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2025 (7) TMI 53 - AAAR - GSTClassification of goods -Tapioca Flour obtained by crushing the dried root and remnants of tapioca roots/tubers - Applicability of Notification issued under the provisions of Act in respect of goods falling under entry No. 78 and tariff item 1106 of Part-A of exempted goods and tariff item 1106 in SI. No. 59 of Part-C of schedule I of the said Act - determination of tax liability - requirement of registration of trader/dealer - principles of natural justice. HELD THAT - On close observation of the products contained in Chapter 11 it could be seen that most of them are useful in the food industry for further edible preparations and some for direct human consumption as flour meal and powder. Further all kinds of starches (usually in powdered form) are classified under 1108 where manioc(cassava) starch is classifiable under 11081400 and sago starch under 11081910 both attracting GST @ 12% - Bran sharps and other residues arising from the milling industry are classified under 2302. This heading includes the products derived from the sifting milling or other working of cereals or leguminous plants whether or not in the form of pellets. The appellant himself is not clear about how the product is manufactured and when the wet thippi is emanating during the starch manufacture. The appellant being a trader of animal feed in 50/70 Kgs gunny bags have not submitted any proof or documentary evidences from the manufacturer of the product regarding the manufacturing process of their product. It is clear that the appellant is trying to present the facts suo motu. and support the same without any evidences. As the classification of the product being traded by the appellant is to be done based on the exact process of manufacture the issue needs to re-examined and decided afresh by the Authority of Advance Ruling. The principles of natural justice need to be followed in the instant case as the appellant has not produced enough evidences in support of their claim and the Advance Ruling Authority has not considered the full facts in deciding the issue. Accordingly the justice will be met by restoring the application for advance ruling to its original position by way of remand to lower authority and to offer them opportunity to furnish evidence and opportunity of being heard in person before deciding the case as per the provisions of law. The Advance Ruling and subsequent rectification order in the case of the appellant are set aside. The matter is remanded to the Lower Authority for fresh consideration and passing of appropriate orders after following the principles of natural justice.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Appellate Authority for Advance Ruling (AAAR) under the Tamil Nadu Goods and Services Tax Act, 2017, are as follows:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Classification of the Product (Tapioca Flour) Relevant legal framework and precedents: The classification of goods under GST is governed by the Customs Tariff Act and the HSN codes. The relevant chapters considered include Chapter 7 (Edible vegetables and certain roots and tubers), Chapter 11 (Products of the milling industry; malt, starches), and Chapter 23 (Residues and waste from the food industries; prepared animal fodder). Notifications under the GST Act specify tax rates applicable to various HSN codes, including exemptions. Court's interpretation and reasoning: The appellant contended that the product 'Tapioca Flour' should be classified under HSN 1106, which covers flours and meals of roots or tubers, attracting NIL GST rate as per Notification No. 02/2017-CT (Rate). The Authority for Advance Ruling (AAR) had classified the product under HSN 2303.10 as 'Residues of starch manufacture', attracting 5% GST. The AAAR analyzed the manufacturing process and product characteristics, emphasizing the distinction between tapioca flour and residues of starch manufacture. The appellant demonstrated through flow charts and documentary evidence that the product is obtained from 'wet thippi' or sago pith before the starch extraction process is completed, and not from residues after starch manufacture. The AAAR considered definitions and industrial terminologies such as 'manufacturing process', 'by-product', 'pith', 'thippi', and 'tapioca starch' to understand the nature of the product. Chapter 7 includes manioc (cassava/tapioca) tubers under heading 0714. Chapter 11 covers products of milling industry including flours and starches under headings 1106 and 1108 respectively. Chapter 23 covers residues and waste from food industries, including animal feed under heading 2303. The AAAR found that tapioca flour is a distinct product from starch residues, being a by-product obtained prior to starch manufacture, and is thus classifiable under HSN 1106 rather than 2303.10. Key evidence and findings: The appellant's detailed manufacturing process charts, photographs of sago pith ('thippi'), bills of purchase and sale, and expert clarifications were critical in establishing the product's nature and manufacturing stage. The appellant also referred to a High Court precedent distinguishing industrial use and animal feed classification. Application