In re Ads Agro Industries Private Limited (GST AAR Rajasthan)
As per meaning provided in Wikipedia, the Brewing is the production of beer by steeping a starch source (commonly cereal grains, the most popular of which is barley/wheat) in water and fermenting the resulting sweet liquid with yeast.
In the instant case, it is fact that in the process of manufacturing of alcohol, the ‘starch portion’ present in the wheat grain is utilized through distillation process. Means ‘starch present in the wheat grain’ is being processed in brewery. Hence, main key element i.e. ‘starch’ is present here. Further, the applicant company is a kind of brewery where brewing or distilling process are being undertaken. In the result of manufacturing process of alcohol, several residues, dregs and waste are come into picture.
12. As far as nature of DWGS (Distillers Wet Grain Solubles) is concern, it is nothing but brewing or distilling dregs and waste as it is come out in the picture as a result of brewing or distilling process.
13. As per the Explanatory Notes to the HSN, heading 2303 includes residues of starch manufacture and similar residues (from maize (corn), rice, potatoes, etc.); beetpulp; bagasse; other waste products of sugar manufacture; brewing or distilling dregs and waste, which comprises in particular – dregs of cereals obtained in the manufacture of beer and consisting of exhausted grains remaining after the wort has been drawn off; malts sprouts separated from the malted grain during the kilning process; spent hops; Dregs resulting from the distillation of spirits from grain, seeds, potatoes, etc; beet pulp wash (residues from the distillation of beet molasses).All these products remain classified in the heading whether presented in wet or dry.
14. In view of above, we find that DWGS (Distillers Wet Grain Solubles) is an inevitable outcome in the process of manufacturing of alcohol. Apart from nomenclature whether it is residue or by-product, we find that it is a kind of brewing or distilling dregs & waste and is classifiable under Chapter / Heading/Sub-heading / Tariff item 2303 of GST Tariff.
Read AAAR Order: AAAR Dismisses Appeal Withdrawn Due to GST Council Clarification
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, RAJASTHAN
Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.
The issue raised by M/s ADS AGRO INDUSTRIES PRIVATE LIMUED, SP 67, SKS Industrial Area, Reengus, Sikar- 332404, Rajasthan – (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) & (e) given as under:
(a) Classification of any goods or services or both;
A. GIST OF SUBMISSION AND INTERPRETATION OF THE APPLICANT
1. ADS Agro Industries Private Limited (hereinafter referred as Applicant) is a company registered on 15/07/2003 & having its distillery at SP-67, Shri Khatushyamji Industrial Complex, Ringus- 332 404.
2. The Applicant Company is a 100% grain-based distillery since 2013 and manufacturing alcohol using Grains (i.e. broken Rice – called “Nakku” in Trade) as raw material and its by-products are CO2, Fussel Oil.
3. Briefly stated herein, the Applicant Company while manufacturing alcohol, produces cattle feed’ as a by-product which is technically known nationally and worldwide as DWGS (Distillers Wet Grain Solubles) in Wet Form also termed as “Wet Cake” in the Industry. This is primarily on account of the fact that the Applicant utilizes grains as raw materials. During distillation process, only the starch portion present in the Grain is utilized in production of the alcohol, which is the main product, and the other components viz. protein, fibre and oil are not utilized in the production of alcohol. Another by-product is obtained by further extraction, processing and conversion into Wet Cake, which is Cattle Feed/ Poultry Feed. It is imperative to put on record that no other use of wet cake other cattle feed is possible & hence, cattle feed is a by-product in the process of manufacture of alcohol and cannot be termed as ‘residue’.
(a) The terms ‘by-product’ and ‘residue’ have been defined, explained and understood as per industry norms and have been consistently followed by the industry and the Applicant Company alike.
By-product: In CIMA Terminology, By-product is “a product which is recovered incidentally from the material used in the manufacture of recognized main products such as having either a net realizable value or a usable value which is relatively low in comparison with the saleable value of the main products. By products may further be processed to increase their realizable value.”
> It denotes one or more products of relatively small value that are produced simultaneously with a product of greater value.
> By-products are jointly produced products of minor importance and do not have separate costs until the split off point. They are not produced intentionally but are emerging out of the manufacturing process of the main products.
