2024 (7) TMI 1061 - AAR - GST

Non-edible neem oil classified as HSN 1515 90 20 not fertilizer despite reduced Azadirachtin content per General Rule 3(b)

The AAR, UP ruled that non-edible neem oil is classifiable under HSN code 1515 90 20 under Chapter 15, not as fertilizer under Chapter 31. Despite the ... Classification of goods - Harmonized System of Nomenclature - General Rules for the Interpretation of the Harmonized System - Essential character test - Mixtures and composite goods classification - Refund of accumulated input tax credit in inverted duty structure - Notification No. 09/2022 - denial of refund for specified goodsClassification of goods - Essential character test - General Rules for the Interpretation of the Harmonized System - Mixtures and composite goods classification - Harmonized System of Nomenclature - Non-edible chemically modified neem oil is classifiable under HSN chapter heading 1515 (specifically 15159020). - HELD THAT: - The Authority applied the General Rules for interpretation of the Harmonized System. Rule 1 requires classification to be determined by the terms of the headings and notes. The product as supplied is described and tendered as 'Neem Kernel Oil/Depulped neem seed oil' and neem seed oil is specifically mentioned under sub-heading 1515 90 20. The addition of solvents to reduce Azadirachtin concentration does not amount to chemical modification that alters the essential character of the product; true chemical modification would involve changes in chemical constitution such as hydrogenation or esterification. Applying Rule 3(b), where mixed or composite goods are to be classified according to the material giving them their essential character, the product remains essentially neem oil despite dilution. Consequently, the product is classifiable under HSN 1515 (sub-heading 15159020) and not under Chapter 31 as a fertilizer. [Paras 15, 16, 20, 23]Classified as HSN 1515 (15159020).Refund of accumulated input tax credit in inverted duty structure - Notification No. 09/2022 - denial of refund for specified goods - Applicability of notifications - Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 applies to the applicant's product and thus no refund of unutilized input tax credit on account of inverted duty structure is allowable for that product. - HELD THAT: - Notification No. 09/2022, issued under the proviso to section 54(3) of the CGST Act, specifies certain goods falling under chapter 15 for which no refund of unutilized input tax credit shall be allowed where credit has accumulated because input tax rates exceed output tax rates. Having held that the applicant's product is classifiable under chapter 15 (HSN 1515), the product falls within the scope of the notification. Therefore the statutory bar contained in Notification No. 09/2022 applies and the applicant is not entitled to refund of accumulated ITC on that ground. [Paras 21, 22, 23]Notification No. 09/2022 applies; refund of unutilized input tax credit on account of inverted duty structure is not allowable.Final Conclusion: The Authority ruled that the applicant's non-edible neem oil is classifiable under HSN 1515 (sub-heading 15159020) and that Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 applies to this product, thereby precluding refund of accumulated input tax credit arising from an inverted duty structure. Issues Involved1. Classification of non-edible neem oil under HSN code.2. Applicability of Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 on the applicant.Detailed AnalysisIssue 1: Classification of Non-Edible Neem Oil under HSN CodeThe applicant, engaged in the manufacturing of neem cake and chemically modified non-edible neem oil, sought clarification on the appropriate HSN code for their product. The applicant contended that their chemically modified neem oil should fall under Chapter 31 of HSN codes, which pertains to fertilizers, rather than under HSN 1515, which is for fixed vegetable oils.Upon review, the Assistant Commissioner, CGST & Central Excise, and the Deputy Commissioner, State Tax, Kanpur Dehat, both opined that neem oil, including the applicant’s chemically modified version, falls under HSN code 1515. The chemically modified neem oil retains its essential character as neem oil despite the addition of solvents, which does not constitute a significant chemical modification. Instead, it merely reduces the concentration of Azadirachtin, an insecticide component of neem oil.The ruling emphasized the General Rules of Interpretation of tariff, particularly Rule 1 and Rule 3(b), which guide the classification based on the essential character of the product. Consequently, the Authority for Advance Ruling concluded that the non-edible neem oil should be classified under HSN code 1515 90 20.Issue 2: Applicability of Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022The applicant questioned whether the provisions of Notification No. 09/2022-Central Tax (Rate), which restricts the refund of unutilized input tax credit for certain goods under Chapter 15, apply to their product. The notification specifies that no refund of unutilized input tax credit shall be allowed where the credit has accumulated due to a higher tax rate on inputs compared to the output supplies of specified goods.Given that the non-edible neem oil is classified under HSN code 1515, the notification is applicable. This means the applicant is not entitled to a refund of the accumulated input tax credit, as the tax rate on inputs (18% and 12%) is higher than the tax rate on the output supply of non-edible neem oil (5%).ConclusionThe Authority for Advance Ruling, Uttar Pradesh, ruled unanimously on both issues:1. The non-edible neem oil is classified under HSN code 1515.2. Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 is applicable to the applicant, thereby disallowing the refund of unutilized input tax credit.This ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, and is subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.