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 applicant's claim that reducing Azadirachtin content from 100-900 ppm to 150 ppm through chemical modification should reclassify it as fertilizer, the authority determined the product retains its essential character as neem oil per General Rule 3(b). Consequently, Notification No. 09/2022-Central Tax (Rate) applies, denying the applicant refund of unutilized input tax credit accumulated due to higher input tax rates compared to output supplies.

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Issues Involved
1. 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 Analysis

Issue 1: Classification of Non-Edible Neem Oil under HSN Code

The 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 13.07.2022

The 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%).

Conclusion

The 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.

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