In re G.B. Agro Industries (GST AAAR Gujarat)
AAAR modified the Advance Ruling No.GUJ/GAAR/R /71/2020 dated 17.09.2020 issued by the GAAR in respect of Bio-fertilizers, by holding that the two products namely Phosphate Solubilising Bacteria and Potassium mobilising Bio-fertilizers manufactured and supplied by the appellant M/s. G.B.Agro Industries, Bharuch are classifiable under Chapter sub-heading No.31059090 of the First Schedule to the Customs Tariff Act, 1975(51 of 1975) and liable to GST at 5% in terms of Sl.No.182D of Schedule-I of Notification No.01/2017-Central Tax(Rate) dated 28.06.2017 (as amended from time to time) for the reasons discussed hereinabove. Also, the classification of the aforementioned products is entirely based on the composition of inputs as given by the appellant and any alteration/change in the composition of the inputs would also result in alteration of the classification of the aforementioned products.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, GUJARAT
The appellant M/s. G.B.Agro Industries, Plot No.1723, GIDC Panoli, Ankleshwar, Bharuch-394116 is involved in the manufacture of different type of fertilizers such as chemical fertilizers, organic fertilizers and bio-fertilizers. The appellant has submitted that they distribute their products through the network of Agro dealers and looking at the importance of market needs, they thought it appropriate to enlarge their market base keeping the potential of different areas in mind and have many Agro dealers and distributors in Maharashtra, Gujarat, Madhya Pradesh and Rajasthan. The appellant had filed an application on 15.08.2020 before the Gujarat Authority of Advance Ruling (hereinafter referred to as GAAR) seeking Advance Ruling on the classification of Organic Fertilizers, Bio-fertilizers, Nitrogeneous mixture fertilizers and Mixture fertilizers. GAAR vide order No.GUJ/GAAR/R/71/2020 dated 17.09.2020 classified the aforementioned products as under:
(1) ‘Organic manure’ was classified under Chapter sub-heading No.31059090 on which GST liability was 5% (2.5%SGST + 2.5%CGST).
(2) ‘Bio-fertilizers’ were classified under Chapter sub-heading No.30029030 on which GST liability was 12% (6%SGST + 6%CGST).
(3) ‘Nitrogeneous mixture fertilizers’ were classified under Chapter subheading No.31029090 on which GST liability was 5% (2.5%SGST + 2.5%CGST).
(4) ‘Mixture of fertilizers’ was classified under Chapter sub-heading No.31059090 on which GST liability was 5% (2.5%SGST + 2.5%CGST).
2. Aggrieved with the aforesaid ruling, the appellant has filed the present appeal on 28.10.2020 challenging the classification of Bio-fertilizers given as per the Advance Ruling of GAAR. However, the appellant has not challenged the Advance Ruling given in respect of the products Organic manure, Nitrogeneous mixture fertilizers and Mixture of fertilizers. The appellant has submitted that as per the Fertilizer Control Order 1985, Bio-fertilizer means the product containing carrier based (solid or liquid) living microorganisms which are agriculturally useful in terms of nitrogen fixation, phosphorus solubilisation or nutrient mobilization, to increase the productivity of soil or crop.
3. As per the appellant, the different types of Bio-fertilizers are Rhizobium, Azatobacter, Azospirillium, Phosphate Solubilising Bacteria, Myccorhizal Bio-fertilizers, Potassium Mobilizing Bio-fertilizers, Acetobacter, Carrier Based Consortia and Phosphate Solubilising Fungal Bio-fertilizer. The other organic materials contained therein are Lignite/coal powder, organic manure, bone meal, amino acids, bio-fulvic, potassium humate and rock phosphate and the carrier materials are bentonite, dolomite powder and gypsum.
4. The appellant has submitted the manufacturing process of Granulated Bio-fertilizer as under:
(i) Main parts of the production equipment are feeding hopper, granulator drum, drier drum, cooler drum, vibrating screen, coating drum and packaging machine.
(ii) Fertilizer Production Line Main Components: The whole fertilizer machinery in the fertilizer production line includes the following machines: fertilizer feeding hopper> fertilizer crushing machine> rotary drum granulator> rotary drum drying machine> rotary drum cooling machine> rotary screening machine> coating machine > packaging.
