2025 (11) TMI 59 - AAR - GST

Blended cottonseed cattle feed (50:50) not a new product; classified under HSN 23061090, taxed at 2.5%

In Re: M/s. V.K. Industries

AAR held that the blended 'cotton seed cattle feed'-a 50:50 mix of decorticated expeller and solvent-extracted cottonseed cakes-does not acquire a new ... Classification of proposed new blended product 'Cotton Seed Cattle Feed' - to be classified under chapter 23 of HSN Code 23099010 or not - supply of proposed new product is covered by exemption under serial no 102 of Central Tax Rate N/N.02/2017 dated: 28-06-2017 - rate of tax on supply of the proposed New Product and which HSN Code the said product is covered - HELD THAT:- From the submissions of the applicant, it is seen that the product is not merely cotton seed oil cake/residue but is manufactured by combining the two raw materials Decorticated Cotton Seed Oil Cake –Expeller Variety (HSN Code: 23061010-Stated to be Exempt by applicant. However, it is taxable @ 5%) and Decorticated Cotton Seed De-oiled Cake – Solvent Extracted Variety (HSN Code: 23061020= GST Rate 5%) in equal proportion (50:50 by weight) for preparing a new product ‘Cotton seed cattle Feed’. Though this product may be different from raw materials, it will not lose its nature, character, identity and no new product emerged. The mixture ground to a uniform size of approximately 8 mm in size and then mixed in specialized mixing equipment and this final blended material is bagged and stored as finished cattle feed. This product is not specifically found in exempted entry No.102 of Central Tax Rate Notification No. 02/2017 dated 28.06.2017, whereas in Sl.No 107.(Tariff item 2306) 107 to Schedule of the notification no.1/2017, dated 28.6.2017 covers Oil-cake and other solid residues, whether or not ground or in the form of pellets, resulting from the extraction of vegetable or microbial fats or oils, other than those of heading 2304 or 2305 other than cottonseed oil and is liable to tax at 2.5%. As per the contents of the applicant the ingredients of ‘cotton seed cattle feed’ are Decorticated Cotton Seed Oil Cake –Expeller Variety and Decorticated Cotton Seed De-oiled Cake –Solvent Extracted Variety and more over it is not known that such product is only for the purpose of usage as cattle and invoices, also when the ingredients are liable to tax and the buyer of such goods is also eligible to claim Input Tax Credit then there is no reason to allow exemption on the corresponding sales which after some process sold as cattle feed. Hence, the product of the applicant should be classified under HSN Code: 23061090, and is liable to tax at 2.5%. The proposed new product cannot be classified under chapter 23 of HSN Code 23099010 - the supply of proposed new product is not covered by exemption under serial no 102 of Central Tax Rate Notification no. 02/2017 dated: 28-06-2017 - the product is taxable at 5% and under HSN Code 2361090. ISSUES PRESENTED AND CONSIDERED 1. Whether the proposed blended product 'Cotton Seed Cattle Feed' is classifiable under Chapter 23 as HSN 23099010 (compounded cattle feed/preparations of a kind used in animal feeding). 2. Whether supply of the proposed product is exempt from GST under Serial No. 102 of the Central Tax Rate Notification No. 02/2017 dated 28-06-2017 (exemption covering aquatic, poultry & cattle feed etc.). 3. If not exempt, what is the correct tariff classification and applicable GST rate for the proposed blended product (i.e., identification of the appropriate HSN code and rate)? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: whether the blended product falls under HSN 23099010 (Chapter 23) or under Chapter/heading 2306. Legal framework: Classification governed by the First Schedule to the Customs Tariff Act and the rules for interpretation (Section and Chapter Notes and General Explanatory Notes). Chapter Note to Chapter 23 defines scope of heading 2309 as 'products of a kind used in animal feeding ... obtained by processing vegetable or animal materials to such an extent that they have lost the essential characteristics of the original material.' Heading 2306 covers oil-cake and other solid residues resulting from extraction of vegetable oils (with specific subheadings for cotton seed oil-cakes: decorticated expeller 2306.10.10, decorticated solvent-extracted 2306.10.20, and other cottonseed oil-cake 2306.10.90). Precedent treatment: No preceding judicial or authoritative precedents were cited or relied upon in the decision; classification conclusions are reached by direct application of Chapter Notes and tariff wording. Interpretation and reasoning: The blended product is produced by combining two varieties of cotton seed oil-cake (decorticated expeller variety and decorticated solvent-extracted variety) in equal proportion, grinding and mixing, yielding a product that retains the nature, character and identity of oil-cake/material derived from cotton seed extraction. The Chapter 23 Note requires that goods must have 'lost the essential