DWGS classified as brewing waste under Tariff Item 2303, not cattle feed under Entry 2309

AAR Rajasthan ruled that Distillers Wet Grain Solubles (DWGS) cannot be classified as cattle feed under Tariff Entry 2309 despite being sold as such in the market. The Authority determined that DWGS is an inevitable outcome of alcohol manufacturing and constitutes brewing/distilling dregs and waste. The ruling clarified that items under Entry 102 of Notification 2/2017-Central Tax (Rate) are distinct from DWGS and cannot be claimed merely for exemption benefits. DWGS was classified under Tariff Item 2303 as brewing/distilling waste rather than cattle feed.

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Issues Involved:
1. Whether DWGS (Distillers Wet Grain Solubles) is a by-product or residue.
2. Classification of DWGS under GST Tariff.
3. Whether DWGS, sold as cattle feed, should be classified under Tariff Entry 2309 of GST Tariff.

Issue-wise Detailed Analysis:

1. Whether DWGS (Distillers Wet Grain Solubles) is a by-product or residue:

The applicant, ADS Agro Industries Private Limited, operates a grain-based distillery producing alcohol using grains such as broken rice. During the distillation process, only the starch portion of the grain is utilized for alcohol production, leaving behind other components like protein, fiber, and oil. These components are further processed into DWGS, also known as "Wet Cake," which is used as cattle feed. The applicant argues that DWGS is a by-product, not a residue, as it has a marketable value and is specifically produced using additional equipment, such as Centrifuge Decanters, which are not part of the distillation process.

The Authority for Advance Ruling (AAR) reviewed the definitions and industry norms for by-products and residues. By-products are incidentally recovered during the manufacture of main products and have a relatively low net realizable value compared to the main product. Residues, on the other hand, have no value or even negative value if disposal costs are involved. The AAR concluded that DWGS is an inevitable outcome of the alcohol manufacturing process and is a kind of brewing or distilling dregs and waste. Therefore, DWGS is classified as a residue.

2. Classification of DWGS under GST Tariff:

The applicant sought clarification on the GST classification of DWGS. The relevant GST Tariff entries considered were:

- Entry 2303: "Residues of starch manufacture and similar residues, beet pulp, bagasse, and other waste of sugar manufacture, brewing or distillery dregs and waste, whether or not in the form of pellets," which attracts a GST rate of 5%.
- Entry 2309: "Aquatic feed including shrimp feed and prawn feed, poultry feed & cattle feed, including grass, hay & straw, supplement & husk of pulses, concentrates & additives, wheat bran & deoiled cake other than rice bran," which is exempt from GST.

The AAR analyzed the nature of DWGS and found that it fits the description of brewing or distilling dregs and waste under Entry 2303. The process of manufacturing alcohol involves the utilization of the starch portion of the grain, and the remaining components are processed into DWGS. The AAR concluded that DWGS is classifiable under Chapter/Heading/Sub-heading/Tariff item 2303 of the GST Tariff.

3. Whether DWGS, sold as cattle feed, should be classified under Tariff Entry 2309 of GST Tariff:

The applicant contended that DWGS should be classified under Entry 2309 as cattle feed, which is exempt from GST. They argued that DWGS is sold as cattle feed in the market and has no other use. The AAR, however, noted that the items described under Entry 2309 are different from DWGS. The mere market value and installation of machinery for DWGS production do not qualify it as cattle feed under Entry 2309. The AAR emphasized that DWGS is a result of the brewing or distilling process and is classified as brewing or distilling dregs and waste under Entry 2303.

Ruling:

- Question A: DWGS is a kind of brewing or distilling dregs and waste.
- Question B: DWGS is not to be classified under Tariff Entry 2309 of the GST Tariff.
- Question C: DWGS, sold as cattle feed, is to be classified under Chapter/Heading/Sub-heading/Tariff item 2303 of the GST Tariff.

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