2018 (5) TMI 810 - AAR - GST

Envirotemp FR3 GST Classification Dispute: Correctly Taxable at 6%

The product Envirotemp FR3, a transformer coolant derived from vegetable oil with added chemicals, was subject to a GST classification dispute. The ... Classification of goods under tariff entries - Specific entry prevailing over general/residuary entry - Interpretation of HSN/Customs Tariff headings and notes - Retention of original fundamental structure - Inedible mixtures or preparations - Common trade parlanceClassification of goods under tariff entries - Interpretation of HSN/Customs Tariff headings and notes - Retention of original fundamental structure - Natural Ester Dielectric Fluid (Envirotemp FR3) is not classifiable under Serial No. 90 of Schedule I (vegetable fats and oils and their fractions chemically modified) of Notification No. 1/2017 - State/Central Tax (Rate). - HELD THAT: - The Authority examined the product composition, manufacturing steps and promotional material and concluded that Envirotemp FR3 is formulated from refined soybean oil with addition of proprietary additives/chemicals to produce a fire resistant dielectric coolant for transformers. The HSN/Customs Tariff notes for the part of Heading 1518 dealing with animal or vegetable fats and oils state that such fats and oils must retain their original fundamental structure despite processing. In the present case the various processing steps and the addition of additives/chemicals produce a distinct product (a dielectric fluid/coolant) in which the oil is the base ingredient but does not remain soybean oil per se. The Authority therefore found that the product does not fall within the part 1 description of Heading 1518 captured by Entry 90 of Schedule I which covers vegetable fats and oils that retain their fundamental structure after the listed processes.Entry 90 of Schedule I does not cover Envirotemp FR3 and classification under that entry is rejected.Inedible mixtures or preparations - Classification of goods under tariff entries - Specific entry prevailing over general/residuary entry - Envirotemp FR3 is classifiable as an inedible mixture or preparation of vegetable oils within the second part of Heading 1518 and therefore falls under Serial No. 27 of Schedule II of Notification No. 1/2017 - State/Central Tax (Rate). - HELD THAT: - Having excluded coverage under the part 1 description, the Authority considered part 2 of Heading 1518 which expressly covers inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils not elsewhere specified or included. Envirotemp FR3 is an inedible preparation derived from soybean oil with added additives/chemicals to serve as a transformer coolant and has a distinct commercial identity as a dielectric fluid. No specific schedule entry was found to cover a 'fire resistant natural ester dielectric coolant' and hence the product fits the description of inedible preparations of vegetable oils under part 2. On that basis the Authority held the product within Entry 27 of Schedule II and applied the corresponding rate.Envirotemp FR3 is classifiable under Serial No. 27 of Schedule II as an inedible mixture/preparation of vegetable oils and is taxable accordingly.Final Conclusion: The Authority ruled that Envirotemp FR3 is not covered by Entry 90 of Schedule I but is classifiable as an inedible preparation of vegetable oil under Entry 27 of Schedule II of Notification No. 1/2017 (State/Central Tax), and accordingly allowed taxation under the Schedule II entry. Issues Involved:1. Classification of Natural Ester Dielectric Fluid (Envirotemp FR3) under GST.2. Applicable GST rate for Envirotemp FR3.Detailed Analysis:1. Classification of Natural Ester Dielectric Fluid (Envirotemp FR3) under GST:Applicant's Contention:- The applicant, engaged in manufacturing Envirotemp FR3, a chemically modified vegetable oil, contends that it should be classified under Entry 90 of Schedule I of Notification No. 01/2017-State Tax (Rate) dated 29th June 2017, which covers 'Vegetable fats and oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516.'- The applicant argues that Envirotemp FR3 is a chemically modified vegetable oil, fitting the description in Entry 90 and should be taxed at 2.5% (State tax and Central tax).Authority's Analysis:- The product undergoes multiple processes, including degumming, neutralization, bleaching, deodorization, and addition of additives and chemicals, transforming it into a transformer coolant.- The test report indicates the product contains 98.5% vegetable oil and 1% other chemicals.- The product is marketed as a 'Fire Resistant Natural Ester Dielectric Coolant for transformers,' not as a vegetable oil.- The HSN Notes clarify that for classification under Heading 1518, the product should retain its original fundamental structure, which Envirotemp FR3 does not, as it is a distinct product used as a transformer coolant.Conclusion:- Envirotemp FR3 does not retain the original fundamental structure of vegetable oil and is a distinct product. Therefore, it does not fall under Entry 90 of Schedule I.2. Applicable GST rate for Envirotemp FR3:Applicant's Contention:- The applicant believes that Envirotemp FR3 should not be classified under Entry 27 of Schedule II, which covers 'inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified or included,' and is taxable at 6% (State tax and Central tax).Authority's Analysis:- The product is a preparation derived from soybean oil with added chemicals and additives, making it an inedible mixture.- The product fits the description of 'inedible preparations of vegetable oils' under Entry 27 of Schedule II.- The product is not specified elsewhere, making Entry 27 of Schedule II applicable.Conclusion:- Envirotemp FR3 is classified under Entry 27 of Schedule II of Notification No. 01/2017-State Tax (Rate) dated 29th June 2017 and Notification No. 01/2017-Central Tax (Rate) dated 28th June 2017, and is taxable at the rate of 6% (State tax and Central tax).Order:- Question 1: Whether Envirotemp FR3 falls under Serial no. 90 of Schedule I and is taxable at 2.5% (State tax and Central tax)Rs.- Answer: Negative.- Question 2: Whether Envirotemp FR3 falls under Serial no. 27 of Schedule II and is taxable at 6% (State tax and Central tax)Rs.- Answer: Affirmative.