Fortified Rice Kernels classified under Chapter 1904 with 18% GST rate under entry 15 Schedule-III

The AAR Chhattisgarh ruled on the classification and GST rate for Fortified Rice Kernels (FRK). The Authority determined that FRK should be classified under Chapter Heading 1904 rather than 1103 of the Customs Tariff Act, as the goods are preparations of rice flour. The applicable GST rate is 18% (9% CGST + 9% SGST) under entry 15 of Schedule-III to Notification 01/2017-CT(Rate). The ruling referenced the 45th GST Council meeting recommendations and subsequent notification 11/2021 which reduced GST to 5% specifically for FRK supplied under government schemes like ICDS.

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Issues Involved:
1. HSN classification of "Fortified Rice Kernels (FRK)"
2. Rate of tax applicable on the supply of FRK under GST Law

Detailed Analysis:

Issue 1: HSN Classification of "Fortified Rice Kernels (FRK)"
The applicant, M/s Brindavan Agrotech Private Limited, sought an advance ruling on the HSN classification of "Fortified Rice Kernels (FRK)" and the applicable GST rate. The applicant detailed the technical specifications and manufacturing process of FRK, which includes converting rice into rice flour, blending it with vitamins and minerals, and extruding the mixture to form pellets. The applicant argued that the FRK should be classified under Chapter 1103 of the Customs Tariff Act, which covers cereal groats, meal, and pellets.

The applicant supported their claim by referring to Chapter Note 2(A) and 2(B) of Chapter 11 of the Customs Tariff Act and provided test reports showing that the rice flour used in FRK meets the specified starch and ash content. They also cited Explanatory Notes issued by the World Customs Organization, which state that cereal flours may include small quantities of added minerals and vitamins.

However, the Authority for Advance Ruling (AAR) found that Chapter 11 deals with products obtained solely from milling cereals, while the FRK undergoes additional processes such as blending with vitamins and minerals and extrusion. Chapter Note 1(c) to Chapter 11 excludes products of heading 1904, which covers preparations of cereals, flour, starch, or milk. The AAR concluded that FRK, being a preparation of rice flour with added vitamins and minerals, is more appropriately classified under Chapter 1904.

Issue 2: Rate of Tax Applicable on the Supply of FRK under GST Law
The AAR referred to the GST Council's recommendations and notifications to determine the applicable GST rate for FRK. The agenda for the 45th GST Council meeting held on 17th September 2021 included a proposal to reduce the GST rate on FRK from 18% to 5% for supplies under schemes like ICDS. The GST Council subsequently recommended this reduction, and Notification No. 11/2021 C.T.(Rate) dated 30.09.2021 amended the tax rate for FRK supplied for ICDS or similar schemes to 5%.

However, the AAR noted that for general supplies not under any specific government scheme, the applicable GST rate for FRK classified under Chapter 1904 remains 18% [9% CGST + 9% SGST] or 18% IGST, as per entry no. 15 to Schedule-III to Notification No. 01/2017-CT(Rate) dated 28.6.2017 as amended.

Conclusion:
The AAR ruled that Fortified Rice Kernels (FRK) proposed to be manufactured by the applicant M/s Brindavan Agrotech Private Limited merits classification under chapter subheading 19049000, attracting GST at the rate of 18% [9% CGST + 9% SGST] or 18% IGST, as applicable.

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