No GST Exemption on Rejected Paddy Seed, Lacks Food Quality: AAAR [Read Order]

The Appellate Authority for Advance Ruling (AAAR), Chhattisgarh recently clarified that no exemption of Goods and Service Tax (GST) may be applicable on the resale of Rejected Paddy Seed since it lacks food quality in comparison to ‘Rice’.

The clarification was provided by AAAR against an Application for Advance Ruling filed under 101 of the GST Act by Shraddha Traders - an entity operating a rice mill. The Appellant had been awarded tender by the Chhattisgarh State Cooperative Marketing Federation for purchase of Rejected Paddy, out of which a certain portion could be resold by the Appellant.

In a multifaceted application before the AAAR, the Appellant sought the proper classification and applicability of GST on the sale of Rejected Paddy Seed in bags of more than 25 Kg. Shraddha Traders sought GST exemption by means of S. No. 70 of Notification No. 02/2017 - Central Tax (Rate) dated 28.06.2017.

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The appellant contended that ‘Rice’ under HSN 1006 had previously attracted a GST of 5%, which was reduced to Nil following the Notification No. 02/2017 - Central Tax (Rate) dated 28.06.2017. In similar vein, the appellant sought GST exemption for rejected paddy if the same was to be classified under the HSN Code 1006 10.

Referring to the ruling rendered by the Authority for Advance Ruling (AAR) in the previous stage held that rejected paddy seed would merit classification under HSN Code 100610 while vitiating any probable GST exemption by means of the above-mentioned Notification No. 02/2017 - Central Tax (Rate).

The two-member Bench of Chandra Prakash Goyal and Rajat Bansal observed that Notification No. 02/2017 - Central Tax (Rate) dated 28.06.2017 is an exemption notification and that goods placed under the notification are wholly exempt from GST.

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Noting that Rejected Paddy Seed is completely unfair for human consumption, the Bench concluded that the same may not be classified in the same heading as Rice since any seed quality crop should possess seed parity, sprouting capacity, be free from seed borne diseases and pests.

Consequently, AAAR clarified that the Rejected Paddy Seed is classifiable under HSN Code 1006 10 90, vitiating any possible claims of GST exemptions on the resale of the same.

To Read the full text of the Order CLICK HERE

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