2022 (2) TMI 1210 - AAR - GST

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 ... Classification of goods - by-product versus residue - classification under Heading 2303 (brewing or distilling dregs and waste) - classification under Heading 2309 (cattle feed, poultry feed, feed supplements) - Explanatory Notes to the HSN - trade parlance and end use in classificationBy-product versus residue - trade parlance and end use in classification - Whether DWGS (Distillers Wet Grain Solubles) produced by the applicant is a by product or a residue - HELD THAT: - The Authority examined the manufacturing process and the nature of outputs from the distillation of grain. While the applicant contended that DWGS (wet cake) is a by product used and sold as cattle/poultry feed, the Authority observed that DWGS arises from the brewing/distilling process as part of the residues, dregs and waste produced when the starch portion is extracted. Relying on the characterisation of outputs from brewing/distilling and the explanatory HSN notes describing dregs resulting from distillation, the Authority concluded that DWGS is in the nature of brewing or distilling dregs and waste rather than an independent by product for classification purposes. [Paras 11, 12, 13, 14]DWGS is a kind of brewing or distilling dregs and waste.Classification under Heading 2303 (brewing or distilling dregs and waste) - Explanatory Notes to the HSN - Whether DWGS is classifiable under Tariff Entry 2303 of the GST Tariff - HELD THAT: - The Authority analysed the descriptions in the notifications and the Explanatory Notes to the HSN. Heading 2303 expressly covers residues of starch manufacture and similar residues, and brewing or distilling dregs and waste, including dregs of cereals obtained in the manufacture of beer and dregs resulting from distillation of spirits. Applying these descriptive elements to the facts-starch extraction in the distillation process and the consequent production of DWGS-the Authority held that DWGS falls within the scope of brewing or distilling dregs and waste and therefore is classifiable under Heading/Entry 2303. [Paras 13, 14]DWGS is classifiable under Chapter/Heading/Sub heading/Tariff item 2303 of the GST Tariff.Classification under Heading 2309 (cattle feed, poultry feed, feed supplements) - trade parlance and end use in classification - Whether DWGS sold as cattle feed in trade is classifiable under Tariff Entry 2309 - HELD THAT: - Although the applicant emphasised commercial use and machinery investment to produce marketable wet cake used as animal feed and relied on trade parlance and authorities about popular meaning and end use, the Authority found that mere marketability, end use or investment in separation equipment does not displace the descriptive scope of the tariff entries. Entry 2309 covers feed and related items, but the Authority concluded that the specific character of DWGS as arising from the brewing/distilling process brings it within the 2303 description. Consequently, DWGS cannot be treated as falling under Entry 2309 for classification purposes in the present facts. [Paras 8, 14]DWGS is not classifiable under Tariff Entry 2309; it is to be classified under Tariff Entry 2303.Final Conclusion: The Authority ruled that DWGS (Distillers Wet Grain Solubles / wet cake) produced by the applicant is a form of brewing or distilling dregs and waste and is classifiable under Chapter/Heading/Sub heading/Tariff item 2303 of the GST Tariff; it is not classifiable under Entry 2309. 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.