2020 (6) TMI 644 - AAAR - GST

Classification of goods - Fortified Rice Kernels (FRK) - whether classifiable under HSN 19049090 or not - rate of tax - Challenge to AAR decision - HELD THAT - From the manufacturing process, it is noted that to manufacture FRK, the natural rice has to be converted into Rice Flour. The moment the Rice is converted into Flour, essential characteristics of rice is changed and no grain remain present in the product and therefore, the same cannot be classified in any of the heading of Chapter 10 in terms of Chapter Note 1(A) ibid. Further, consequent upon changing from rice grains to rice flour and then preparation of any product out of rice flour, whether similar to Rice or not in shape, the resultant product does not fail in the inclusive part of the Chapter note 1(B) of Chapter 10, which specifically mentions Rice (i) Husked, (ii) milled, (iii) polished, (iv) glazed, (v) parboiled or (vi) broken as in all such form of Rice, natural grains are present in the product - thus, FRK is out of the ambit of Chapter 10. The appellant supplied the FRK 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. This is an admission of fact by the appellant that FRK is a product different from the traditional rice and to be used for blending in traditional rice - the FRK manufactured by the appellant do not have essential character of natural Rice and also does not merit classification under Chapter 10 in terms of Chapter Note 1 (A) of the said Chapter. It is appropriately classifiable under the sub-heading of Chapter 19 i.e. under Chapter sub-heading 19049000. Appeal disposed off.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Jurisdiction of the Advance Ruling Authority (AAR).
3. Classification of Fortified Rice Kernels (FRK) under GST Tariff.
4. Applicability of Chapter 10 vs. Chapter 19 of the GST Tariff.
5. Relevance of GST Council's Circular and other case laws.

Condonation of Delay:
The first issue pertains to the delay in filing the appeal under Section 100(2) of the CGST Act. The appellant received the Advance Ruling on 03.12.2019, and the prescribed 30-day period ended on 01.01.2020. The appeal was filed electronically on 06.01.2020, with a delay of 5 days, and physically on 13.01.2020. The appellant attributed the delay to technical glitches on the portal. The Appellate Authority, considering the circumstances, condoned the delay and admitted the appeal for final disposal on merits.

Jurisdiction of the AAR:
The appellant contended that the AAR lacked jurisdiction to decide the rate of duty on particular goods, as this is a policy decision of the Government/GST Council. However, the Appellate Authority clarified that the AAR's decision was on the classification of the goods, not on the rate of duty, thus falling within its jurisdiction.

Classification of FRK:
The appellant argued that FRK should be classified under Chapter Heading 1006 as Rice, attracting a lower GST rate. The AAR had classified FRK under HSN 19049090, attracting an 18% GST rate. The Appellate Authority examined the manufacturing process, noting that natural rice is converted into flour, mixed with vitamins and minerals, and then reshaped into granules. This process changes the essential characteristics of rice, making it a different product.

Applicability of Chapter 10 vs. Chapter 19:
Chapter 10 covers rice in its natural form, including processed rice like husked, milled, polished, glazed, parboiled, or broken rice. The Appellate Authority found that FRK, being made from rice flour, does not retain the essential characteristics of rice grains and thus cannot be classified under Chapter 10. Instead, Chapter 1904 covers prepared foods obtained by working cereals beyond the processes mentioned in Chapter 10. Since FRK is a product made from rice flour and requires blending with traditional rice for consumption, it falls under Chapter 1904.

Relevance of GST Council's Circular and Other Case Laws:
The appellant referenced a GST Council Circular on Fortified Toned Milk, arguing that fortified products should be classified under their base category. However, the Appellate Authority distinguished between fortified milk, a final consumable product, and FRK, which requires further blending. The appellant also cited a High Court judgment questioning the constitutional validity of Section 96(2) pertaining to the AAAR authority, but the Appellate Authority found this irrelevant to the present appeal.

Conclusion:
The Appellate Authority concluded that FRK does not have the essential character of natural rice and is appropriately classifiable under Chapter sub-heading 19049000, attracting an 18% GST rate. The appeal was disposed of accordingly.