By-products in animal feed and proportional input tax credit reversal where common inputs serve taxable and exempt supplies
De-oiled Mahua cake and de-oiled rice bran arising during solvent extraction are treated as by-products, not waste, because they are used as ingredients in animal feed and are covered by the relevant exempt animal-feed entries. Where common inputs such as Mahua oil cake or rice bran are used to manufacture both taxable solvent extracted oil and exempt by-products, full input tax credit is not available. Credit is restricted to the portion attributable to taxable supplies, and proportionate reversal is required for the exempt supplies.
Issues: (i) whether Mahua de-oiled cake and de-oiled rice bran emerging during solvent extraction are waste or by-products used as ingredient in animal feed; (ii) whether full input tax credit is available on purchase of Mahua oil cake or rice bran used in manufacture of solvent extracted oil.
Issue (i): whether Mahua de-oiled cake and de-oiled rice bran emerging during solvent extraction are waste or by-products used as ingredient in animal feed.
Analysis: The goods emerging after extraction were examined in the light of their end use and tariff treatment. The ruling noted that de-oiled cake and de-oiled rice bran arise during the manufacturing process and are used as ingredients in cattle feed, poultry feed and other animal feed. The relevant notifications also treated de-oiled cake and de-oiled rice bran as exempt entries in the animal feed segment.
Conclusion: Mahua de-oiled cake and de-oiled rice bran are by-products of the solvent extraction process and are used as ingredients of animal feed.
Issue (ii): whether full input tax credit is available on purchase of Mahua oil cake or rice bran used in manufacture of solvent extracted oil.
Analysis: Input tax credit was considered under the rule restricting credit where common inputs are used for both taxable and exempt supplies. Since the same raw materials yielded taxable solvent extracted oil as well as exempt by-products, the credit could not be fully retained. The ruling applied the proportional reversal principle for common inputs attributable to exempt supplies.
Conclusion: Full input tax credit was not admissible and credit was allowable only to the extent attributable to taxable supplies, with proportionate reversal required for exempt supplies.
Final Conclusion: The ruling classifies the de-oiled products as by-products used in animal feed and permits only partial input tax credit because the applicant makes both taxable and exempt supplies from common inputs.
Ratio Decidendi: Where common inputs are used for both taxable and exempt supplies, input tax credit is restricted to the portion attributable to taxable supplies and the balance must be reversed.
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