The Appellate Authority for Advance Ruling, Chhattisgarh ( AAAR ) recently upheld the ruling provided by the Authority for Advance Ruling ( AAR ), Chhattisgarh that Goods and Services Tax ( GST ) of 18% is applicable on the supply of Fortified Rice Kernels ( FRK ) manufactured by the Appellant maintaining that FRK falls under Chapter 19 of the GST Tariff.
The Appellate Application was filed by M/s. Brindavan Agrotech Private Limited (Brindavan Agrotech), a private enterprise seeking to start the manufacture and sale of “Fortified Rice Kernels”, a product derived after value-addition to blended rice flour.
The initial Advance Ruling Application had been disposed of by the AAR holding that the classification of the Appellant’s product under subheading 19049000 of Chapter 19 of the GST Tariff would attract a cumulative 18% GST.
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Brindavan Agrotech has filed the present Appeal before AAAR citing Chapter 10 of the Customs Tariff Act, 1975 and notes issued by the World Customs Organization to submit that milling of rice up to the stage of processing of paddy to obtain rice is covered under Chapter 10 and that such milled rice shall be classifiable under CH 1006.
Further averments were made contending that the multi-level fortification processes employed by the Appellant, including processes and parameters in addition to the percentage of ash, vitamins and minerals in the FRK warrants classification under Chapter Heading 1102
It was also submitted by the Applicant that explanatory notes to Chapter Heading 19.04 issued by the World Customs Organization holds that Chapter 19 does not cover cereal grains merely worked or treated by the processes specified in Chapters 10 or 11.
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The two-member Bench of AAAR comprising Members Chandra Prakash Goyal and Rajat Bansal observed that Note 2 of Chapter 11 of the Customs Tariff Act, 1975 requires a product under Chapter 11 to be derived from the milling of Cereals.
Here, the Rice Milling process undergoes numerous steps such as cleaning, de-husking, sorting and grading before the rice is subject to the fortification process to later be blended into traditional rice.
Taking note of the contents of Chapter 11, AAAR held that the processes such as blending of rice with vitamin-mineral premix and use of binder and extrusion machines are processes beyond the scope of Chapter 11, and the products are not rice grains but rice shaped derivatives.
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Concludingly, AAAR laid reference to the amendment of Notification No.39/2017- Central Tax (Rate) via Notification No.11/2021-Central Tax (Rate) effective from 01.10.2021 to reaffirm that the intention of the Government is to maintain FRK under Chapter 19 of the Customs Tariff Act and not Chapter 11, thus upholding the decision of the AAR.
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