> Hence, the above would clearly reveal that cattle feed, obtained on further processing by the applicant Company is a by-product, which is known, used and sold in the industry as such. By no stretch of imagination can the by-product ben termed as waste or residue. It is also relevant to mention that prescribed costing and accounting methods for by-products are being duly followed by the Applicant company, wherein the accounts are being duly audited, which further fortifies the contention that the cattle feed being produced is a by-product and is being utilized/ treated as such for all intents and purposes.
> Furthermore, end use of this product DWGS is Animal/ Cattle/ Poultry feed/ Concentrates Additives and there is no use of it for any purpose other than Animal/ Cattle/ Poultry Feed.
(b) Residue: Residue is a term used to describe material that has no value, or even negative value if it has to be disposed-off at some cost. Examples include gases, saw dust, smoke and other unsalable residues from the manufacturing process. Residue presents no accounting problems because it has no sales value, and therefore it is not included in the valuation stock.
> This is the residue such a smoke, dust, gases, slag, etc., which arises in course of manufacturing process and practically no measurable sale or utility value. In certain types of processes and operations, some material physically disappears on account of shrinkage, evaporation etc., with the result that the quantity of the output is less than the input. Such wastage is termed invisible waste where the residual instead of fetching any value, creates a problem for its dispose which entails further costs. Special arrangements have to be made for disposal and refuse, effluent, obnoxious gases, etc.
> The effect of the residue/ waste is to reduce the quantity of output.
Above would clearly reveal that the cattle feed being produced is not a residue or waste, but a by-product. The waste being generated by the Applicant Company is in the nature of water (Spent Wash), which is reused/ recycled into the distillery/ alcohol manufacturing process after treatment. Presently, Spent Wash is not allowed to be sold as such due to prevailing government guidelines. The Applicant Company is not selling the Spent Wash and hence there is no sale of residue by the Applicant.
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………………………….. , it is clear that distilleries get Alcohol (ENA) after the distillation process as well as Wet Distillers Grain, i.e., Cattle Feed, i.e., the by-product.
During distillation process, only the starch portion present in the Grain is utilized in production of the alcohol and the remaining components viz. protein, fiber and oil are not utilized in the production of alcohol. These become basic raw material for production of cattle feed.
4. What remains after Distillation process is – Whole Stillage (WS)
Distillery Effluent / Spent Wash/Whole Stillage is the residue/waste after production of Alcohol during distillation process. Spent wash is not marketable and can be sold as such.
5. DWGS (Distillers Wet Grains Soluble): (also popularly known as “Wet Cake” in Distillery Industry):-
DWGS (Distillers Wet Grains Soluble), a by-product, which is being produced after the decantation whereby solids are segregated or separated, in well-designed centrifuge Decanters. The grain particles collected, are called “DWGS”, a semi solid wet cake type product containing moisture.
Decantation section comprises of Centrifuge Decanter for separation of suspended solids from the Spent Wash coming out of Distillation Plant. Wet cake has 30-35% w/w solids as removed from bottom of Decanter.
Thin slops of “spent wash” or “distiller’s dregs” coming out of Decanter are collected in a tank and transferred for part recycle & further for Evaporation.
Needless to mention that, the applicant has invested huge amount to install Centrifuge Decanters to get DWGS.
It is pertinent to note that Decanters are not part of Distillation Process. They are required to be installed separately. In this regard, a certificate from M/s Praj Industries Limited, premier unit for set up of turnkey distillery projects is annexed herewith.
It is important to understand that whether slops of “spent wash” or “distiller’s dregs” coming out of Decanter are is a waste or a by-product. Here DWGS or Wet Cake is produced in a significant quantity and value by investing in Centrifuge Decanters and by any stretch of imagination cannot be considered as mere residue or waste.
Accordingly, DWGS is a saleable by-product and used as Animal Feed/Cattle Feed/Poultry Feed and hence it is a sale of Animal Feed/Cattle Feed/Poultry Feed.
6. That the Company is selling the Cattle Feed / Poultry Feed (DWGS) to its dealers who are further selling the same as cattle feed/ poultry feed/ animal feed supplement in the market and similarly to the end consumers are purchasing these goods as cattle feed/ poultry feed/ animal feed supplement and using as such.
TAXABILITY UNDER GST
Relevant entry no. 2303 and 2309 under GST Tariff is given hereunder for ready reference: –
