2020 (1) TMI 1006 - AAR - GST

Classification of goods - Fortified Rice Kernels (FRK) - whether fall under Chapter-10, Tariff item 1006 as Rice and description of goods 10061090 others (IGST Nil/ 5%, CGST Nil/2.5%, SGST Nil/2.5%)? - HELD THAT - The applicant is a manufacturer and supplier of Fortified Rice Kernel (hereinafter called as FRK). The applicant supplies FRK to various units which are engaged in mixing of the FRK in normal rice which is further supplied to government for use in schemes such as Mid-Day Meal, Poshan Abhiyan, ICDS, PDS etc. - first, source rice for FRK is converted to flour form, then, the premix of vitamin-mineral is added to it. Post mix, the prepared material is passed through a machine which converts it back in to granule form of rice, which are known as Fortified Rice Kernel(FRK). The FRK is packed in a 25Kg bag to be further supplied to various millers/ suppliers with instruction this product should be first mixed (blended) with traditional rice in ratio of 1 100 and then the mixed rice is cooked and consumed. In the present case, the normal rice has undergone specific mechanical and chemical processing resulting in to FRK. This preparation/ process of FRK is way beyond the scope mandated under Chapter 10 of GST Tariff (i.e. husked, milled, polished, glazed, parboiled or broken). Therefore, though FRK is shaped in form of rice by the mechanized process but it is not rice grain in terms of Chapter 10. Thus, FRK is classifiable under HSN 19049000 of GST Tariff as other and attracts GST @ 18%.

Summary

Issues Involved:
1. Classification of goods (Fortified Rice Kernels - FRK)
2. Determination of the liability to pay tax on FRK

Issue-Wise Detailed Analysis:

1. Classification of Goods (Fortified Rice Kernels - FRK):

The applicant, a manufacturer and supplier of Fortified Rice Kernels (FRK), sought an advance ruling on whether FRK falls under Chapter 10, Tariff item 1006 as rice, attracting a GST rate of Nil/5% (IGST) or Nil/2.5% (CGST/SGST). The Authority for Advance Ruling (AAR) examined the classification of FRK under the GST Tariff.

Findings:
- The AAR noted that FRK is a value-added product made from rice flour and micronutrient premix, which undergoes a process that changes its essential characteristics from granule to flour and back to granule form.
- The relevant entry for rice under Chapter 10 includes rice in its natural form and some processing like husking, milling, parboiling, etc. The chapter note specifies that products classified under Chapter 10 must retain their essential characteristics as grains.
- The AAR concluded that FRK does not retain the essential characteristics of rice as it cannot be consumed in itself and must be mixed with traditional rice in a specific ratio. This disqualifies FRK from being classified under Chapter 10.

Conclusion:
- The AAR determined that FRK should be classified under Chapter 19 of the GST Tariff, which covers preparations or processes on rice beyond the scope of Chapter 10. Specifically, FRK falls under HSN 19049090 as "other" prepared foods obtained from cereals.

2. Determination of the Liability to Pay Tax on FRK:

The applicant also sought clarity on the applicable GST rate for FRK. The AAR examined the GST rates applicable to different classifications of rice and fortified products.

Findings:
- The AAR referred to the GST Council's clarification on fortified milk, which is classified under HSN code 0401 and attracts a Nil rate of GST. However, the AAR noted that fortified milk is a final consumable product, whereas FRK is not directly consumable and requires blending with traditional rice.
- The AAR emphasized that the structure of milk remains unchanged with fortification, whereas FRK undergoes significant processing that changes its essential characteristics.

Conclusion:
- The AAR ruled that FRK, classified under HSN 19049090, attracts a GST rate of 18% (SGST 9% + CGST 9%).

Ruling:
- Fortified Rice Kernels (FRK), manufactured and supplied by the applicant, are classifiable under HSN 19049090 and attract GST at the rate of 18% (SGST 9% + CGST 9%).