Dried coconuts for human consumption classified under HSN 1203 attracting 5% GST not nil rate

The AAR, Tamil Nadu ruled that dried coconuts (copra) prepared for human consumption must be classified under HSN 1203, attracting 5% GST, rather than under Chapter 8 HSN 0801 which carries nil tax rate. The applicant processed coconuts by sun-drying and manually segregating based on quality - round, clean copra for human consumption versus irregular, dusty copra for oil mills. The AAR held that classification cannot be determined by end-use since edible copra can also serve milling purposes. Following GST Circular 163/19/2021, all copra regardless of intended use falls under heading 1203, thereby attracting 5% GST as per Schedule I entry 66.

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Issues Involved:
1. Classification of dried coconuts (shelled or peeled) used for human consumption.
2. Applicable GST rate for dried coconuts (copra).

Detailed Analysis:

1. Classification of Dried Coconuts (Shelled or Peeled) Used for Human Consumption
The applicant, engaged in manufacturing and trading coconut products, sought clarification on whether dried coconuts (shelled or peeled) used for human consumption should be classified under Chapter 8, HSN 0801, which attracts a 'nil' tax rate. The applicant detailed their process for producing edible copra, which involves sun drying coconuts, deshelling, further drying, and manually selecting edible copra from milling copra. The edible copra is polished and cleaned for human consumption, while the milling copra is sold to oil mills.

The Central Jurisdictional Authority commented that the copra selected for human consumption is manually cleaned, but the criteria for segregation are based on the presence of soil and dirt. They argued that dried edible copra should be of higher quality and processed to remove water and prevent microbial growth. The authority concluded that the copra dried under the sun and selected for human consumption does not merit classification under heading 0801.

The Ministry of Finance's Circular No. 163/19/2021-GST clarified that copra, defined as the dried flesh of coconut used for oil extraction, is classified under heading 1203, attracting a 5% GST rate regardless of its use. The explanatory notes to HS (2017 edition) specify that heading 0801 covers fresh or dried coconuts but excludes copra.

2. Applicable GST Rate for Dried Coconuts (Copra)
The applicant initially applied a 5% GST rate for both edible and milling copra and sought clarification on whether edible copra should be taxed at a nil rate under HSN 08011920. The ruling examined the notifications and circulars relevant to the classification and GST rates for copra. Notification No. 2/2017 Central Tax Rate exempts 'Coconuts, fresh or dried, whether or not shelled or peeled' from GST. However, Notification No. 1/2017 Central Tax Rate specifies that 'Copra other than of seed quality' attracts a 5% GST rate.

The ruling emphasized that the classification of copra should not be based on its end use but on its inherent characteristics. The Ministry of Finance's circular clarified that copra, irrespective of its use, is classified under heading 1203, attracting a 5% GST rate. The applicant's process of drying, deshelling, and manually selecting copra for human consumption does not alter its classification as copra under heading 1203.

Ruling:
The goods supplied by the applicant are correctly classified under Heading 1203, and the applicable GST rate for the same is 5% GST (CGST 2.5% + SGST 2.5%). The ruling aligns with the Ministry of Finance's clarification that copra, irrespective of its use, is classified under heading 1203 and attracts a 5% GST rate. The applicant's cited AAR Order No. 39/ARA/2019 was deemed irrelevant as it pertained to the withdrawal of an application without addressing the merits of the case.

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