In re Novozymes South Asia Pvt. Ltd. (GST AAAR Gujarat)
The products ‘Rhyzomyx’ and ‘Rhyzomyco’ manufactured and supplied by M/s. Novozymes South Asia pvt.ltd., are classifiable under Tariff item No.30029030 of the First Schedule to the Customs Tariff Act, 1975(51 of 1975), is covered under Sr.no.61 of Schedule-II of Notification No.01/2017-Central Tax (Rate) dated 28.06.2017 (as amended from time to time ) and is liable to GST at 12% (6% SGST + 6% CGST).for the reasons discussed hereinabove.
FULL TEXT OF THE ORDER OF AUTHORITY OF APPELLATE ADVANCE RULING,GUJARAT
The appellant M/s. Novozymes South Asia pvt.ltd., Survey No.56/1, Baska-Rameshwara Road, Vaseti Village Tajpura Post, Halol taluka, Panchmahals, Gujarat, is a company incorporated under the Companies Act, 1956 and are registered under the SGST/CGST/IGST Act. They have submitted that they are engaged in supply of bio fertilizers in the State of Gujarat.
2. The appellant had filed an application before the Authority on 13.07.2018 seeking ruling on the classification of bio fertilizers namely RhizoMyx and RhizoMyco. They had asked the following question seeking Advance Ruling:
Whether the bio agricultural products i.e. RhizoMyx and Rhizomyco are classifiable under :
Chapter 3101- All goods i.e. animal or vegetable fertilisers or organic fertilisers put up in unit containers and bearing a brand name-Entry No.182 of Schedule-I of rate of GST on Goods comprising of ‘List of Goods at 2.5% Rate’ or
Chapter 3002-Animal blood prepared for therapeutic, prophylactic or diagnostic uses; antisera and other blood fractions and modified immunological products, whether or not obtained by means of biotechnological processes; toxins, cultures of micro-organisms (excluding yeasts) and similar products- Entry 61 of Schedule-II of rate of GST on Goods, comprising of ‘List of Goods at 6% Rate’
3. The appellant had contended that their products were rightly classifiable under chapter 3101 of the Customs Tariff Act, 1975. The Advance Ruling Authority vide order bearing No. GUJ/GAAR/R/23/2020 dated 02.07.2020 ruled that their products are classifiable under Heading No.3002 of the Customs Tariff Act, 1975 based on the findings as mentioned below:
(i) From the details submitted by the applicant and comparing the same to the definitions and benefits of biofertilisers described in para-9 of the order, it can be seen that the above products manufactured and supplied by the applicant are biofertilisers.
(ii) In para 9 of the order, the definitions and benefits of biofertilisers were mentioned as under:
(a) As per dictionary, biofertilisers are defined as a substance which contains living micro-organisms which, when applied to seeds, plant surfaces, or soil, colonize the rhizosphere or the interior of the plant and promotes growth by increasing the supply or availability of primary nutrients to the host plant.
(b) Vikaspedia defines biofertilisers as under: In nature, there are a number of useful soil micro organisms which can help plants to absorb nutrients. Their utility can be enhanced with human intervention by selecting efficient organisms, culturing them and adding them to soil directly or through seeds. The cultured micro organisms packed in some carrier material for easy application in the field are called bio-fertilisers. Thus the critical input in Biofertilisers is the microorganisms.
As per Vikaspedia, benefits of Bio-fertilisers are as under:
(a) Bio-fertilisers are living microorganisms of bacterial, fungal and algal origin. Their mode of action differs and can be applied alone or in combination.
(b) Biofertilizers fix atmospheric nitrogen in the soil and root nodules of legume crops and make it available to the plant.
(c) They solubilise the insoluble forms of phosphates like tricalcium, iron and aluminium phosphates into available forms.
(d) They scavenge phosphate from soil layers.
(e) They produce hormones and anti metabolites which promote root growth.
(f) They decompose organic matter and help in mineralization in soil.
(g) When applied to seed or soil, biofertilizers increase the availability of nutrients and improve the yield by 10 to 25% without adversely affecting the soil and environment.
(iii) Animal fertilizers, Organic fertilizers and vegetable matters were defined as under:
(a) Animal fertiliser: Animal fertilizer is manure which is organic matter and is used as organic fertilizer in agriculture. Most manure consists of animal feces; other sources include compost and green manure. Manures contribute to the fertility of soil by adding organic matter and nutrients, such as nitrogen, that are utilized by bacteria, fungi and other organisms in the soil.
(b) Organic fertilizers are fertilizers derived from animal matter, animal excreta (manure), human excreta and vegetable matter (e.g. compost and crop residues). Naturally occurring organic fertilizers include animal wastes from meat processing, peat, manure, slurry, and
(c) Since the definition of vegetable fertilisers is not available anywhere, hence it would have to be construed in generic terms. In generic terms, vegetable fertilisers would be the fertilizers derived from vegetable matter like compost and crop residues.
