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)

In Re: M/s. Pooja Solvent Private Limited

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 ... Classifictaion of goods - non-edible neem oil - HSN code - whether the product under question is classified under Chapter Heading 15 or Chapter 31 or under any other Chapter Heading? - applicability of N/N. 09/2022-Central Tax (Rate) dated 13.07.2022. Classification of goods - HELD THAT:- It is found that neem seed oil is mentioned under Chapter Sub-heading 1515 90 20. Thus, the neem oil is classifiable under HSN code 1515 90 20. However, as per applicant their product in question i.e. “non-edible Neem Oil” are chemically modified and it should be classified as fertilizer under chapter 31 of HSN codes. As per applicant, naturally produced neem oil by them is having Azadirachtin content of 100-900 ppm, whereas they are supplying to their buyers having Azadirachtin content of around 150 ppm. PPM of Azadirachtinis modified/reduced to 150 PPM by adding mixed solvent, reducer oil, cashew nutshell liquid, etc. As per applicant this reduction in concentration is nothing but chemical modification and hence their product is chemically modified neem oil. Since, the product is neem oil mixed with different solvents resulting to new product which remain neem oil in its essential character. Thus, as per rule 3 (b) of General Rules for the interpretation of the Harmonized System, the product “non-edible Neem Oil” is classified under HSN code 15159020. The product do not classified as fertilizer under chapter 31 of HSN codes. Applicability of Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 on the applicant - HELD THAT:- Vide Notification No. 09/2022-Central Tax (Rate) dt. 13.07.2022, under the powers conferred by clause (ii) of the first proviso to sub section (3) of section 54 of the CGST Act 2017, certain goods falling under chapter 15 and 27 have been specified in respect of which no refund of unutilized input tax credit shall be allowed, where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies of such specified goods (other than nil rated or fully exempt supplies) - “Non-edible Neem Oil” manufactured by the applicant having HSN code 1515 is covered by Notification No. 09/2022/Central Tax (Rate) dt. 13.07.2022 and thus the applicant is not entitled to any refund of unutilized input tax credit, which is accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies of such specified goods. 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.