(iii) Bio-Fertilizer Production Line Working Flowchart: According to the compatibility and crossability, raw materials in different percentage composition are taken so different fertilizers can be manufactured as per requirement applicable for different requirements of soils and crops.
1. Feeding Hopper: The different types of career materials are feeded into hopper. Then according to the technical requirements, the raw materials in that particular composition are sent from the feeding hopper to the crushing process.
2. Crushing Process: The lump materials should be grinded before the granulating process. But the crushing process can be left out when the material is fine enough. Then the conveying belt sends the materials to granulation drum.
3. Granulator Drum: During granulating, there is a water pump to offer water and makes fertilizer particles forming easily. The solid fertilizer powder after granulating will rise by the rotation of the cylinder and scroll down under the effect of gravity. After several times repetition of the same rotation, fertilizer materials gradually form. Next the conveying belt sends the materials to rotary drum drying machine and cooling machine.
4. Drier Drum: In this process, drier drum rotates and there is coal furnace to supply hot air to drying machine so as to increase the strength of granules after granulation from granulator drum. After drying, the conveyor belt sends the granules to cooling drum.
5. Cooler Drum: In this process, the cooler drum rotates and there are draught fans to supply normal air so as to further increase the strength of granules. After cooling, the conveyor belt sends the granules to vibrating screen.
6. Screening Process: In the process of screening, the qualified materials can be sent to packaging machine by conveyor, while others are conveyed back to crusher or granulator to be reprocessed.
7. Coating: After granules are manufactured, they do coating of different types of Bio-fertilizers as per FCO, 1985 guidelines. In process of coating, cylindrical drum rotates and granules are feeded and spray of required Bio-fertilizer as per requirement is done.
5. The appellant has submitted that looking to the above facts, question arises in their mind as to how their product ‘Bio-fertilizers’ can be classified under chapter heading 30029030 and taxable under GST@12% when Chapter heading 3002 deals with pharmaceutical products whereas the bio-fertilizers manufactured by them are used for agricultural purpose. The appellant has submitted the grounds of appeal as under:
(i) GAAR has searched the term ‘Bio Fertilizers’ from Vikaspedia in which the definition is as stated under:
“In nature, there are a number of useful soil microorganisms 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-fertilizers. Thus the critical input in Bio-fertilizers is the micro organisms.”
The learned authority relied on the above definition found on Vikaspedia and has thus classified Bio-fertilizers under Chapter Heading 30029030 which covers ‘cultures of micro-organisms(excluding yeasts).
(ii) Chapter 30 is for Pharmaceutical products and sub-heading 3002 reads as under:
“Human Blood; Animal Blood prepared for therapeutic, prophylactic or diagnostic uses; Antisera, Other blood fractions and immunological products, whether or not modified or obtained by means of Biotechnological processes; vaccines, toxins, cultures of micro organisms (excluding yeasts) and similar products.”
The main purpose of Bio fertilizers manufactured by the appellant is agricultural. This product is useful in terms of nitrogen fixation, phosphorus solubilisation or nutrient mobilization, to increase the productivity of soil or crop. Thus, classification of same under the chapter which relates to pharmaceutical products is not valid.
(iii) Further, along with culture of micro organisms, the composition of bio-fertilizers includes-
a. Organic and other materials such as organic manure, coal powder, bone meal, bio-fulvic acids, amino acids, potassium humate, rock phosphate.
b. Carrier material such as gypsum, bentonite and dolomite.
c. Bio-fertilizers(Micro organisms).
Appellant submits that micro organisms are used along with various other components and are not sold as micro organisms for pharmaceutical use and therefore, their classification under chapter heading 30029030 is not valid.
(iv) The Bio-fertilizers manufactured by the appellant are a mixture of various components used by buyers to increase the productivity of soil or crop. It has no purpose as a pharmaceutical product and thus it’s classification under HSN 3002 is not valid and should be covered under chapter heading 3101.
(v) Bio-fertilizers are also permitted to be used for Organic farming. The key elements of components are as follows:
