Cotton seed de-oiled cake (HSN 23061020) treated as oil-cake residue, fully GST-exempt and input tax credit denied

AAR, West Bengal held that cotton seed de-oiled cake (HSN 23061020) is classified under Chapter 23 as oil-cake/residue and is exempt from GST irrespective of its use. The ruling notes that between 01.07.2017 and 21.09.2017 exemption applied only when used as aquatic, poultry or cattle feed, otherwise it attracted 2.5% CGST + 2.5% SGST; from 22.09.2017 onward it is exempt in all uses. Because the product is exempt, input tax credit on GST paid is not available.

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ISSUES PRESENTED AND CONSIDERED

1. Whether cotton seed de-oiled cake (HSN 23061020) is taxable at 5% GST when used as fish meal in aquaculture operations.

2. If GST is applicable on the product, whether the purchaser is entitled to claim Input Tax Credit (ITC) on GST paid for the purchase.

3. If GST is applicable on purchase, whether the applicant must charge GST on sale (at 5% or otherwise) or whether the sale is exempt.

ISSUE-WISE DETAILED ANALYSIS - Issue 1: Taxability of cotton seed de-oiled cake used as fish meal

Legal framework: The relevant legal framework comprises the GST tariff entries for Chapter 23 (Tariff item 2306) and the tables in Notification No. 02/2017-Central Tax (Rate) as amended, including entries in the Exempt Schedule (serial nos. 102, 102A, 102B) and Schedule I (serial no. 107 and its amendments).

Precedent treatment: Reference is made to a High Court decision (as cited by the applicant) holding that cotton seed oil cakes are exempt when used as cattle feed and that end-use need not be ascertained by the supplier. The revenue officer offered no contrary view in these proceedings.

Interpretation and reasoning: The Authority examines the HSN classification (230610 series) and traces temporal changes in the notifications: (a) From 01.07.2017-21.09.2017, goods under 2306 were taxable under serial no. 107 (2.5% CGST + 2.5% SGST) except where the product fell within exempt serial no. 102 (aquatic feed, poultry feed & cattle feed, including de-oiled cake), making taxability usage-dependent; (b) From 22.09.2017-24.01.2018, cotton seed oil cake was specifically inserted in the Exempt Schedule (serial no. 102A) making all varieties of cotton seed oil cake exempt irrespective of use; (c) From 25.01.2018 onwards, the product remained in the Exempt Schedule under serial no. 102B, with parallel exclusions of cotton seed oil cake from serial no. 107 in subsequent notifications, reinforcing exemption irrespective of end use. The Authority explains the production process and typical uses to justify classification under Chapter 23 (residues and prepared animal fodder) and to show why the notified amendments control taxability.

Ratio vs. Obiter: The temporal analysis of notification entries and the conclusion that notification amendments superseded earlier usage-based taxability constitute the ratio; references to production process and High Court reasoning serve as supporting observations (not essential to the statutory interpretation but explanatory).

Conclusion: Cotton seed de-oiled cake (HSN 23061020) is exempt from GST irrespective of its use (i.e., including when used as fish meal in aquaculture) with effect from the dates indicated by the notifications; during 01.07.2017-21.09.2017 exemption applied only where the product was used as aquatic/poultry/cattle feed, but from 22.09.2017 (and thereafter under subsequent notifications) the product is placed in the Exempt Schedule irrespective of end use.

ISSUE-WISE DETAILED ANALYSIS - Issue 2: Entitlement to Input Tax Credit (ITC) on purchase

Legal framework: ITC is available to registered persons for credit of input tax paid on taxable supplies used in the course or furtherance of business, subject to restrictions where supplies are exempt.

Interpretation and reasoning: Given the Authority's determination that cotton seed de-oiled cake is exempt (see Issue 1), input tax paid on its purchase cannot give rise to ITC because the supply itself is not a taxable supply for the relevant period(s) when exemption applies.

Ratio vs. Obiter: The proposition that ITC does not arise on exempt purchases is a direct logical consequence of the exemption finding and therefore part of the operative ratio.

Conclusion: Entitlement to claim ITC on GST paid for purchase of cotton seed de-oiled cake does not arise since the product is exempt from tax under the applicable notifications.

ISSUE-WISE DETAILED ANALYSIS - Issue 3: Taxation on sale by the applicant

Legal framework: Outward supplies by a registered person are taxable or exempt according to the tariff and applicable notifications; seller's charging of tax depends on classification and exemption status.

Interpretation and reasoning: In light of the finding that the product is exempt irrespective of use (post-notification amendment), sales of cotton seed de-oiled cake are not subject to GST; accordingly there is no obligation to charge GST on sale and no basis to charge at 5% (or other rate) where exemption applies.

Ratio vs. Obiter: The conclusion that sales are exempt flows directly from the determination on taxability and is therefore ratio.

Conclusion: The applicant need not charge GST on sale of cotton seed de-oiled cake; the question of charging 5% does not arise because the sale is exempt under the applicable Exempt Schedule entries.

Cross-References and Temporal Clarification

For completeness, the Authority distinguishes the temporal periods: (i) 01.07.2017-21.09.2017 - exemption only if used as aquatic/poultry/cattle feed; (ii) from 22.09.2017 onwards (as effected by insertion into the Exempt Schedule and subsequent re-numbering) - cotton seed oil cake is in the Exempt Schedule irrespective of use, and concurrent exclusions from taxable serial entries reinforce this position. The conclusions above apply in accordance with these temporal distinctions.

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