2023 (6) TMI 1182 - AAR - GST

Classification of supply - HSN Code - rate of tax - Fortified Rice Kernels(FRK) which the applicant intends to manufacture and supply at Chhattisgarh - to be classified under Chapter Heading 1103 of Customs Tariff Act or not - HELD THAT - There remains no ambiguity as regards the fact that the impugned goods are nothing but preparations of rice flour. At this juncture, for ascertainment of the correct classification of impugned good viz. Fortified Rice Kernels (FRK) and thereby to arrive at the applicate rate of GST on the same, we would also like to cite reference to the Agenda for 45th GST Council meeting held on 17th September 2021 (volume 2) wherein at Agenda item 14 relating to issues recommended by the Fitment committee for the consideration of GST council - From Recommendations made by the Fitment Committee for making changes in GST rates or for issuance of clarification in relations to goods, it gets amply clear that Fortified Rice Kernel is classifiable under chapter heading 1904. Thereafter it is also observed that in the 45th Meeting of the GST Council, held at Lucknow on 17th September, 2021, the GST Council has inter-alia made the recommendation of lowering the rate of GST from 18% to 5% on Fortified Rice Kernels for schemes like ICDS etc. Accordingly, vide Notification No. 11/2021 C.T.(Rate) dated 30.09.2021, Notification 39/2017 dated 18.10.2017 stood amended effective from 01.10.2021, by including the terms Fortified Rice Kernel (Premix) supply for ICDS or similar scheme duly approved by the Central Government or any' State Government in column (3) and also, the words 'Food Preparation' is amended as 'goods' in column (d) of the Notification, by citing the chapter of the goods as Chapter 19 or 21. The applicable rate of GST on all goods of 1904 including Fortified Rice Kernels (FRK) meriting classification under chapter subheading 19049000 is 18% 9% CGST 9% SGST or (18% IGST) as the case may be, in terms of entry no. 15 to Schedule-Ill to Notification No. 01/2017-CT(Rate) dated 28.6.2017 as amended. It is also seen that the applicant in their submissions have also referred that the quantity of vitamins and minerals which are to be added in rice flour to prepare FRK as per FSSAI Regulations which provides for the ratio of Vitamin and Minerals to be added in a quantity of 1 kg of Rice. In this context, it is seen that Food Fortification Resource Centre FFRC set up by the very same FFSAI has in its advisory dated 12/7/2021 addressed to all business operators and FRK manufacturers giving reference to chapter heading 1904 has advised to take appropriate action for uniform billing of Fortified Rice Kernels. The other issues /points raised by the applicant in their application, including the reference to the discussion of the fitment committee of the GST Council put forth in the agenda for the 37th GST Council Meeting, is distinguishable to the facts and circumstances involved here, in view of the subsequent agenda of 45th GST council meeting held on 1 7.9.2021.

Summary

Issues Involved:
1. HSN classification of "Fortified Rice Kernels (FRK)"
2. Rate of tax applicable on the supply of FRK under GST Law

Detailed Analysis:

Issue 1: HSN Classification of "Fortified Rice Kernels (FRK)"
The applicant, M/s Brindavan Agrotech Private Limited, sought an advance ruling on the HSN classification of "Fortified Rice Kernels (FRK)" and the applicable GST rate. The applicant detailed the technical specifications and manufacturing process of FRK, which includes converting rice into rice flour, blending it with vitamins and minerals, and extruding the mixture to form pellets. The applicant argued that the FRK should be classified under Chapter 1103 of the Customs Tariff Act, which covers cereal groats, meal, and pellets.

The applicant supported their claim by referring to Chapter Note 2(A) and 2(B) of Chapter 11 of the Customs Tariff Act and provided test reports showing that the rice flour used in FRK meets the specified starch and ash content. They also cited Explanatory Notes issued by the World Customs Organization, which state that cereal flours may include small quantities of added minerals and vitamins.

However, the Authority for Advance Ruling (AAR) found that Chapter 11 deals with products obtained solely from milling cereals, while the FRK undergoes additional processes such as blending with vitamins and minerals and extrusion. Chapter Note 1(c) to Chapter 11 excludes products of heading 1904, which covers preparations of cereals, flour, starch, or milk. The AAR concluded that FRK, being a preparation of rice flour with added vitamins and minerals, is more appropriately classified under Chapter 1904.

Issue 2: Rate of Tax Applicable on the Supply of FRK under GST Law
The AAR referred to the GST Council's recommendations and notifications to determine the applicable GST rate for FRK. The agenda for the 45th GST Council meeting held on 17th September 2021 included a proposal to reduce the GST rate on FRK from 18% to 5% for supplies under schemes like ICDS. The GST Council subsequently recommended this reduction, and Notification No. 11/2021 C.T.(Rate) dated 30.09.2021 amended the tax rate for FRK supplied for ICDS or similar schemes to 5%.

However, the AAR noted that for general supplies not under any specific government scheme, the applicable GST rate for FRK classified under Chapter 1904 remains 18% [9% CGST + 9% SGST] or 18% IGST, as per entry no. 15 to Schedule-III to Notification No. 01/2017-CT(Rate) dated 28.6.2017 as amended.

Conclusion:
The AAR ruled that Fortified Rice Kernels (FRK) proposed to be manufactured by the applicant M/s Brindavan Agrotech Private Limited merits classification under chapter subheading 19049000, attracting GST at the rate of 18% [9% CGST + 9% SGST] or 18% IGST, as applicable.