characteristics of the original material' to fall under 2309; here the applicant's own description shows the product remains an oil-cake/residue-derived material rather than a new compounded preparation that has undergone processing to the extent of losing original characteristics. The tariff entries show specific headings for cottonseed oil-cakes under 2306 and separate entries under 2309 for compounded animal feed; the blended oil-cake lacks evidence of transformative processing or formulation that would convert it into a distinct compounded feed within 2309. Ratio vs. Obiter: Ratio - The blended product composed of cottonseed oil-cakes does not lose the essential characteristics of oil-cake and thus cannot be classified under 2309; it falls within Chapter 23's cross-referenced heading 2306 for cottonseed oil-cake. Obiter - Observations regarding common parlance definitions of 'vegetable' and toxicological aspects of gossypol informing end-use limitations (i.e., suitability only for cattle) are explanatory but not determinative of tariff classification. Conclusion: The product is not classifiable under HSN 23099010 (Chapter 23 heading 2309) and should be treated as oil-cake/residue of cotton seed within heading 2306 (specifically placed in the 'other' cottonseed oil-cake category: 23061090 as per the authority's finding). Issue 2 - Whether supply is exempt under Serial No. 102 of Notification No. 02/2017 (exemption for aquatic, poultry & cattle feed etc.). Legal framework: Central Tax Rate Notification No. 02/2017 (and its explanatory notes) exempts certain entries by reference to tariff items/chapters; applicability depends on correct tariff classification in accordance with the First Schedule and Chapter/Heading Notes (per explanation to the Notification). Precedent treatment: None cited; analysis proceeds from statutory notification text and tariff classification outcome. Interpretation and reasoning: Serial No. 102 lists a range of items including 'cattle feed' across specified chapters/heads (2302, 2304, 2305, 2306, 2308, 2309). However, exemption under that serial is contingent on the product matching the tariff description and the chapter/head under which the product is classified. The blended product, being classified under heading 2306 (oil-cake/residue of cotton seeds), falls within the tariff items of Chapter 23 but the specific treatment in the schedule for Sl. No. 107 to Schedule (tariff item 2306) taxes oil-cake and solid residues (other than cottonseed oil cake) at 2.5% - and the authority notes that cottonseed oil-cake is captured under tariff item 2306 with a specific rate entry. The applicant did not produce objective evidence (laboratory test reports for the final product or sales invoices) to establish that the blended product is a distinct compounded cattle feed that should attract the blanket exemption in Sl. No. 102; moreover, where ingredients themselves are taxable and buyers can claim input tax credit, exemption on the resultant sale is not warranted absent clear classification and qualifying features. Ratio vs. Obiter: Ratio - Exemption under Serial No. 102 is not available because the product, as classified under chapter-heading 2306, does not meet the characteristics or the specific exempted description relied upon by the applicant, and there is insufficient evidentiary support to treat the blend as an exempt compounded cattle feed. Obiter - Note that taxability considerations also take into account commercial reality (invoices, ability of buyers to claim ITC) though these are ancillary to classification. Conclusion: The supply is not covered by the exemption at Serial No. 102 of Notification No. 02/2017; exemption is denied. Issue 3 - If not exempt, what is the applicable HSN code and GST rate? Legal framework: Tariff schedule entries and the Notification Schedule applying rates to tariff items (Schedule entry for 2306 and related rates: CGST/SGST 2.5% each (IGST 5%)). Precedent treatment: None cited; authority relies on tariff headings and Schedule entries. Interpretation and reasoning: Having determined the product retains the character of cottonseed oil-cake/residue and is therefore within heading 2306, the specific sub-heading applicable is the residual cottonseed oil cake sub-item - identified by the authority as HSN 23061090 ('other') to capture the blended composition of decorticated expeller and solvent-extracted varieties. The Schedule entry applicable to heading 2306 prescribes CGST 2.5% + SGST 2.5% (IGST 5%). Ratio vs. Obiter: Ratio - Correct classification is HSN 23061090 and the taxable rate is 2.5% CGST + 2.5% SGST. Obiter - The authority's observation that the applicant failed to provide laboratory test reports or invoices to substantiate claims about product composition, purity and exclusive end-use is evidentiary and supports the classification outcome but is not a separate legal rule. Conclusion: The product is classifiable under HSN 23061090 and taxable at CGST 2.5% + SGST 2.5% (IGST 5% where applicable).