of law to facts: The AAAR applied the tariff classification rules and GST notifications to the facts, concluding that the product falls under Chapter 11 heading 1106 and not under Chapter 23 heading 2303.10. Treatment of competing arguments: The AAR had earlier classified the product as residue attracting 5% GST. The appellant challenged this on the basis of manufacturing process and product nature. The AAAR carefully examined the appellant's submissions and found the appellant's classification more consistent with the product's characteristics and the legal framework. Conclusion: The product 'Tapioca Flour' is correctly classifiable under HSN 1106 as a flour of roots or tubers, not as a residue of starch manufacture under 2303.10. Issue 2: Applicability of Exemption Notification Relevant legal framework and precedents: Notification No. 02/2017-CT (Rate) dated 28-06-2017 and Notification No. 01/2017-CT (Rate) provide exemptions or NIL GST rates for certain goods under specified conditions, including whether goods are branded or unbranded and packed or unpacked. Court's interpretation and reasoning: The appellant contended that their product, being unbranded and sold in bulk gunny bags without any registered brand name, qualifies for exemption under these notifications. The appellant relied on the distinction between unbranded and branded goods in the notification and the CBIC clarification circular regarding 'chhatua or sattu' (mixtures of flours) to draw an analogy for their product. The AAAR noted that the exemption applies to flours of roots or tubers (HSN 1106) when sold without a registered brand name and packed in bulk, attracting NIL GST. Branded and packed products attract 5% GST. Since the appellant's product is unbranded and sold in bulk bags, it qualifies for exemption. Key evidence and findings: The appellant's bills of supply showing no tax charged, absence of brand name or trademark, and packing in bulk bags supported their claim. The CBIC circular clarified the treatment of similar products, reinforcing the appellant's position. Application of law to facts: The AAAR applied the notification provisions to the appellant's facts and found the exemption applicable. Treatment of competing arguments: The AAR had earlier held the notification inapplicable, treating the product as residue attracting GST. The AAAR disagreed, emphasizing the correct classification and the notification's conditions. Conclusion: The exemption notification applies to the appellant's product, and it is liable to NIL GST rate. Issue 3: Determination of Tax Liability Relevant legal framework: Tax liability under GST depends on proper classification and applicable notifications. Court's interpretation and reasoning: Since the product is classified under 1106 and qualifies for exemption as unbranded flour of roots or tubers, the appellant's supply is exempt from GST. Key evidence and findings: The appellant's supply invoices, classification, and exemption notification support NIL tax liability. Application of law to facts: The AAAR held that the appellant's transactions are exempt supplies attracting NIL GST. Treatment of competing arguments: The AAR's contrary view that the product is residue liable to 5% GST was rejected. Conclusion: The appellant's supply of tapioca flour is exempt from GST and not liable to tax. Issue 4: Requirement of Registration under GST Relevant legal framework: Section 22 of the GST Act provides conditions for mandatory registration, including turnover thresholds and nature of supply. Court's interpretation and reasoning: The AAR had ruled that the appellant is liable to be registered. The appellant contended that as they deal in exempt goods, registration is not mandatory. Key evidence and findings: The AAAR examined the nature of supplies and turnover criteria. Application of law to facts: Since the appellant is engaged in supply of exempt goods, registration is not mandatory unless turnover exceeds prescribed limits or other conditions apply. Treatment of competing arguments: The AAAR considered both views and clarified the registration requirement based on the facts. Conclusion: The appellant is not required to be registered under GST if their supplies are wholly exempt and turnover is below threshold. 3. SIGNIFICANT HOLDINGS "The product 'Tapioca Flour' supplied by the appellant is a distinct commercial product obtained as a by-product prior to the manufacture of starch and is classifiable under Chapter 11, heading 1106 as flour of roots or tubers, and not under Chapter 23, heading 2303.10 as residues of starch manufacture." "Notification No. 02/2017-CT (Rate) dated 28-06-2017 exempts unbranded flours of roots or tubers packed in bulk from GST levy. Since the appellant's product is unbranded and supplied in bulk, it attracts NIL GST rate." "The classification of goods under GST must be based on the nature of the product and the stage of manufacture, not merely on the user or the fact that the goods are residues." "Registration under GST is not mandatory for a dealer dealing exclusively in exempt goods unless turnover or other conditions prescribed under Section 22 of the Act are met." Final determinations:
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