Summary: The AAAR in Chhattisgarh addressed the classification and GST implications for Fortified Rice Kernels (FRK) in the case of M/s Brindavan Agrotech (P.) Ltd. The ruling confirmed that FRK, made through milling and subsequent processes including blending with vitamin-mineral premix, should be classified under Chapter 19, subheading 19049000, attracting an 18% GST (9% CGST and 9% SGST). The AAAR noted that while traditional rice falls under Chapter 11, FRK is distinct as it is specifically designed to blend with traditional rice. The processing of rice into flour and its subsequent fortification places FRK beyond the standard definitions of milling in Chapter 11. The ruling referenced Notification No. 39/2017 and its amendments, affirming that the government intended for FRK to be categorized under Chapter 19. The GST Council’s prior recommendation to lower the GST on FRK supplied under specific government programs like ICDS to 5% was also acknowledged. In previous rulings, it was clarified that while FRK itself is not directly consumable as food, it qualifies for GST concessions when supplied for approved government schemes, contingent upon fulfilling specified conditions.
The AAAR, Chhattisgarh in the case of M/s Brindavan Agrotech (P.) Ltd., In Re [Order No./ STC/CG/AAAR/01/2023 dated April 26, 2024] held that the Fortified Rice Kernels is made by using the milling process, is covered under Chapter 11 of the Customs Tariff Act, 1975 (“the Customs Tariff Act”). However, blending of rice with vitamin-mineral premix and introduction of binder along with the extrusion machine processes that fall beyond the limits of Chapter 11 of the Customs Tariff Act. Hence, it is classifiable under the Chapter 19 under the subheading 1904900 and attracts the GST of 18%.
Facts:
M/s Brindavan Agrotech (P.) Ltd. (“the Appellant”) was a private limited company and was planning to start manufacturing and selling a product, namely pellets of blended fortified rice flour, which is also commonly known as Fortified Rice Kernels.
The Appellant seeked an advance ruling on the HSN classification of Fortified Rice Kernels, and the applicable rate of GST is on the product.
Further, the AAR Chhattisgarh vide Order dated February 20, 2023 (“the Impugned Order”) ruled that the Fortified Rice Kernels falls under Tariff item 19049000 attracting GST @18% [9% CGST+ 9% SGST] or 18% IGST.
Hence, aggrieved by the AAR ruling, the Appellant filed the appeal in the Appellate Authority for Advance Ruling.
Issue:
Whether the Fortified Rice Kernels will be classified under the Chapter subheading 19049000 and attracts the GST of 18%?
Held:
The AAAR, Chhattisgarh in Order No./STC/CG/AAAR/01/2023 held as under:
- Observed that, for any product to fall under Chapter 11 of the Customs Tariff Act, a product should be from milling of cereals. However, Fortified Rice Kernels is a product different from the traditional rice and is to be used for blending traditional rice. The chapter heading of Chapter 11 itself reads as “Products of the milling industry: malt; starches; inulin; wheat gulten”.
- Noted that, rice milling process includes processes like 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 Fortified Rice Kernels is a product different from the traditional rice and to be used for blending in tradition al rice. As per the Appellant process to fortify rice consists of three main steps which includes conversion of rice into rice flour, blending of rice flour and Vitamins- Minerals premix, followed by the extrusion of mixture in shape of rice to form pellets of blended fortified rice flour having same composition as of the rice with addition vitamins and minerals premix. Hence, if the Fortified Rice Kernels is made by using the milling process, is covered under Chapter 11 of the Customs Tariff Act. Additionally, blending of rice with vitamin-mineral premix and introduction of binder along with the extrusion machine processes that fall beyond the limits of Chapter 11.
- Held that, on perusal of Notification No. 39/2017- Central Tax (Rate) dated October 18, 2017 which was further amended vide Notification No. 11/2021-Central Tax (Rate) dated September 30, 2021 w.e.f. October 01, 2021, it is clear that the intention of the Government to keep Fortified Rice Kernels under Chapter 19 of the Customs Tariff Act. The recommendation of the GST Council in its 45th meeting recommended lowering rate of GST from 18% to 5% on Fortified Rice Kernels supplied for schemed likes ICDS, etc. stands affirmed by the Notification No. 11/2021-Central Tax (Rate) dated September 30, 2021 in the official Gazette wherein “Tariff item, sub-heading, heading or Chapter” has clarified the classification there is no scope left for interpretation. Therefore, as per the Note 4 to Chapter 19, 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. Hence, this expression puts the process or preparation of rice beyond the scope of Chapter 10 or 11, to be included in Chapter heading 1904. The normal rice has undergone specific mechanical and chemical processing resulting into Fortified Rice Kernels. This preparation is way beyond the scope mandated under chapter 10 or 11 of the GST Tariff and is appropriately classifiable under Chapter 19. Therefore, it is shaped in form of rice by the mechanized process but it is not rice grain in terms of Chapter 11.Hence, the Advance Ruling is appropriate in this regard and needs no interference.