(iv) As can be seen from the definitions, animal fertilizers and organic fertilizers are similar in definition whereas vegetable fertilizers are those obtained from vegetable matter like compost and crop residues. Further, these fertilizers are mixed directly in the soil and can improve the soil structure(aggregate) so that the soil holds more nutrients and water, and therefore becomes more fertile. However, biofertiliser consists of living microorganisms which, when applied to seeds, plant surfaces or soil, colonize the thizosphere or the interior of the plant and promotes growth by increasing the supply or availability of primary nutrients to the host plant. Besides as per Vikaspedia, biofertilizers are produced by culturing of microorganisms and that such cultured micro organisms are packed in some carrier material for easy application in the field. Thus on comparing the definition as well as the uses of Biofertilizers vis-a-vis Animal fertiliser/organic fertilizer/vegetable fertilizer, it can be seen that Biofertilsers are completely distinct in nature and use to these fertilisers. In view of these facts, we come to the conclusion that biofertilisers are not covered under the Subheading 3101 of the First Schedule to the Customs Tariff Act, 1975(15 of 1975).
(v) On going through the column (3) of entry 61 in Schedule-II of Notification No.01/2017-Central Tax(Rate) dated 28.06.2017, the entire portion of the description of goods except ‘cultures of micro-organisms (excluding yeasts)’ pertains to the medical field. On going through the said Sub-heading 3002, it is seen that ‘cultures of micro-organisms (excluding yeasts)’ appears at Tariff entry No.30029030 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). Further as per Vikaspedia, biofertilizers are produced by culturing of microorganisms and that such cultured micro organisms packed in some carrier material for easy application in the field are called biofertilisers. Thus, it can be seen that bio-fertilizers are produced by culturing of micro-organisms which is covered by the entry ‘cultures of micro-organisms(excluding yeast) which falls under Sub-heading No.30029030. In view of the above, looking to the process of manufacture/production of biofertilizers, it can be concluded that the biofertilizers namely Rhyxomyx and Rhyxomyco manufactured and supplied by the applicant are classifiable under Tariff item No.30029030 of the First Schedule to the Customs Tariff Act, 1975(51 of 1975).
4. Aggrieved with the aforesaid ruling, the appellant has filed the present appeal on 10.09.2020. The appellant has submitted the grounds of appeal as under:
(i) The impugned order has not considered the facts in toto. The inert materials like humic acid etc. are manures in general sense. Therefore the products merit classification under chapter 3101.
(ii) The AAR has concluded that the products in question are Bio Fertiliser. Having concluded the same, the reasoning provided to exclude the products from the classification of 3101 is not correct. The appellant has stated that the grounds taken to arrive at the conclusion has ignored the AAR of Rajasthan. Also, the ingredients in the products are akin to ‘animal fertiliser’ as the culture of micro organisms are animal in broader sense. In addition, the other ingredients of the products are of the same nature as that of vegetable fertilizers.
(iii) The impugned order has not considered the explanatory notes to HSN. The appellant wishes to draw attention of the Hon’ble Appellate Authority that HSN notes clarifies that chapter 3101 inter alia covers compost consisting of rotted waste vegetable and other matter where decay has been accelerated or controlled by treatment with lime, etc. The humic acid which is an ingredient of the product is complex organic acid by decomposition of dead vegetable matter. In common parlance, it can be called as compost. Further mycorrhizza which is an active ingredient contains live animals. Therefore, the Appellant submits that the products in question are classifiable as other fertilisers of heading 3101(Sl.No.182 of Schedule-I to the GST rate schedule).
(iv) Further in this connection, the appellant wishes to submit that in an Hon’ble Rajasthan Advance Ruling authority vide its order bearing no.RAJ/AAR/2018-19/04 dated 16.06.2018 has dealt with similar product and has given a ruling that Bio fertilizer is a substance which contains living micro-organisms which, when applied to the seed, plant surfaces or soil colonizes the rhizophere or the interior of the plant and promotes growth by increasing the supply or availability of primary nutrients to the host plant. Bio fertilizers add nutrients through the natural processes of nitrogen fixation, solubilising phosphorus, and stimulating plant growth through the synthesis of growth-promoting substances. Further the Authority has held that Bio Fertilizer are covered under chapter 3101 and falls under Sl.No.182 of Schedule-I. The order of the AAR has not considered the aforesaid ruling in reaching the conclusion.
(v) The impugned order has not considered the submission of the appellant on the decision of the Hon’ble Supreme Court which has upheld the decision of CESTAT in the case of Northern Minerals ltd. v/s. Commissioner reported in 2001(131) ELT. 355(Tri.) in Civil Appeal Nos.4970-72 of 2002 filed by Commissioner of Central Excise against the CEGAT. The Appellate Tribunal in this case had held that ‘Dhanzyme’ is a biofertiliser being a plant growth promoter only, thus classifiable under sub-heading 3101.00 of Central Excise Tariff Act, 1985.
(vi)The tariff classification has to be read in line with the understanding of the industry and the relevant regulatory considerations. The appellant submits that the products in question are covered under Fertiliser Control Order and are rightly classifiable under heading 3101.
