GST on Broken Rice: Tax Rate for Unbranded Supplies

In re Tamal Kundu (GST AAR West Bengal)

Introduction: A recent case brought before the Authority for Advance Ruling (AAR) in West Bengal involves the taxation of unbranded and non-packaged broken rice generated during the rice manufacturing process. The question at hand is whether this type of rice should be taxed at a 5% GST rate.

Background of the Case: The applicant, Tamal Kundu, is engaged in rice manufacturing. During the rice milling process, fragments of the whole round rice grains are generated, which are commonly known as “broken rice.” The applicant sought clarification regarding the GST rate applicable to the sale of unbranded and non-packaged broken rice, which is primarily used for animal feeding.

Understanding the GST Rate for Broken Rice: To determine the GST rate for broken rice, it’s important to consider the classification of this product. According to the Customs Tariff, broken rice falls under Heading 1006. This category includes various types of rice, including rice in the husk, husked (brown) rice, semi-milled or wholly-milled rice (whether polished or glazed), parboiled rice, and broken rice.

GST Rate and Changes: As of July 18, 2022, the GST rate underwent changes. Prior to this date, GST was applicable to specified goods when they were pre-packaged, labelled, and had a registered brand name. The applicable rate was 5%. However, after July 18, 2022, this provision changed, and GST became applicable to pre-packaged and labelled commodities. In the context of food items like rice, if they are pre-packaged and labelled, they attract a 5% GST rate.

GST Exemption for Non-Pre-Packaged Rice: Notification No. 07/2022-Central Tax (Rate) dated July 13, 2022, introduced an exemption. As of July 18, 2022, the supply of rice, other than pre-packaged and labelled, is exempt from the payment of GST.

Clarification on Pre-Packaged and Labelled Goods: In a press release posted on July 18, 2022, regarding GST applicability on pre-packaged and labelled goods, the following points were clarified:

• In the context of food items like rice, the supply of specified pre-packaged food articles falls under the definition of “pre-packaged commodity” under the Legal Metrology Act, 2009 if they contain a quantity up to 25 kilograms.
• The supply of packaged commodities intended for consumption by industrial or institutional consumers is excluded from the purview of the Legal Metrology Act. This means that if a commodity is supplied in a way that falls under the exclusion provided by the rules, it will not be considered pre-packaged and labelled for GST purposes.

Ruling on Broken Rice Tax Rate: In light of the above information, the AAR ruled that tax is not payable on the supply of broken rice if it is supplied as “other than pre-packaged and labelled” in accordance with Notification No. 07/2022-Central Tax (Rate) dated July 13, 2022. In such cases, the supply is exempt from the payment of GST.

Conclusion: The ruling provides clarity on the GST rate for unbranded and non-packaged broken rice generated during the rice manufacturing process. If the broken rice is supplied as “other than pre-packaged and labelled,” it is exempt from GST. However, pre-packaged and labelled broken rice is subject to a 5% GST rate. This distinction helps businesses and consumers understand the tax implications of supplying and using broken rice in different forms.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, WEST BANGAL

A person within the ambit of Section 100 (1) of the Central Goods and Services Tax Act, 2017 or West Bengal Goods and Services Tax Act, 2017 (hereinafter collectively called the “GST Act”), if aggrieved by this Ruling, may appeal against it before the West Bengal Appellate Authority for Advance Ruling, constituted under Section 99 of the West Bengal Goods and Services Tax Act, 2017, within a period of thirty days from the date of communication of this Ruling, or within such further time as mentioned in the proviso to Section 100 (2) of the GST Act

Every such appeal shall be filed in accordance with Section 100 (3) of the GST Act and the Rules prescribed there under, and the Regulations prescribed by the West Bengal Authority for Advance Ruling Regulations, 2018.

1.1 At the outset, we would like to make it clear that the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression ^„GST Act‟ would mean the CGST Act and the WBGST Act both.

1.2 The applicant is stated to be engaged in the manufacturer of rice. It is submitted by the applicant that fragments of the whole round rice grain is generated in the rice milling process which is commonly known as broken rice.

1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following question vide serial number 14 of the application in FORM GST ARA-01:

“Whether sale of unbranded /non packaged Broken Rice generated from manufacturing process will be charged to Tax @5%”.

1.4 The aforesaid question on which the advance ruling is sought for is found to be covered under clause (e) of sub-section (2) of section 97 of the GST Act.

1.5 The applicant states that the question raised in the application has neither been decided by nor is pending before any authority under any provision of the GST Act.

1.6 The application is, therefore, admitted.

2. Submission of the applicant

2.1 The applicant submits that he has entered into agreements for custom milling of paddy with the State Government. The applicant procures paddy from the farmers as per the direction obtained from the Food & Supply Department, Government of West Bengal without making payment of any consideration. The price of the paddy so procured is directly reimbursed to the farmers by the Government of West Bengal. On receiving the paddy, it passes through different process and generates around 68 kg of rice (considering 1 quintal of paddy are processed). The rest 32% are generated as Bhusi and Tush which are used as cattle feed and charged to GST at nil rate.

