party is required to reverse the credit proportional to the amount of credit pertaining to the exempted supplies. ITC can be availed only on goods and services for business purposes. If they are used for non-business (personal) purposes, or for making exempt supplies ITC cannot be claimed. From Classification of various goods it can be seen that de-oiled mahua cake and de-oiled rice bran emerging as by-products after the process of manufacture fall under HSN 2308 and 2309 - Mahua de-oiled cake has been described rich in sugers, nitrogen and proteins but also there is presence of some toxic saponins which limits its usages as fish or cattle feed. However, on mixing further with some other vegetable and cereal waste its usage in cattle feeding and fish feeding are usual in practice. De-oiled rice bran has been seen in its usage in largely cattle feed, poultry and fish feed. Thus, de-oiled cake which is used for animal feed has been exempted by the Entry 102 and de-oiled rice bran has been specifically exempted under Entry 102A. Ruling - Mahua De-oiled cake/De-oiIed Rice Bran is a by-product occurred during the solvent extraction process, which is used as an ingredient of Cattle Feed, Poultry Feed and Other animal feeds. The input credit of GST paid on purchase of Mahua Oil Cake/Rice Bran Oil cake used in the manufacture of solvent extracted oil is partially allowed as per process/ formula prescribed in the Chapter V (INPUT TAX CREDIT) of GST Rules, 2017, because, the applicant manufacturing both taxable and exempted goods by using raw materials viz Mahua De-oiled cake and De-oiled Rice Bran. Further, if common inputs are used for both taxable and exempted supplies, the applicant is required to reverse the credit proportional to the amount of credit pertaining to the exempted supplies immediately.

Summary

Issues:
1. Determination of whether Mahua De-oiled cake/Rice Bran is considered waste during the solvent extraction process.
2. Eligibility of the applicant to claim entire tax input credit of GST paid on the purchase of Mahua Oil Cake/Rice Bran Oil cake for manufacturing solvent extracted oil.

Analysis:
1. The applicant, engaged in the business of extracting oil from Mahua oil cake/Rice Bran, sought clarification on the classification of the by-products generated during the process. They argued that the de-oiled cake produced is used as an ingredient in animal feeds and should be considered waste. The applicant highlighted the HSN codes of the raw materials and the final product, emphasizing the utilization of Mahua De-oiled Cake for fish feed and De-oiled Rice Bran for cattle feed. The applicant contended that the de-oiled cake, constituting a significant portion of the raw material, is surplus to their primary edible oil production, making it waste in their context.

2. The Authority examined the applicant's eligibility for claiming input tax credit (ITC) on GST paid for purchasing Mahua Oil Cake/Rice Bran Oil cake. Referring to Section 17(2) of the CGST Act, the Authority emphasized the restriction on ITC when goods are used for both taxable and exempt supplies. The applicant's claim for full ITC was not allowed due to the production of both taxable and exempted goods. The Authority cited the need to reverse the credit proportionally for exempted supplies. Additionally, the Authority referenced relevant notifications exempting de-oiled cake used in animal feed, distinguishing between Mahua De-oiled Cake and De-oiled Rice Bran in the context of animal feed usage.

3. The jurisdictional Officer's views echoed the applicant's arguments regarding the usage of de-oiled cake and de-oiled rice bran in animal feed. However, the Officer highlighted the limitations of Mahua De-oiled Cake due to toxic saponins and the common practice of blending it with other materials for effective usage in animal feed. The Officer supported the classification of de-oiled rice bran under Chapter 2308 for animal feed purposes. The Officer also concurred with the disallowance of GST input credit due to the production of both taxable and exempt supplies by the applicant.

4. In the final ruling, the Authority clarified that Mahua De-oiled Cake and De-oiled Rice Bran, generated during the solvent extraction process, are considered by-products used in animal feeds. The ruling allowed partial input tax credit on the purchase of raw materials for manufacturing solvent extracted oil, in accordance with the prescribed process/formula under GST Rules. The ruling reiterated the necessity to reverse credit for exempted supplies when common inputs are used for both taxable and exempted goods, aligning with the provisions of the CGST Act.

This detailed analysis of the issues addressed in the Advance Ruling Authority's judgment provides a comprehensive understanding of the classification of by-products, eligibility for input tax credit, and the specific considerations for the applicant's business operations.