In re Sri Vasuki Industries (GST AAR Karnataka)
Summary: The Karnataka Authority for Advance Ruling (AAR) ruled that Cashew Nut Shell Liquid (CNSL), manufactured and supplied by M/s Sri Vasuki Industries, is classifiable under HSN 1302 19 20 and attracts GST at 5% (2.5% CGST and 2.5% SGST) with effect from 22 September 2025. The applicant, engaged in manufacturing crude CNSL by extracting liquid from cashew nut shells through heating and mechanical expulsion, sought clarification regarding the applicability of the reduced GST rate introduced through Notification No. 9/2025-Central Tax (Rate) dated 17 September 2025. The product is supplied to domestic and overseas customers for industrial applications, including manufacturing resins, paints, coatings, varnishes, laminates and friction materials. The applicant submitted that CNSL falls under Heading 1302 as a vegetable extract and that the concessional rate applies to all products covered by that heading without restriction to particular subheadings.
The Authority examined the nature, composition, manufacturing process and industrial applications of CNSL while considering its classification under Chapters 08, 13, 15, 20 and 39 of the Customs Tariff. It observed that Chapter 08 covers cashew nuts in their natural or minimally processed form, whereas Chapter 20 concerns prepared or preserved edible products. CNSL, being a non-edible industrial extract obtained from cashew nut shells, was held to fall outside these chapters. The Authority also rejected classification under Chapter 15 and distinguished crude CNSL from chemically modified products and polymers covered under Chapter 39. It noted that the applicant’s product undergoes mechanical and thermal extraction without polymerisation or chemical transformation and retains its natural constituents. Since tariff item 1302 19 20 specifically covers crude Cashew Shell Liquid, the Authority concluded that the product is appropriately classifiable under Heading 1302 as a vegetable extract.
Regarding the applicable GST rate, the Authority examined Serial No. 74 of Schedule I to Notification No. 9/2025-Central Tax (Rate), which covers vegetable saps and extracts and other specified products falling under Heading 1302. It observed that the notification refers to the four-digit heading without restricting its application to any particular subheading or tariff item. Consequently, all goods appropriately classifiable under Heading 1302, including crude CNSL falling under HSN 1302 19 20, are covered by the entry. The Authority accordingly held that the applicant’s Cashew Nut Shell Liquid attracts GST at 5%, comprising 2.5% CGST and 2.5% SGST, effective from 22 September 2025. The ruling establishes the classification and applicable GST rate for the crude CNSL product described in the application, based on its extraction process, composition and absence of chemical modification.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KARNATAKA
M/s Sri Vasuki Industries, (herein after referred to as ‘the Applicant or M/s SVI), Sy. No. 32/33, Post-Santhekatte, 38 Kalthur Village, Udupi District, Karnataka-576215, having GSTIN 29ABIFS8001Q1ZI, have filed an application for Advance Ruling under Section 97 of COST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of Rules, 2017.
2. The Applicant is engaged in the manufacture of Cashew Nut Shell Liquid (CNSL) obtained from processing of Cashew Nut Shell. The activities involves extraction of oil from cashew shells through heating and mechanical expulsion, resulting in crude Cashew Nut Shell Liquid, which is sold to domestic and overseas buyers for use in industrial applications such as resins, coatings and friction materials. Cashew Nut Shell Liquid is a versatile by-product of the cashew industry. The Cashew Nut has a shell of about 1/8 inch thickness inside which is a soft honey comb structure containing a dark reddish brown viscous liquid, which is called cashew Nut shell Liquid, which is the pericarp fluid of the cashew nut. It is often considered as the better and cheaper material for unsaturated phenols.
3. In view of the above, the applicant has sought advance ruling in respect of the following questions:
i. Whether the goods produced and supplied by the applicant, described as Cashew Nut Shell Liquid (CNSL) are classifiable under Heading 1302 of the Customs Tariff and consequently liable to GST at 5%, in terms of Notification No. 09/2025 Central Tax (Rate) dated amending the rate of tax for heading 1302, effective 22.09.2025.
4. Admissibility of The Application: The applicant, under Column 13 of Form ARA-01, has selected category of issues, “Applicability of a notification issued under the provisions of this Act”. However, upon examination of the application and the questions raised, it is observed that the substantive issues for which the applicant seeks an advance ruling primarily relate to:
1. Applicability of a notification issued under the provisions of this Act” and
2. Determination of the liability to pay tax on the goods or services or both.
Accordingly, the present application is admissible in terms of Section 97(2)(b) and Section 97(2)(e) of the CGST Act, 2017.