Our Comments:
The GST Council in its 45th meeting recommended lowering rate of GST from 18% to 5% on Fortified Rice Kernels supplied for schemed likes ICDS, etc. stands affirmed by the Notification No. 11/2021-Central Tax (Rate) dated September 30, 2021 w.e.f. October 01, 2021 which amended Notification No. 39/2017- Central Tax (Rate) dated October 18, 2017 which states that in exercise of the powers conferred by section 9(1) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), 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 specified in the corresponding entry in column (2), subject to the condition specified in column (4) of the Table below, namely-
| Sl. No | Tariff item, sub- heading, heading or Chapter | Description of Goods | Conditions |
| (1) | (2) | (3) | (4) |
| 1. | 19 or 21 | Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme duly approved by the Central Government or any State Government. | When the supplier of such food preparations produces a certificate from an officer not below the rank of the Deputy Secretary to the Government of India or the Deputy Secretary to the State Government or the Deputy Secretary in the Union Territory concerned to the effect that such food preparations have been distributed free to the economically weaker sections of the society under a programme duly approved by the Central Government or the State Government concerned, within a period of five months from the date of supply of such goods or within such further period as the jurisdictional commissioner of the Central tax or jurisdictional commissioner of the State tax, or jurisdictional officer of the Union Territory Tax as the case maybe, may allow in this regard. |
The above Notification was amended vide Notification No. 11/2021-Central Tax (Rate) dated September 30, 2021 as amended follows:
| Sl. No | Tariff item, sub- heading, heading or Chapter | Description of Goods | Conditions |
| (1) | (2) | (3) | (4) |
| 1. | 19 or 21 | (a) (a)Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme duly approved by the Central Government or any State Government.
(b) Fortified Rice Kernel supply for the ICDS or similar duly approved by the Central Government or any State Government.
|
when the supplier of such goods producers a certificate from an officer not below the rank of the Deputy Secretary to the Government of the India or the Deputy Secretary to the State Government in the Union Territory concerned to the effect that such goods have been distributed free to the economically weaker sections of the society under the programmed duly by the Central government or the State Government concerned within the period of five months from the date of supply of such goods or within such further period as the jurisdictional commissioner of the State tax, or jurisdictional officer of the Union Territory Tax as the case maybe may allow in this regard. |
In Rasi Nutri Foods [Order No. 39 AAR/2021 dated October 21, 2021] Authority for Advance Ruling, Karnataka (“KAAR”) held that Notification No. 39/2017- Central Tax (Rate) dated October 18, 2017 (“Concessional Rate Notification”) read with G.O.M’s No. 140 dated October 17, 2017, Department is not applicable to the activity of manufacture and supply of Fortified Rice Kernels to rice mills designated by Tamil Nadu Civil Supplies Corporation for period up-to September 30, 2021 as it does not amount to food preparation.
KAAR observed that the product supplied by the Applicant to the rice mills for blending with rice grains is FRK, which per se is not ‘food preparation’ as it cannot be consumed as such or after cooking, rather FRK is ‘goods’ and further observed that FRK is not directly supplied to the economically weaker section, but only after blending with rice grains in designated rice mills.
Further held that vide Notification No. 11/2021-Central Tax (Rate) dated September 30, 2021 the Concessional Rate Notification was amended w.e.f October 1, 2021 by including the term ‘FRK (premix)’ supply for ICDS or similar scheme approved by Central Government or State Government in column (3) and also, word food preparation is amended as ‘goods’ in column (4) of the Amended Notification, therefore, if the Applicant fulfills the condition mentioned in column (4) of the Amended Notification, the Applicant will be eligible for the benefit of Concessional Rate Notification, as amended, from October 1, 2021 onwards.
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