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TMI Blog2023 (6) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... uncil, 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 Regulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), a Company having its principal place of business at DSC Unit No-318, Second Floor, DLF South Court Building, Saket, South Delhi, 110017. 2.2 The applicant is planning to start a unit at Chhattisgarh for manufacturing and sale of product namely pellets of blended fortified rice flour which is also commonly known as Fortified Rice Kernels(FRK) in the common trade parlance (hereinafter referred as product / FRK ) and accordingly the applicant wants to seek advance ruling on HSN classification of the said product and the rate of tax applicable on its supply under GST Law. 3. Contentions of the applicant: - The applicant has in the instant application furnished the technical specification of the said product to be as under: - Technical Specifications of the Product - Pellets of blended Fortified Rice Flour/ FRK 3.1. That, the process to fortify rice consists of three main steps: - i. Conversion of rice into rice flour ii. Blending of rice flour and Vitamins-Minerals premix iii. Extrusion of mixture in shape of rice to form pellets of blended fortified rice flour having the same composition as of rice with addition of Vitamins-Minerals premix. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) not exceeding that indicated in column (3). Otherwise, they fall in heading 2302. However, germ of cereals, whole, rolled, flaked or ground, is always classified in heading 1104. (B) Products falling in this Chapter under the above provisions shall be classified in heading 1101 or 1102 if the percentage passing through a woven metal wire cloth sieve with the aperture indicated in column (4) or (5) is not less, by weight, than that shown against the cereal concerned. Otherwise, they fall in heading 1103 or 1104 Cereal Starch content Ash content Rate of passage through a sieve with an aperture of 315 micrometres (microns) 500 micrometres (microns) (1) (2) (3) (4) (5) Rice 45% 1.6% 80% - 3.9. That, the rice flour used in fortification process contains starch more than 45% and ash content less than 1.6 %. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sieve as required by Paragraph (B) of that Note. Flours of this heading may be improved by the addition of a very small quantity of minerals, phosphate, anti-oxidants, emulsifiers, or prepared baking powder (self-raising flour). The heading also covers... [Emphasis Supplied] 3.12 That, as discussed in the facts, raw material (rice) is converted into rice flour. Thereafter, a mixture of vitamins and minerals has to be added to the rice flour as per the FSSAI guidelines. Food Safety and Standard (Fortification of Foods) Regulations, 2017 issued by FSSAI provides for the following ratio of Vitamin and Minerals which are to be added in a quantity of 1 kg of Rice: Standards for Fortification of rice Rice when fortified, shall contain added iron, folic acid, and Vitamin B-12 at the level given in the table below S.No Nutrient Level of fortification per kg 1. Iron- (a) Ferric pyrophosphate (b) Sodium Iron (III) Ethylene diamine tetra Acetate, Trihydrate (Sodium Ferrate - Na Fe EDTA); 20mg 2. Folic ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.03 - Cereal groats, meal and pellets 1103.20- Pellets Pellets are products from milling of cereals of this Chapter which have been agglomerated either directly by compression or by the addition of a binder in a proportion not exceeding 3% by weight (See Note 1 to Section II). The heading does not cover pelletised residues derived from the milling of cereals (Chapter 23). 3.16 That, the explanatory notes as extracted above in respect to pellets provides as under:- Pellets are products from milling of cereals of this Chapter which have been agglomerated- either directly by compression, or by the addition of a binder in a proportion not exceeding 3% by weight (See Note 1 to Section II). The heading does not cover pelletised residues derived from the milling of cereals (Chapter 23). 3.17 That, after analyzing the CTH 1102 there is no doubt that Rice Flour added with Minerals and vitamins are the product from milling of Rice classifiable under Chapter 11. 3.18 That, the applicant submits that the extruder machine used for converting Rice flour (added with vitamins and minerals) into FRK agglomerates rice flour b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed by the Fitment Committee in relation to goods have been specified. In Sr. No. 16 of the said Annexure - III, existing HSN for the products staple foods and fortified staple are specified as 10 11 with existing rate at the rate of 5%. The Fitment Committee in the said Annexure-lll has rejected the proposal to reduce the tax rate from 5% to 0% on branded goods including fortified staples. 3.24 That, there is no doubt that fortified rice is a fortified staple as also defined under Regulation 2(1) (e) read with 2(1) (p) of Food safety and standard (Fortification of Foods) Regulations, 2017. The same are reproduced below for ready reference:- 2(1) (e) fortified food means food that has undergone the process of fortification as per the provisions of these Regulations; 2(1)(p) staple food means articles of food intended for mass consumption on a daily basis and include rice, wheat, wheat flour. Atta, maida, oil, salt, milk, and such other articles of food as may be designed staple foods under these Regulations: 3.25 That, the Fitment Committee of GST Council has also acknowledged that goods (staple foods) including fortified staples fall under HSN 10 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd-out on Fortification of Rice - issued by Food Fortification Resource Centre [FFRC] - [Refer page 7 for the Flow of Production of FRK]. ix. Technical Guidelines for Rice Fortification - issued by Department of Food Public Distribution [Refer page 13 for the Flow of Production of FRK], x. With the help of the following chart, we would like to explain the flow of production process of FRK along with parameters of Customs Classification as under: 4. Personal Hearing: - Keeping with the established principles of natural justice, personal hearing in the matter was extended to the applicant in