2024 (9) TMI 665 - AAAR - GST

Classification of rejected paddy seed - taxability on the sale in a bag of quantity more than 25 Kg - applicability of exemption under S.No.70 of N/N. 02/2017-Central Tax (Rate), dated 28.06.2017 - HELD THAT - From basic characteristics of a seed quality cereal crop it is clear that repeated/damaged paddy as the name suggests, is much less likely to be of seed quality cereal crop as it won t have sprouting capacity Rejected damaged paddy is devoid of all characteristics of a seed quality cereal crop. In this regard. AAR has righty rejected the claim of appellant for putting it under HSN 1006 10 10. The AAR is not agreed upon, in placing the Rejected Damaged Paddy under HSN 1006 10 i.e. Rice in the Husk (Paddy or Rough), Paddy becomes rice after the removal of husk by threshing. Thus, rice is a par of paddy. This classification (100610) is suitable for regular rice which is fit for human consumption, which is to be understood in common parlance. Rejected Damaged paddy is altogether a different class. Rejected Damaged paddy is the one which can t he consumed by human beings as it is not fit for human consumption - it would not fall under seed quality. Therefore, appropriately it should be placed under HSN 1006 10 90. Applicability of S No.70 of Notification No. 02/2017-Central Tax (Rate), dated 28.06.2017 - HELD THAT - It is an exemption notification and goods placed under this notification are wholly exempt from GST. At S.No.70 of Notification No. 02/2017-Central Tax (Rate), dated 28.06.2017, it is, 1006 Rice (other than pre-packaged and labelled) . It is quite clear from the explanation of pre-packaged/labelled food items vis-a-vis S.No.70 of Notification No. 02/2017-Central Tax (Rate), dated 28.06.2017, that Rice (Other than pre-packaged/labelled) should be of food quality and it must be fit for human consumption for being exempt. But Rejected Damaged Paddy in the instant case fails to fulfil these basic characteristics of being fit for human consumption. Rejected /damaged paddy has lost its food quality and human consumption, value. As per appellant, rejected/damaged paddy is to be used in Industrial Usage, cattle feed etc. Also, no documents have been submitted by the appellant to show that whether the said Rejected damaged paddy will be directly used by the Industries or it will undergo through some other processes Thus, Rejected Damaged Paddy doesn t fail under S No 7 of Notification No. 02/2017-Central Tax (Rate), dated 28.06.2017.

Summary

Issues: Classification and applicability of GST on sale of Rejected Paddy Seed, Determination of liability to pay tax on supply of rejected paddy sale, Differential classification under each category based on usage, HSN classification & GST rate based on usage separately, Applicability of exemption under S.No.70 of Notification No. 02/2017-Central Tax (Rate)

Analysis:
1. Classification and Applicability of GST on Sale of Rejected Paddy Seed:
The Appellate Authority for Advance Ruling (AAAR) considered whether the rejected paddy, categorized for various uses like animal feed, cattle feed, etc., should be classified under S.No.70 of Notification No. 02/2017-Central Tax (Rate). The AAAR examined the basic characteristics required for a seed quality cereal crop, including seed purity and sprouting capacity. It was concluded that rejected paddy lacks these characteristics and does not fall under seed quality. Therefore, it was placed under HSN 1006 10 90 instead of 1006 10 10, which is suitable for regular rice fit for human consumption.

2. Applicability of Exemption under S.No.70 of Notification No. 02/2017-Central Tax (Rate):
The AAAR analyzed the exemption notification under S.No.70 of Notification No. 02/2017-Central Tax (Rate) for "1006 Rice (other than pre-packaged and labelled)." The authority referred to explanations regarding pre-packaged and labelled food items to determine if the rejected paddy qualifies for the exemption. As rejected paddy was intended for industrial usage and not fit for human consumption, it was deemed ineligible for the exemption under the said notification. The rejected paddy did not meet the criteria of being fit for human consumption as required for the exemption.

3. Differential Classification Based on Usage and HSN Classification:
The AAAR did not provide a conclusive ruling on the differential classification of rejected paddy based on its usage categories like animal feed, cattle feed, etc., due to insufficient details regarding the conversion process. The authority highlighted the importance of providing adequate information on how the rejected paddy would be converted for specific uses to determine the HSN classification and GST rate accurately. Without such details, a definitive classification based on Harmonized System of Nomenclature (HSN) could not be delivered.

4. Legal Precedent and Binding Nature of Rulings:
The appellant cited a ruling by the AAAR, Uttarakhand, in a similar case involving rejected paddy, where it was classified under HS Code-10061010 and exempted under Notification No. 02/2017-Central Tax (Rate). However, the AAAR, Chhattisgarh, emphasized the binding nature of rulings only on the applicant and the concerned officer. The AAAR, Chhattisgarh, refrained from making conclusions on the taxability of rejected paddy based on industrial usage due to the lack of supporting documents submitted by the appellant.

This detailed analysis of the judgment by the Appellate Authority for Advance Ruling in Chhattisgarh provides insights into the classification and taxability of rejected paddy seed, the applicability of exemption notifications, and the significance of providing detailed information for accurate HSN classification and GST rate determination.