2023 (1) TMI 977 - AAR - GST

Classification of goods - dried coconuts (shelled or peeled) used for human consumption - to be classified under Chapter 8, HSN 0801, on which rate of tax is nil or in Chapter Heading 1203 thereby attracting 5% GST? - HELD THAT - The Applicant has dried all coconuts (copra in trade/common parlance) in their mill yard on black stone under sun. With respect to copra selected for human consumption, soil and dirt are removed manually and other copra are sent to oil mills for extraction of oil. In short, edible copra is physically round, circular cup like finish which is free of dust and dirt and is soft, while other copra which are irregular shape, dusty are sent as milling copra. A dried coconut for human consumption can also be used for milling purpose, therefore the basis of determination of GST rate on the basis of end use is not appropriate in terms of classification of the product. As the Circular 163/19/2021-GST dated 6th October 2021 clearly clarifies that the whole unbroken kernel could be taken out of shell only when it converts to copra. The Applicant takes the copra cuts into half, sun dries and segregates manually based on the round shape of copra, free of dirt/dust and send it as edible copra and the rest of copra which are irregularly shaped, dusty are sent to oil milling units. But as the Circular clearly states, Copra is classified under heading 1203 irrespective of use - Hence, the impugned goods of the Applicant is only Copra and the same shall be classified under Heading 1203 thereby attracting GST rate of 5% vide entry at SI.No. 66 of Schedule I of 1/2017-Central Taxes (Rate) dated 28.06.2017.

Summary

Issues Involved:
1. Classification of dried coconuts (shelled or peeled) used for human consumption.
2. Applicable GST rate for dried coconuts (copra).

Detailed Analysis:

1. Classification of Dried Coconuts (Shelled or Peeled) Used for Human Consumption
The applicant, engaged in manufacturing and trading coconut products, sought clarification on whether dried coconuts (shelled or peeled) used for human consumption should be classified under Chapter 8, HSN 0801, which attracts a 'nil' tax rate. The applicant detailed their process for producing edible copra, which involves sun drying coconuts, deshelling, further drying, and manually selecting edible copra from milling copra. The edible copra is polished and cleaned for human consumption, while the milling copra is sold to oil mills.

The Central Jurisdictional Authority commented that the copra selected for human consumption is manually cleaned, but the criteria for segregation are based on the presence of soil and dirt. They argued that dried edible copra should be of higher quality and processed to remove water and prevent microbial growth. The authority concluded that the copra dried under the sun and selected for human consumption does not merit classification under heading 0801.

The Ministry of Finance's Circular No. 163/19/2021-GST clarified that copra, defined as the dried flesh of coconut used for oil extraction, is classified under heading 1203, attracting a 5% GST rate regardless of its use. The explanatory notes to HS (2017 edition) specify that heading 0801 covers fresh or dried coconuts but excludes copra.

2. Applicable GST Rate for Dried Coconuts (Copra)
The applicant initially applied a 5% GST rate for both edible and milling copra and sought clarification on whether edible copra should be taxed at a nil rate under HSN 08011920. The ruling examined the notifications and circulars relevant to the classification and GST rates for copra. Notification No. 2/2017 Central Tax Rate exempts 'Coconuts, fresh or dried, whether or not shelled or peeled' from GST. However, Notification No. 1/2017 Central Tax Rate specifies that 'Copra other than of seed quality' attracts a 5% GST rate.

The ruling emphasized that the classification of copra should not be based on its end use but on its inherent characteristics. The Ministry of Finance's circular clarified that copra, irrespective of its use, is classified under heading 1203, attracting a 5% GST rate. The applicant's process of drying, deshelling, and manually selecting copra for human consumption does not alter its classification as copra under heading 1203.

Ruling:
The goods supplied by the applicant are correctly classified under Heading 1203, and the applicable GST rate for the same is 5% GST (CGST 2.5% + SGST 2.5%). The ruling aligns with the Ministry of Finance's clarification that copra, irrespective of its use, is classified under heading 1203 and attracts a 5% GST rate. The applicant's cited AAR Order No. 39/ARA/2019 was deemed irrelevant as it pertained to the withdrawal of an application without addressing the merits of the case.