person, as requested by them and accordingly, Shri Pawan Arora, Advocate and authorized representative of the applicant, attended the personal hearing in the matter on 16.12.20222, seeking advance ruling regarding HSN classification of the Fortified Rice Kernels(FRK) and the rate of tax applicable on its supply under GST Law. Accordingly, he reiterated the contention in the matter as made in their ARA-01 and submitted additional submission as well and requested for a ruling in the matter. Owing to the change in the constitution of this Authority, another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion issued under the provisions of this Act; (c) determination of time and value of supply of goods or services or both; (d) admissibility of input tax credit of tax paid or deemed to have been paid; (e) determination of the liability to pay tax on any goods or services or both; (f) whether applicant is required to be registered; (g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. Further, section 103 of CGST Act, 2017 stipulates about the ruling pronounced as under: - The advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only - a. On the applicant who had sought if in respect of any matter referred to in sub-section (2) of section 97 for advance ruling; b. On the concerned officer or the jurisdictional officer in respect of the applicant. Thus, in view of the above section 103 of CGST Act, 2017, the ruling so sought by the applicant would be binding only on the applicant and on the concerned officer or the jurisdictional officer as stipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ariff Act as also explanatory Notes [as issued by World Customs Organization] to Chapter Heading 11.02. 9.1 To bring home their point of view that the said product fall under Chapter 1103, the applicant in their additional written submission furnished post personal hearing held on 16.12.2022 have also furnished a test report of Rice Flour issued by a laboratory, namely M/s Avon Foods Lab Pvt. Ltd, Delhi showing that the chemical parameters of the Rice Flour is well within the limits as mentioned in chapter Note of Chapter 11 ibid. 9.2 It is worthwhile to mention here that Section 9 of the CGST Act and respective SGST Acts and Section 5 of IGST Act inter alia provides for levy of tax .at such rates, not exceeding forty percent, as may be notified by the government on the recommendation of the council and collected in such manner as may be prescribed ........................................................................ A plain reading of above provision implies that government has power to notify rates of tax on recommendation of GST council. The combined rate of CGST and SGST or IGST cannot be more than 40 per cent. The Customs Tariff Act 1975 is based on Harmonised Sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 1. This Chapter does not cover: (a) roasted malt put up as coffee substitutes (heading 0901 or 2101); (b) prepared flours, groats, meals or starches of heading 1901; (c) corn flakes or other products of heading 1904; (d) vegetables, prepared or preserved, of heading 2001, 2004 or 2005; (e) pharmaceutical products (Chapter 30); or (f) starches having the character of perfumery, cosmetic or toilet preparations (Chapter 33). 2. (A) Products from the milling of the cereals listed in the table below fall in this Chapter if they have, by weight on the dry product: (a) a starch content (determined by the modified Ewers polarimetric method) exceeding that indicated in column (2); and (b) an ash content (after deduction of any added minerals) not exceeding that indicated in column (3). Otherwise, they fall in heeding 2302. However, germ of cereals, whole, rolled, flaked or ground, is always classified in heading 1104. (B) Products falling in this Chapter under the above provisions shall be classified in heading 1101 or 1102 if the percentage passing through a woven metal wire cloth sieve with the aperture indicated in colum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milling, rice is further subjected to the process of conversion of rice into rice flour followed by Blending of rice flour and Vitamins-Minerals premix and thereafter the resultant product is subjected to the process of extrusion of mixture in shape of rice to form pellets of blended fortified rice flour having the same composition as of rice with addition of Vitamins-Minerals premix. Besides this, Chapter note 1 (c) to Chapter 11 of Customs Tariff ibid stipulates that chapter 11 does not cover corn flakes or other products of heading 1904. Whereas ongoing through Chapter 19 of Customs Tariff supra, it is seen that CHAPTER 19 deals exclusively with Preparations of cereals, flour, starch or milk; pastrycooks' products and further it is observed that, chapter note 4 to Chapter 19 ibid in very unambiguous terms mentions that For the purposes of heading 1904, the expression otherwise prepared means prepared or processed to an extent beyond that provided for in the headings of, or Notes to, Chapter 10 or 11 . 9.7 Thus based on the evidences before us, we are of the firm opinion that the instant Fortified Rice Kernel (FRK), obtained consequent upon subjecting milled ric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 21 read as under: - Annexure-l Recommendations made by the Fitment Committee for making changes in GST rates or for issuance of clarification in relations to goods S.No Description/HSN Present GST rate Requested GST rate Comments 1. 2. ................... 21. Fortified Rice Kernel (Premix) (1904) 18% Rate reduction 1. Fortified rice kernel (premix) is produced at substantive value addition over normal rice. Fortified Rice Kernel (FRK) is a reconstituted rice grain made from rice flour, vitamins, and minerals using hot extrusion technology. Thus, FRK is a value-add product. So exempting it would not be appropriate. 2. Fitment Committee is of the view that Fortified Rice Kernel when supplied for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown as khoi, parched paddy or rice coated with sugar or gur, commonly known as Murki] ....... ....... ....... Schedule IV- 14% Schedule V - 1.5% Schedule VI-0.125% 10.2 Thus, from the above it gets abundantly clear that 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 ..... 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