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 authority determined that Envirotemp FR3 does not fall under Entry 90 of Schedule I but is correctly classified under Entry 27 of Schedule II. Consequently, Envirotemp FR3 is taxable at a rate of 6% for both State and Central taxes.

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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.

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