Appellate Authority reclassifies Anaerobic Microbial Inoculums under GST Tariff heading

The Appellate Authority ruled that Anaerobic Microbial Inoculums (AMI) should be classified under GST Tariff heading No. 3002 with an applicable GST rate of 12% (6% CGST + 6% SGST). This decision overturned the original ruling by the Authority for Advance Ruling, which classified AMI under a different heading with a lower GST rate. The Appellate Authority found that AMI does not qualify as an enzyme but rather as a culture of bacteria facilitating waste biodegradation, leading to the reclassification and adjustment of the GST rate.

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Issues Involved:
1. Classification of Anaerobic Microbial Inoculums (AMI) under GST.
2. Applicable GST rate for AMI.

Issue-wise Detailed Analysis:

1. Classification of Anaerobic Microbial Inoculums (AMI) under GST:

The core issue revolves around the correct classification of Anaerobic Microbial Inoculums (AMI) under the GST Tariff. The original ruling by the Authority for Advance Ruling (AAR) classified AMI under chapter sub-heading 31010099, which pertains to animal or vegetable fertilizers or organic fertilizers, attracting a GST rate of 5%. However, the department appealed against this classification, arguing that AMI should be classified under chapter sub-heading 35079069, which covers enzymes and prepared enzymes, attracting a GST rate of 18%.

The department's argument was based on the premise that AMI acts as an enzyme facilitating the decomposition of biological waste, thus fitting more appropriately under chapter heading 3507. They contended that AMI's primary function is to decompose biological waste into usable water and gases, a characteristic of enzymes, rather than functioning as a fertilizer.

Upon review, the Appellate Authority found that AMI is not an enzyme in the strict sense but rather a culture or colony of bacteria that digests waste products, releasing water and gases as by-products. Therefore, AMI does not fit the classification under heading 3507 as enzymes. Instead, the Appellate Authority concluded that AMI should be classified under HSN 3002, which pertains to cultures of micro-organisms (excluding yeasts) and similar products.

2. Applicable GST Rate for AMI:

Given the reclassification of AMI under HSN 3002, the applicable GST rate changes. The Appellate Authority determined that the appropriate GST rate for products under HSN 3002 is 12% (6% CGST + 6% SGST), as specified in SI. 61 of notification No.1/2017-Central Tax (Rate), dated 28th June 2017, as amended from time to time.

Discussion and Findings:

The Appellate Authority analyzed the nature and use of AMI extensively. They noted that while the manufacturers claimed that AMI could be used as organic manure, this was not supported by the product description on their website, which emphasized AMI's role in converting fecal matter into gases and water. The Authority concluded that the primary function of AMI is not as a fertilizer but as a bacterial culture facilitating the biodegradation of waste.

The Authority also considered the department's contention that AMI should be classified as an enzyme but found it lacking. They clarified that enzymes are products of living cells acting as catalysts, whereas AMI consists of bacterial cultures that digest waste. Therefore, AMI does not meet the criteria for classification as an enzyme under heading 3507.

Ruling:

The Appellate Authority ruled that Anaerobic Microbial Inoculums (AMI) should be classified under GST Tariff heading No. 3002 (Sub heading 30029030), with an applicable GST rate of 12% (6% CGST + 6% SGST). Consequently, the original ruling by AAR, Uttarakhand, classifying AMI under chapter sub-heading 31010099 and attracting a 5% GST rate, was set aside and modified accordingly.

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