5. Brief Facts of the Case: -.
The Applicant is engaged in the manufacture of Cashew Nut Shell Liquid (CNSL), which is obtained from the processing of cashew nut shells. shew tree (Anacardium occidental) is a tropical evergreen tree that produces cashew nuts and cashew apples. The cashew nut is the actual seed of the fruit and consists of:
- An outer hard shell; and
- An inner edible kernel.
During the processing of cashew nuts, the outer hard shell is removed to obtain the edible kernel. The removed outer covering is known as “Cashew Nut Shell”. The shell is hard, thick, non-edible in nature, and contains Cashew Nut Shell Liquid (CNSL).
The Applicant undertakes activities involving the extraction of oil/liquid from cashew nut shells through heating and mechanical expulsion processes, resulting in the manufacture of Crude Cashew Nut Shell Liquid (CNSL). The said product is supplied to domestic as well as overseas buyers and is primarily used in various industrial applications such as manufacture of resins, surface coatings, paints, varnishes, laminates, friction materials, and allied products.
Cashew Nut Shell Liquid is a valuable by-product of the cashew processing industry. The cashew nut shell, having a thickness of approximately 1/8 inch, contains within it a soft honeycomb structure filled with a dark reddish-brown viscous liquid known as Cashew Nut Shell Liquid (CNSL). Chemically, CNSL is regarded as a naturally occurring phenolic compound and is often considered a cost-effective and superior substitute for unsaturated phenols used in industrial applications.
6. Applicant’s Interpretation of Law: –
6.1 The Applicant submits that they are classifying the product in question
under Chapter Heading 1302 ( Vegetable saps and extracts) of the Customs Tariff, corresponding to HSN 13021920 and discharging GST accordingly, Pursuant to recommendation of the 56th GST Council Meeting held in September 2025, through amendment to the relevant rate notification. As the said amendment refers to the main heading 1302 without specifying individual sub headings, there is a doubt as to whether the reduced rate of 5% is applicable to all sub-classifications under heading 1302, including cashew nut shell liquid.
6.2 The applicant further submitted that since the amendment refers to the entire heading 1302, without restricting the benefit to any specific sub, the applicant is of the view that the reduced rate of 5% is applicable products classifiable under heading 1302, including Cashew Nut Shell Liquid ( CNSL). The applicant believes that the adoption of the 5% rate is in consonance with the amended Notification, the trade understanding of heading 1302, and the legislative intent of the rate reduction as per the Council’s recommendation.
7. PERSONAL HEARING PROCEEDINGS HELD ON 20.05.2026
Shri M. Ravi Rao, Chartered Accountant and duly authorised representative of the applicant, appeared for the personal hearing held on 20.05.2026 before this Authorities. During the course of the hearing, he reiterated the facts of the case and the submissions made in the application. He also explained the issues involved and advanced arguments in support of the applicant’s contentions. He requested this Authority to issue an Advance Ruling on the questions raised in the application.
FINDINGS & DISCUSSION:
8. At the outset we would like to make it clear that the provisions of the COST Act, 2017 and the KGST Act, 2017 are in pari materia and have the same provisions in like matters and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the KGST Act, 2017.
9. We have considered the submissions made by the applicant in their application for advance ruling. We have also considered the issues involved on which advance ruling is sought by the applicant, relevant facts, and the arguments made by the applicant and the submissions made by their learned representative during the time of hearing.
10. We have carefully examined the application made by the applicant (M/s SW), the submissions provided therein, the arguments advanced during the personal hearing. The main issues for consideration are:-
1. Applicability of a notification issued under the provisions of this Act” and
2. Determination of the liability to pay tax on the goods or services or both.
The applicant seeks advance ruling in respect of the question ned at para 3 supra. We proceed to answer the question.
12. The question raised by the applicant is:
i. Whether the goods produced and supplied by the applicant, described as Cashew Nut Shell Liquid (CNSL) are classifiable under Heading 1302 of the Customs Tariff and consequently liable to GST at 5%, in terms of Notification No. 09/2025 Central Tax (Rate) dated amending the rate of tax for heading 1302, effective 22.09.2025.
12.1 In this regard, the Applicant submits that the product, namely Cashew Nut Shell Liquid (CNSL), is appropriately classifiable under Chapter Heading 1302 of the Customs Tariff Act. More specifically, CNSL falls under subheading 13021920.
Further, pursuant to the recommendations made in the 56th GST Council Meeting held in September 2025, the relevant GST rate notification was amended to prescribe a concessional rate of GST of 5% for goods covered under Heading 1302. The said amendment extends the benefit to the entire tariff heading 1302 and does not restrict its applicability to any particular sub-heading or specified products therein.
Accordingly, the Applicant is of the considered view that the concessional GST rate of 5% is applicable to all goods classifiable under Heading 1302, including Cashew Nut Shell Liquid (CNSL) classifiable under sub-heading 13021920.
12.2 The principal issue for consideration in the present case is the appropriate HSN classification of Cashew Nut Shell Liquid (CNSL) and the applicable rate of GST thereon.
It is a settled legal position that the tariff item, sub-heading, heading and Chapter specified in Notification No. 02/2017-Central Tax (Rate) dated 28.06.2017 are to carry the same meaning as assigned to them in the First Schedule to the Customs Tariff Act, 1975. Further, Paragraphs 3 and 4 of the Explanatory Notes appended to the said Notification provide that the Rules for Interpretation of the First Schedule, together with the relevant Section Notes, Chapter Notes and General Explanatory Notes, shall apply, as far as may be, for the purpose of interpretation of the Notification.
12.3 Accordingly, the classification of the impugned product, namely Cashew Nut Shell Liquid (CNSL), is required to be determined in accordance with the visions of the Customs Tariff Act, 1975 read with the applicable Rules for rotation, relevant Section Notes, Chapter Notes and Explanatory Notes. r, the applicable rate of GST or eligibility to exemption is to be is sift’ sitki Industries determined in terms of Notification No. 02/2017-Central Tax (Rate) dated 28.06.2017, as amended from time to time, and other relevant notifications issued in this regard.
12.4 On perusal of the Customs Tariff, it is observed that cashew-related products are classified across multiple chapters depending upon their form, processing, and usage, inter alia:
- Chapter 08 – Edible fruits and nuts (raw/agricultural form)
- Chapter 20 – Prepared or preserved edible nuts
- Chapter 13 – Vegetable saps and extracts
- Chapter 15 – Vegetable oils and fats (in limited circumstances)
- Chapter 39 – Plastics and polymers (chemically modified products)
Accordingly, the classification of the impugned product must be determined based on its essential character, composition, and degree of processing.
12.5 Chapter 08 (Edible nuts):-
Chapter 08 covers cashew nuts in natural form, which is reproduced below:
1. Chapter 08-
080131:- Cashew Nuts:
08013100- In Shell
080132:- Shelled:
08013210:- Cashew Kernel, broken
08013220:- Cashew Kernel, Whole
08013290:- Other
The cashew nut is the edible seed of the cashew apple, consisting of:
- Outer shell (non-edible)
- Inner kernel (edible portion)
The cashew nut shell, from which CNSL is derived, is:
- Hard, thick, and non-edible
- A waste/by-product of cashew processing
As per the above details of Chapter 08, it is very much clear that the Chapter Heading 08 talk about only Cashew nuts, fresh or dried, whether or not shelled or peeled, cashew kernel broken or whole. It not talk about Cashew Nut Shell Liquid, which is extracted from Cashew Nut Shell. It is restricted to edible nuts in natural or minimally processed form, it does not cover any derivative extracted from the Shell.
Therefore the Cashew Nut Shell Liquid (CNSL) cannot be classified under Chapter 08.
12.6 Chapter 20 (Prepared food):-
Chapter 20:- Preparation of vegetables, fruit, nuts or other parts of plants.
In the said Chapter, Chapter Heading 2008 talks about Cashew Nuts which is reproduced below:
2008:- Fruit, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, not elsewhere specified or included.
20081910:- Cashew nut, roasted, salted or roasted and salted.
Basically, Chapter, 20 covers processed edible preparations, including roasted or salted or both nuts. The essential condition for classification under this chapter is that the product must be fit for human consumption. CNSL is non edible, contains phenolic compounds (cardanol, anacardic acid) and used for industrial purposes, not as food.
Hence, Chapter Heading 20 is not applicable for CNSL.
12.7 Chapter 15 (Vegetable oils):-
Chapter 15:- Animal, vegetable or microbial fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes.
Basically, this chapter covers animal or vegetable fats and oils fit for human consumption (or commonly known edible oils) examples, Groundnut oil, Palm oil, Coconut oil, olive oil, sunflower oil, mustard oil etc.
As per the supplementary Notes to this chapter “edible grade” in respect of a goods ( i.e. edible oil) specified in Appendix B to the prevention of Food ration Rules, 1955, means the standard of quality specified for such that Appendix.
Appendix B of PFA Rules recognizes only edible cashew kernel as a food article and prescribes standards accordingly.
Cashew Nut Shell Liquid (CNSL), being non-edible and not covered under any food standard, cannot be treated as edible oil or classified under food-related tariff headings. It contains toxic phenolic compounds and cannot be used as foods oil. It primary uses as industrial raw material/oil for preparation of resins, coatings and friction materials.
Therefore, Cashew Nut Shell Liquid could not be classified under Chapter Heading 15.
12.8 Chapter 13 (Vegetable saps and extracts):-
12.8.1 This Chapter having specific tariff entry in respect of Cashew Shell liquid (CNSL), crude under Heading 1302 which is reproduced below:
Heading 1302:- Vegetable saps and extracts, pectic substances, pectinates and pectates; agar-agar and other mucilages and thickeners, whether or not modified, derived from vegetable products.
Sub Heading: – 130219:- Other: Extracts:
Tariff Heading 13021920:- Cashew Shell Liquid (CNSL), Crude
Heading 1302 specifically covers:
Vegetable saps and extracts obtained by natural exudation or by extraction from plant material
As per Explanatory Notes:
- Extracts may be obtained by solvent extraction or mechanical processes
- They may exist in liquid, paste, or solid form
- They remain classified here unless chemically modified or specified elsewhere
Importantly, the Explanatory Notes expressly include:
In the present case, CNSL is obtained by mechanical/thermal extraction, No chemical modification is undertaken and it retains its natural chemical constituents.
Thus, CNSL squarely falls within Heading 1302 as a vegetable extract.
12.8.2 Limited exclusion – Chapter 39 (Polymers)
Heading 3911 covers:
- Chemically modified products
- Polymers formed through polymerization or chemical reactions
As per Chapter Notes:
- Plastics are materials capable of being shaped after polymerization or chemical transformation
The exclusion in Chapter 13 applies only when:
- CNSL is converted into polymers/resins
- A new chemical identity emerges
However, in the present case:
- The product is crude CNSL
- No polymerization or chemical reaction is undertaken
- It is not a synthetic resin or plastic material
Therefore, Heading 3911 is not applicable.
12.9 Legal Principle of Classification:-
12.9.1 It is a settled principle that classification must be based on:
- Nature and composition of the product
- Degree of processing
- Essential character at the time of clearance
Since CNSL is merely extracted and not chemically transformed. Further, it retains the character of a vegetable extract, not a polymer.
12.9.2 In view of the above:
- CNSL is not covered under Chapters 08, 20, or 15 due to its non-edible and derivative nature
- It is specifically covered under Heading 1302, supported by tariff entry 13021920
- The exclusion to Chapter 39 applies only to polymerized CNSL, which is not the case here
Accordingly, Cashew Nut Shell Liquid (CNSL) is correctly classifiable under HSN 1302 as a vegetable extract.
- GST Tariff: –
13.1 As per Notification No. 9 / 2025-Central Tax (Rate) dated 17.09.2025, goods are classified under different Schedules for the purpose of determining applicable GST rates.
On perusal of the said Notification, it is observed that Chapter Heading 1302 is covered under Schedule I, only, which attracts GST at the rate of 5%. The relevant entry is reproduced below:
| Serial No. | Chapter/ Headin gi Subheading/ Tariff item | Description of goods |
|---|---|---|
| 74 | 1302 | Vegetable saps and extracts; pectic substances, pectinates and pectates; agar-agar and other mucilage and thickeners, whether or not modified, derived from vegetable products including tamarind kernel powder. |
13.2 The entry no. 74 of Schedule I, refers broadly to “Heading 1302” without restricting it to any specific sub-heading or tariff item. In GST notifications, where only the four-digit heading is mentioned, it is a settled principle that the entry covers all goods falling under that heading, including all sub-headings and tariff items, unless specifically excluded.
In the instant case, Cashew Nut Shell Liquid (CNSL) is classifiable under:
Since this tariff item falls squarely within Heading 1302, it is covered by Serial No. 74 of Schedule I.
14. In view of the above:
- Heading 1302 is specifically covered under Schedule I (5% GST)
- The entry is not restricted to any particular sub-heading
- Therefore, it automatically covers all goods falling under Heading 1302, including CNSL
In view of the foregoing discussion and in terms of the provisions of the Customs Tariff Act, 1975 read with the applicable GST rate notifications, it is held that Cashew Nut Shell Liquid (CNSL) is appropriately classifiable under HSN 1302 19 20. Further, the applicable rate of GST on the said product is 5°/0 (2.5% CGST + 2.5% SGST) in terms of Serial No. 74 of Schedule I to Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025, effective from 22.09.2025
15. In view of the foregoing, we pass the following.
RULING
Question: Whether the goods produced and supplied by the applicant, described as Cashew Nut Shell Liquid (CNSL) are classifiable under Heading 1302 of the Customs Tariff and consequently liable to GST at 5%, in terms of Notification No. 09/2025 Central Tax (Rate) dated amending the rate of tax for heading 1302, effective 22.09.2025.
Answer. Cashew Nut Shell Liquid (CNSL) is appropriately classifiable under HSN 1302 19 20. Further, the applicable rate of GST on the said product is 5% (2.5% CGST + 2.5% SGST) in terms of Serial No. 74 of Schedule I to Notification No. 9/2025-Central Tax (Rate) dated 17.09.2025, effective from 22.09.2025.