5. The appellant has stated that they had received the order of the Authority for Advance Ruling(AAR) bearing No. GUJ/GAAR/R/23/2020 on 02.07.2020. They had to prefer the appeal within a period of 30 days from the date of receipt of the said order. The period within which the appeal was to be filed expired at or around 13.08.2020. Appellant preferred this appeal on 10.09.2020 which raises a delay. They have submitted that CBIC vide Notification No.35/2020 dated 03.04.2020 has extended the time limit for filing appeal till 30.06.2020 and thereafter the time limit has been further extended till 31.08.2020 vide Notification No.55/2020 dated 27.06.2020 in line with the above notifications in view of COVID 19 and there is a delay of 10 days. They have submitted that the delay caused is unintentional and due to the fact that the appellant is working from home and receipt of the order was intimated very late. The authorized signatory was also working from home which has caused delay in filing the appeal. The appellant has requested that the delay be considered in light of the merits of the case since the delay is not intentional. The appellant has placed reliance on Apex Court’s decisions in the case of (i)Collector, Land Acquisition vs. Mst.Katiji [1987] 66 STC 228(SC) and (ii)West Bengal Infrastructure Dev. Fin. Corpn.Ltd., reported in 2012(279) ELT 3(SC) wherein it was held that in case of high stake matters the appeals should not be disposed off on ground of delay and there could be cost imposed and delay condoned in the case of revenue appeals.
6. The appellant concluded their submission with a request that the Appellate Authority be pleased to hold that the products in question being bio fertilizers are classifiable under heading 3101.
FINDINGS :-
7. We have considered the submissions made by the appellant in the appeal filed by them, their contentions during the course personal hearing as well as evidences available on record. We have also gone through the Ruling given by the GAAR.
8. The Advance Ruling was sought for by the appellant for appropriate classification and applicable rate of Goods and Services Tax for their products namely Rhizomyx and Rhizomyco. GAAR vide Advance Ruling No. GUJ/GAAR/R/23/2020 dated 02.07.2020 ruled that the said products are biofertilisers classifiable under Heading ‘3002’ of the Customs Tariff Act, 1975(51 of 1975) and liable to GST at 12% (6%SGST + 6% CGST). The appellant has challenged the aforementioned order of the Advance Ruling authority. Therefore, the issue involved in this case is the proper classification of the products Rhizomyx and Rhizomyco and the applicable rate of Goods and Services Tax on the said products.
9. Further, as per the submission of the appellant, we find that they had received the order of the Authority for Advance Ruling(AAR) bearing No. GUJ/GAAR/R/23/2020 on 02.07.2020 and had to prefer the appeal within a period of 30 days from the date of receipt of the said order i.e. on or before 13.08.2020. Appellant preferred this appeal on 10.09.2020 which raises a delay. The appellant has submitted that CBIC vide Notification No.35/2020 dated 03.04.2020 which was further amended by Notification No.55/2020 dated 27.06.2020 has extended the time limit for filing appeal till 31.08.2020 in view of COVID 19 situation, but still, there is a delay of 10 days. They have submitted that the delay caused is unintentional and due to the fact that the appellant is working from home and receipt of the order was intimated very late. The authorized signatory was also working from home which has caused delay in filing the appeal. The appellant has requested that the delay be considered in light of the merits of the case since it is not intentional. The appellant has placed reliance on Apex Court’s decisions in the case of (i)Collector, Land Acquisition vs. Mst.Katiji [1987] 66 STC 228(SC) and (ii)West Bengal Infrastructure Dev. Fin. Corpn.Ltd., reported in 2012(279) ELT 3(SC) wherein it was held that in case of high stake matters the appeals should not be disposed off on ground of delay and there could be cost imposed and delay condoned in the case of revenue appeals.
9.1 As per the provisions of Notification No.35/2020 dated 03.04.2020 as amended vide Notification No.55/2020 dated 27.06.2020, the time limit in respect of the appeals which were due for filing between 20.03.2020 and 30.08.2020 were extended upto 31.08.2020. The appellant has filed the appeal on 10.09.2020 and therefore there is a delay of 10 days. We take into consideration the fact that the Goods and Services Tax is a new tax regime and there may be bona-fide mistake on the part of a registered person. Therefore, the delay in filing of appeal in this case is condoned in exercise of the powers contained in proviso to the sub-section (2) of Section 100 of the Central Goods and Services Tax Act, 2017 (herein after referred to as the ‘CGST Act, 2017’) and the Gujarat Goods and Services Tax Act, 2017 (herein after referred to as the ‘GGST Act, 2017’).
10. On going through the submission given by the appellant, they have contended that the products manufactured by them are rightly classifiable under Heading 3101. However, we find that the appellant has not submitted any supporting documents to support their claim. We therefore proceed to decide the issue of classification of the products of the appellant viz. Rhizomyx and Rhyzomyco based on the evidences available on records. Before deciding the classification of the above products, we need to find out whether the products of the appellant i.e. Rhyzomyx and Rhyzomyco are biofertilisers as stated by the appellant. For that we are required to find out the definition of biofertilisers:
