By-product treatment and proportionate input tax credit apply when solvent extraction yields both taxable oil and exempt residue.

Mahua de-oiled cake and de-oiled rice bran arising during solvent extraction are treated as by-products, not waste, because their end use and tariff placement show recognition as ingredients for cattle feed, poultry feed and other animal feed. Where common inputs are used to produce both taxable solvent extracted oil and exempt by-products, full input tax credit is not available. Credit must be restricted to the portion attributable to taxable supplies, with proportionate reversal of credit linked to exempt supplies under the input tax framework.

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Issues: (i) Whether Mahua de-oiled cake and de-oiled rice bran emerging during solvent extraction are waste or a by-product used as animal-feed ingredient; (ii) Whether full input tax credit is admissible on goods used in the manufacture of solvent extracted oil where the same inputs yield taxable as well as exempt supplies.

Issue (i): Whether Mahua de-oiled cake and de-oiled rice bran emerging during solvent extraction are waste or a by-product used as animal-feed ingredient.

Analysis: The goods emerging after extraction were examined in the light of their end-use and tariff classification. The Authority noted that de-oiled cake and de-oiled rice bran fall in the animal-feed related headings and are recognized through the exemption notifications applicable to aquatic feed, poultry feed, cattle feed, and de-oiled rice bran. On that basis, the residue was treated as a by-product generated in the process and not as waste in the sense suggested by the applicant.

Conclusion: Mahua de-oiled cake and de-oiled rice bran are by-products of the solvent extraction process and are used as ingredients of cattle feed, poultry feed, and other animal feeds.

Issue (ii): Whether full input tax credit is admissible on goods used in the manufacture of solvent extracted oil where the same inputs yield taxable as well as exempt supplies.

Analysis: The Authority applied the rule that where common inputs are used for both taxable and exempt supplies, credit is restricted to the portion attributable to taxable supplies. Since the process yielded both taxable solvent extracted oil and exempt by-products, full credit could not be allowed. The amount of credit attributable to exempt supplies had to be reversed proportionately, and credit could be taken only to the extent permitted by the input tax credit framework.

Conclusion: Full input tax credit is not admissible; credit is admissible only partially and is subject to proportionate reversal attributable to exempt supplies.

Final Conclusion: The ruling accepts the by-product characterization of the residue but limits input tax credit to the proportion relatable to taxable supplies, resulting in only partial relief to the applicant.

Ratio Decidendi: Where common inputs are used in a manufacturing process yielding both taxable and exempt supplies, input tax credit is confined to the taxable portion and the credit attributable to exempt supplies must be reversed proportionately.

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