Only Products Containing Nitrogen, Phosphorus, or Potassium Should be Classified as Fertilizer: AAAR [Read Order]

In a recent case, the Appellate Authority for Advance Ruling ( AAAR ) of Andhra Pradhesh held that only products containing Nitrogen, Phosphorus or Potassium should be classified as fertilizer for GST classification purposes.

The premise of the case arised when the appellant,  Zuari Farmhub Limited, appealed against the Authority for Advance Ruling ( AAR ) of ruling which held that the appellant’s products, Mangala Borosan and Mangala G1, couldn't be classified as fertilizers.

Get a Copy of Analysis of GST Returns (Interlinking of returns for compliance enhancement), Click here

The appellant is engaged in manufacturing of  micronutrient fertilizers by blending various raw materials like Zinc, Manganese, and Ferrous. These are used based on soil culture and approved by the Ministry of Agriculture.

The product manufactured by the appellant, Mangala Borosan contains Zinc Sulphate Monohydrate, Iron (II) sulphate, Manganese (II) sulphate, Borax, Dolomite, and Soap stone powder while another product, Mangala G, has a similar composition with variations in percentage.

The appellant argued that their products should be classified under Chapter Heading 3105 as fertilizers, relying on the definition of “ Fertiliser” as given in Fertiliser (Control) Order, 1985 ( FCO,1985) .

Get a Copy of Analysis of GST Returns (Interlinking of returns for compliance enhancement), Click here

According to Section 2(h) of FCO, 1985 "Fertiliser" means any essential substance, either in straight or mixed form and derived from either inorganic, organic or mixed sources, that is used or intended to be used to provide essential plant nutrients or beneficial elements or both for the soil or for the crop or makes essential plant nutrients available to the plants either directly or by biological process or by both in the soil or plant as notified from time to time by Central Government and specified in the schedules appended to this order or as notified bv the State Governments and includes a biostimulant and nanofertilizers.

The appellant further added that the products are covered under the Andhra Pradesh state government

notification approving the standards of various grades of manufacturing the mixtures of micronutrients to be used as fertilizers. Concurrent reading of both definition and state notification establishes that products supplied by the Appellant are nothing but Fertilizers as per FCO, 1985.

Get a Copy of Analysis of GST Returns (Interlinking of returns for compliance enhancement), Click here

The AAR however,  ruled that the products could not be classified under Chapter Heading 3105. They were classified under 2833 29 90, attracting a GST rate of 18% (CGST 9% + SGST 9%). Aggrieved by this order, the appellant moved against this before the AAAR.

Before the AAAR, the appellant  highlighted that though the products does not involve direct application of nitrogen, phosphorus or potassium (N, P, K,as they are referred to in the chemical terminology), in the process of application of the product bv the end user,  one of the trace elements, viz., nitrogen gets emanated, with help of which it becomes possible to deliver the metal ions or micronutrients to the plant system. Therefore,  when put to use, they are clearly fertilizers classifiable under HSN 3105 9090.

 After hearing the arguments, the bench of Mr Sanjay Pant and Mr Girija Shankar  observed that the appellant’s products didn’t contain even one of the essential fertilizer elements as given under GST law, ie, nitrogen, phosphorus or potassium, to qualify them as fertilizers. In light of this key observation the bench concluded that they are in agreement with the AAR’s order and hence, upheld the same.

In result, the products were held as not classifiable under HSN 3105 or eligible for a 5% GST rate.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates