Classification of FRK (Fortified Rice Kernels): AAAR Chhattisgarh Ruling

In re Brindavan Agrotech Private Limited (GST AAAR Chhattisgarh)

The case of Brindavan Agrotech Private Limited v. GST AAAR Chhattisgarh delves into the classification of Fortified Rice Kernels (FRK) under GST regulations. This article provides a comprehensive analysis of the Authority for Advance Ruling’s (AAR) decision and the subsequent appeal process.

The discussion revolves around Chapter 11 of the Customs Tariff Act, which covers products of the milling industry, including rice. FRK, despite its resemblance to rice, undergoes additional processing involving fortification with vitamins and minerals. The AAR initially classified FRK under Chapter 19 due to this processing, supported by relevant notifications like No. 39/2017-Central Tax (Rate), amended by No. 11/2021.

The appellate authority’s decision was based on the interpretation of statutory guidelines and notifications. They emphasized that FRK’s processing steps extend beyond those allowable under Chapter 11, justifying its classification under Chapter 19, specifically 1904 90 00 of the Customs Tariff Act. This classification aligns FRK with products “otherwise prepared” under Note 4 of Chapter 19, distinct from traditional rice products governed by Chapter 11.

In conclusion, the appellate authority upheld the AAR’s ruling, affirming FRK’s classification under Chapter 19.

RELEVANT EXTRACT OF THE ORDER OF AUTHORITY FOR APPELLATE ADVANCE RULING, CHHATTISGARH

7. Discussion and Findings: –

7.1 Accordingly, after careful consideration of the case, ruling of the AAR, relevant rules, regulations and notifications there-under, various statutory’ guidelines having bearing on the issue in hand, raised by the appellant, we proceed to decide the case in accordance with the :aw. Further, in the present case we arc not deciding any wider question but restricting our conclusion to the facts and circumstances which were filed for our consideration in the application.

7.2 Now, therefore, we have carefully gone through the submissions made by the appellant in his application as well as the submissions made at the time of personal hearing. The appellant has requested to set aside the order of the advance ruling on dated 21.02.2023 and to classify FRK under Chapter Heading 1103.

7.3 As regards to the classification. we Would like to firstly go through the Note 2 of Chapter 11 of the Customs Tariff Act which read as under:-

^–2. (A) Products from the milling of the cereals listed in the table below fall in this Chapter if they have, by weight on the thy product

a) a starch content (determined by the modified Ewers polarimetric method) exceeding that indicated in column (2): and

b) an ash content (after deduction of any added minerals) not exceeding that indicated in column (3)

Otherwise, they jail in heading 2302. However, germ of cereals, whole. rolled, flaked or ground, is always classified in heading 1104

(B) Products flitting in this Chapter Under the above provisions shall be classified in heading 1101 or 1102 if the percentage passing through a woven metal wire cloth sieve with the aperture indicated in column (4) or (5) is not less, by weight, than that shown against the cereal concerned.

Otherwise, they fall in heading 1103 or 1104 “

7.4 On Perusal of the above said Note 2, we find that to fulfil these conditions a product should be from the miiling of cereals so as to fall under chapter 11 Further the chapter heading of chapter 11 itself read as “products of the milling industry; mal starches inulin wheat gluten”.

7.5 Rice Milling Process includes Processes link paddy cleaning, paddy de- husking, paddy separation rice whitening rice polishing, rice grading, rice colour sorting, etc. Thus, the main aim of milling is to remove the rice from the husk. This is an admission of fact by the appellant that FRK is a product different from the traditional rice and to be used form blending in traditional rice. Further, as per the applicant the process to fortify rice consists of three main step as mentioned under:-

(a) Conversion of rice into rice flour.

(b) Blending of rice flour and Vitamin-Minerals premix.

(c) Extrusion of mixture in shape of rice to form pellets of blended fortified rice flour having the same composition as of rice with addition of vitamins – minerals Premix.

7.6 In our view, the product at the end of first step, as mentioned above, if done by using milling process is covered under chapter 11 of customs Tariff act. Blending of rice with vitamin- mineral premix and introduction of binder and expressional machine are the processes which fall beyond chapter 11 the advance ruling is appropriate in this regard and need no interference.

7.7 Before dwelling into the issue, the notification No. 39/2017-Central Tax (Rate), dated 18.10.2017 has to be examined carefully. For a clear perspective, the same is reproduced as under:-

In exercise of the powers conferred by sub-section (1) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the central tax rate of 2.5 per cent on intra State supplies of goods, the description of which is specified in column (3) of the Table below, falling under the tariff item, sub-heading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2), subject to the condition specified in column (4) of the Table below, namely:-

7.8 The above notification stand amended vide notification No. 11/2021-Central tax (Rate), dated 30.09.2021, effective from 01.10.2021. Thus, 01.10.2021 onward, the table of notification No. 39/2017-Central Tax (Rate), dated 18.10.2017 as amended is as follows:

7.9 On perusal of the above, it can be clearly seen that the intention of the Government is to keep FRK under Chapter 19 of the Customs Tariff Act and not under Chapter 11 as per the contention of the noticee. The recommendation made in the 45th GST Council Meeting wherein the Council had inter alia recommended the lowering of rote of GST from 18% to 5% on FRK. supplied for schemes like ICDS, etc., stands affirmed by the notification No. 11/2021-Central tax (Rate), dated 30.09.2021 in the official Gazette wherein -Tariff item, sub- heading, heading or Chapter” has been clearly mentioned. Further, once the Government, vide Notification, has clarified the classification there is no scope left for interpretation.

7.10 Further, to substantiate our view, the relevant extracts of note 4 to Chapter 19 is reproduced as below:-

“4. For the purpose of heading 1904, the expression “otherwise prepared” means prepared or processed to an extent beyond that provided for in the heading of or Notes to Chapter 10 or 11″

• The above note comprehensively puts the process or preparation of rice which arc beyond the scope of Chapter 10 or 1 , to be included in Chapter heading 1904. While going through the submissions, it is clearly evident that normal rice has undergone specific mechanical and chemical processing resulting into FRK. This preparation process FRK is way beyond the scope mandated under Chapter 10 or 11 of GST Tariff (i.e. husked, milled, polished, glazed, parboiled or broken) and is appropriately classifiable under Chapter 19, Therefore, though FRK is shaped in form of rice by the mechanized process but it is not rice grain in terms of Chapter 11.

7.12 In view of above, we arrive at the conclusion that the FR.K manufactured by the appellant has been processed beyond the allowed limits of Chapter 11 (as discussed above) and is appropriately classifiable wider Chapter 19 i.e. under Chapter sub-heading 1904 90 00 in terms of Chapter Note 4 of the said Chapter.

Ruling

We find no infirmity in the Order dated 20.02.2023 passed by the AAR regarding classification of FRK Further, the appellant is entitled to take the benefit of notification No. 39/2017-Central Tax (Rate), dated 18.10.2017, as amendment by notification No. 11/2021-Central tax (Rate), dated 30.09.2021, subject to fulfilment of the condition stipulated under the said Notification.