2023 (10) TMI 632 - AAR - GST

Broken rice from manufacturing process classified under Chapter 1006 attracts same tax rate as rice

AAR West Bengal ruled that broken rice generated from manufacturing process is classifiable under Chapter Heading 1006, attracting same tax rate as rice. ... Pre-packaged and labelled - pre-packaged commodity under the Legal Metrology Act - classification under Chapter Heading 1006 (RICE) - exemption for rice other than pre-packaged and labelledPre-packaged and labelled - pre-packaged commodity under the Legal Metrology Act - exemption for rice other than pre-packaged and labelled - Notification No. 06/2022 and Notification No. 07/2022 - Taxability of sale of unbranded/non packaged broken rice at the rate of 5% - HELD THAT: - The Authority examined whether 'broken rice' falls for GST at 5% or is exempt. It first applied the Customs Tariff interpretation to classify 'broken rice' under Chapter Heading 1006 (RICE), so that rate notifications applicable to rice govern its levy. The Authority noted that with effect from 18.07.2022 Notification No. 06/2022 subjects 'Rice, pre-packaged and labelled' to GST @5%, while Notification No. 07/2022 exempts 'Rice, other than pre-packaged and labelled'. The concept of 'pre-packaged and labelled' for GST purposes is drawn from the definition of 'pre-packaged commodity' under the Legal Metrology Act, 2009 and the Packaged Commodities Rules, including the Press Release clarification that food items in pre-packaged quantities up to 25 kg/litre fall within that definition, subject to exclusions such as supplies to industrial or institutional consumers under rule 3(c). Applying these legal provisions and clarifications, the Authority held that the applicant's supply of broken rice, when not pre packaged and labelled as per the Legal Metrology regime, does not attract the 5% levy and is exempt; conversely, if supplied as pre packaged and labelled, it would attract 5% GST. [Paras 4]Supply of 'broken rice' is taxable at 5% only when supplied as 'pre-packaged and labelled'; supply other than pre-packaged and labelled is exempt under Notification No. 07/2022.Final Conclusion: The Authority ruled that the applicant need not pay GST on supply of broken rice when supplied other than as 'pre-packaged and labelled'; such pre-packaged and labelled supplies of rice are taxable at 5%. Issues Involved:The issue involves the classification and taxation of broken rice under the GST Act.Applicant's Submission:The applicant, engaged in rice manufacturing, sought an advance ruling on whether the sale of unbranded broken rice should be taxed at 5%. The applicant clarified that the broken rice is neither pre-packaged nor labeled, and thus, no tax is charged on its supply.Revenue's Submission:The revenue officer did not provide any view on the matter.Observations & Findings:The Authority determined that broken rice falls under Chapter Heading 1006 of the Customs Tariff Act, attracting the same tax rate as rice. Following Notification No. 07/2022-Central Tax (Rate), broken rice is exempt from tax if supplied other than pre-packaged and labeled. The ruling stated that tax is not payable on broken rice if supplied in an unbranded and un-packaged manner.This judgment clarifies the tax implications of supplying broken rice under the GST Act, emphasizing the importance of pre-packaging and labeling for tax liability.