2.2 The applicant further submits that out of 68 kgs rice so produced, 2% rice are gets damaged during the process of polishing stage. Such damaged rice is termed as “Broken Rice”. The broken rice so generated is sold in the market in a totally unbranded and un-packaged manner which is generally used for animal feeding.

2.3 The HSN Code applicable to Broken Rice is 10064000 which is covered under Chapter 10 and chargeable to Tax @ 5%. Prior to 18th of July, 2022, GST applied on specified goods when they were put up in a unit container and were bearing a registered brand name or were bearing brand name in respect of which an actionable claim or enforceable right in a court of law is available. With effect from the 18th July 2022, this provision undergoes a change and GST has been made applicable on supply of such “pre-packaged and labelled” commodities attracting the provisions of Legal Metrology Act.. For example, items like pulses, cereals like rice, wheat, and flour (Atta), etc., earlier attracted GST at the rate of 5% when branded and packed in unit container (as mentioned above). With effect from 18.7.2022, these items would attract GST when “pre-packaged and labelled”.

2.4 For the purposes of GST, the expression ‘pre-packaged and labelled means a ‘pre-packaged commodity‟ as defined in clause (I) of section 2 of the Legal Metrology Act, 2009, where the package in which the commodity is pre-packed, or a label securely affixed thereto is required to bear the declarations under the provisions of the Legal Metrology Act and the rules made thereunder.

Clause (I) of section 2 of the Legal Metrology Act reads as below:

(I) “pre-packaged commodity” means a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre- determined quantity.

2.5 Thus, supply of such specified commodity having the following two attributes would attract GST:

(i) It is pre-packaged; and

(ii) It is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder.

2.6 However, if such specified commodities are supplied in a package that do not require declaration(s)/compliance(s) under the Legal Metrology Act, 2009 (1 of 2010), and the rules made thereunder, the same would not be treated as pre-packaged and labelled for the purposes of GST levy.

2.7 The applicant submits that the item “Broken Rice” as supplied by him is neither pre-packed nor labeled and the applicant therefore is making supply of the said item without charging any tax.

3 Submission of the Revenue

3.1 The officer concerned from the revenue has not expressed any view in this regard.

4. Observations & Findings of the Authority

4.1 We have gone through the records of the issue as well as submissions made by the authorised advocate of the applicant during the course of personal hearing. The issue before us is to determine whether the supply of ^„broken rice‟ is exempted from payment of tax and for that purpose, we find it necessary to determine the classification of ^„broken rice‟. In terms of Explanation (iii) appended to Notification No.1/2017 – Central Tax (Rate) dated 28-06-­2017, “Tariff item”, “sub-heading” “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). Further, as per Explanation (iv) of the said Notification, ^„The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.‟

4.2 Heading 1006 of the Customs Tariff covers ^„RICE‟. Further, note 1(b) of Chapter 10 speaks that this Chapter does not cover grains which have been hulled or otherwise worked. However, rice, husked, milled, polished, glazed, parboiled or broken remains classified in heading 1006. For the sake of convenience, products under tariff item 1006 are reproduced below:

4.3 Going by the notes under Chapter 10, we thus find that the product ^„broken rice‟ is classifiable under Chapter Heading 1006. Therefore, the rate of tax on supply of ^„broken rice‟ would be same as in case of supply of rice. In terms of Notification No. 06/2022- Central Tax (Rate) dated 13.07.2022, ^„Rice, pre-packaged and labelled‟ attract tax @ 5% with effect from 18.07.2022. On the other hand, Notification No. 07/2022-Central Tax (Rate) dated 13.07.2022 exempts supply of ^„Rice, other than pre-packaged and labelled‟ with effect from 18.07.2022. In a Press Release posted on 18.07.2022 on the subject matter ^„FAQ on GST applicability on ^„pre-packaged and labeled goods‟, it has been clarified that “In the context of food items (such as pulses, cereals like rice, wheat, flour etc), the supply of specified pre­packaged food articles would fall within the purview of the definition of ‘pre-packaged commodity’ under the Legal Metrology Act, 2009, and the rules made there under, if such pre-packaged and labelled packages contained a quantity up to 25 kilogram [or 25 litre] in terms of rule 3(a) of Legal Metrology (Packaged Commodities) Rules, 2011, subject to other exclusions provided in the Act and the Rules made there under.” In the said Press Release, it has further been clarified that ^„Supply of packaged commodity for consumption by industrial consumer or institutional consumer is excluded from the purview of the Legal Metrology Act by virtue of rule 3 (c) of Chapter-II of Legal Metrology (Packaged Commodities) Rules, 2011. Therefore, if supplied in such manner as to attract exclusion provided under the said rule 3(c), it will not be considered as pre-packaged and labelled for the purposes of GST levy.‟

4.4 We therefore hold that the applicant shall be liable to pay tax @ 5% on supply of ^„broken rice‟ if the item is supplied as ^„pre-packaged and labeled „. Otherwise, such supply shall be exempted from payment of tax.

In view of the above discussions, we rule as under:

RULING

Tax is not payable by the applicant on supply of ^„broken rice‟ if the same is supplied ^„other than pre-packaged and labeled‟ as specified in Notification No. 07/2022-Central Tax (Rate) dated 13.07.2022.