Appellate authority rules Mahua De-oiled Cake not waste, ITC treatment varies

The appellate authority determined that Mahua De-oiled Cake/De-oiled Rice Bran are not classified as 'waste' but as commercially viable products due to their intended production and marketability. The authority cited precedents to support this classification. Regarding Input Tax Credit (ITC), the appellant must reverse credit for de-oiled rice bran cake, classified as an exempted supply. However, GST at 18% is applicable to de-oiled mahua cake, allowing for input credit.

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Issues Involved:
1. Classification of Mahua De-oiled Cake/De-oiled Rice Bran as 'Waste' or by-product.
2. Eligibility for Input Tax Credit (ITC) on GST paid for raw materials used in manufacturing solvent extracted oil.

Issue 1: Classification of Mahua De-oiled Cake/De-oiled Rice Bran as 'Waste' or by-product

The applicant argued that Mahua De-oiled Cake/De-oiled Rice Bran, used as ingredients in animal feeds, should be classified as 'waste' generated during the solvent extraction process. The Authority for Advance Ruling (AAR) determined that these items are by-products, not waste, as they are used as ingredients in animal feeds. The applicant contended that the AAR failed to follow judicial precedents and that the de-oiled cakes are unintended products and technological necessities, thus should be classified as 'waste.'

The appellate authority, however, found that the de-oiled cakes are not 'waste' but commercially viable products. The de-oiled cakes undergo further processing, including desolventising, chemical testing, and packaging, indicating their intended production and marketability. The authority cited the Supreme Court case of State of Karnataka vs. M.K. Agro Tech (P) Ltd., which held that de-oiled cakes are goods and their sale constitutes a significant part of the revenue, thus not classifiable as 'waste.'

Issue 2: Eligibility for Input Tax Credit (ITC) on GST paid for raw materials used in manufacturing solvent extracted oil

The applicant sought full ITC on GST paid for Mahua Oil Cake/Rice Bran Oil Cake used in manufacturing solvent extracted oil. The AAR allowed partial ITC, requiring reversal of credit proportional to exempted supplies, as the applicant manufactures both taxable and exempted goods.

The appellate authority upheld the AAR's decision, noting that under Section 17(2) of the CGST Act 2017, ITC attributable to exempted supplies must be reversed. De-oiled Rice Bran, classified under Chapter 2302 and exempted from CGST, requires reversal of ITC. De-oiled Mahua Cake, primarily used as a weedicide and fertilizer, does not fall under Chapter 23 and is classified under the residuary entry with an 18% GST rate, allowing for ITC.

Ruling:

1. Input Credit attributable to the supply of de-oiled rice bran cake (exempted supply) is to be reversed by the appellant in terms of Section 17(2) of the CGST Act 2017.
2. GST @ 18% is payable on the supply of de-oiled mahua cake, allowing for input credit in terms of Section 16 of the CGST Act 2017.

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