CLASSIFICATION AND RATE OF DUTY WHEN GOODS NOT IN TARIFF

[Dr. Sanjiv Agarwal]

In one of the recent advance rulings in GST before the Authority for Advance Ruling, Kerala, an issue came up for deciding the classification of goods and rate of GST on goods called ‘Ada’ which does not find a specific mention in any Tariff heading. This is also perhaps the first case where because of difference of opinion between the two members of AAR, the matter was referred to Appellate Authority for Advance Ruling (AAAR).

Advance Ruling: Difference of Opinion

In Re: Ramachandran Bror  (2018) 10 TMI 1312 (AAAR, Kerala), the applicant was a wholesale distributor of ‘Ada’ which is used as ‘seviyan’ (vermicelli) i.e., to make sweet kheer or palada payasam or ada pradhaman. Ada is one of the grocery goods, mainly used by Keralites to prepare a sweet kheer or payasam otherwise called pradhaman. The ada is produced from rice flour or maida and no other ingredients are added.

Further, in Meenakshi Cottage Industries v. State Tamilnadu, vide Order dated 23.04.1987 of Tamilnadu Sale Tax Appellate Tribunal, Madurai  bench, it was held that ‘Ada’ and ‘Vermicelli’  are one and the same.

The AAR could not decide the issue as both the members differed in their opinion. The Member, CGST was of the view that the commodity ‘ada’ is appropriately classifiable under HSN 1902 of the 1st Schedule [Sl No. 97 - Seviyan (Vermicelli)] of Notification No. 01/2017 - Central Tax (Rate) dated 28.06.2017 and the State Government Notification No. 360/2017 attracting 5% GST. However, the Member, SGST was of the opinion that since the commodity ‘ada’ is not specifically mentioned in any of the Tariff heads, it would be taxable under the residual entry at Sl.No. 453 of the Third Schedule of Central Government Notification No. 1/2017 and the concomitant State Government Notification No. 360/2017 at the rate of 18%.

Need for Appellate Ruling

According to section 98(5) of the CGST Act, 2017, if the AAR differs in opinion, the ruling cannot be given and the matter has to be referred to AAAR. Accordingly, the matter was referred to AAAR for its ruling.

Appellate Ruling

So far as to product ‘Ada’ is concerned, it was observed that Seviyan (Vermicelli) is a commodity produced from maida and is used for the purpose of giving richness to Kheer / Payasam. ‘Ada’ is also a commodity produced from maida or rice flour or a mixture of maida and rice flour and is used for the purpose of giving richness to some regional varieties of payasams; Known as ‘Ada Pradhaman’ and ‘Palada Pradhaman’. In other words, ‘Seviyan (Vermicelli)’ and ‘Ada’ are produced from maida or rice flour and are essentially used for giving richness to different varieties of Kheer / Payasams. The only difference is that Seviyan (Vermicelli) is prepared in the form of sticks and ‘Ada’ is prepared in the form of thin pieces, making use of different dies. In payasams, where "Vermicelli" is used ‘Ada’ is not used. Hence, essentially ‘Ada’ is a substitute for ‘Vermiclll’ used for giving richness to certain regional varieties of payasams called ‘Ada Pradhaman’ and ‘Palada Pradhaman’, which are popular in Kerala and some parts of Tamil Nadu. Both ‘Vermicelli’ and ‘Ada’ are made of similar ingredients and serve the same purpose namely; giving richness to different varieties of payasams.

The question before AAAR was therefore, that whether the commodity ‘Ada’ should be classified under the HSN Code 1902 along with ‘Seviyan (Vemicelli)’ attracting GST at the rate of 5% or should be classified under residual entry at Sl No. 453 of the Third Schedule of Notification No. 01/2017 - Central Tax (Rate) dated 28.06.2017 and State Government Notification No. 360/2017 attracting 18% GST.

The AAAR observed that S.No. 453 of Third Schedule reads as follows;

‘Any Chapter - Goods which are not specified in Schedule I, II, IV, V or VI.’  

Therefore, it is evident that the entry is a residuary entry to classify commodities that are not classifiable under any of the other entries.

Further, explanation to Notification No. 1/2017-CT (Rate) dated 28.06.2017 provides that:

“(1)     In this Schedule, tariff item, heading, sub-heading and Chapter shall mean respectively a tariff item, heading, sub-heading and Chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

(2)       The rules for the interpretation of the First Schedule to the said Customs Tariff Act, 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 above table."

Thus, the rules for interpretation of the First Schedule of the Customs Tariff Act, 1975 including the Section and Chapter Notes and the General Explanatory Notes are applicable for interpretation of the GST Tariff / Rate Schedule.

It observed that it is well settled that the ratio of various judgments of the Supreme Court, High Court and Tribunals regarding classification of commodities under the Customs Tariff and Central Excise Tariff are equally applicable and have precedent value in relation to the classification of goods under the GST Tariff/ Rate Schedule as the classification under the Customs and Central Excise Tariffs and the GST Tariff/Rate Schedule are aligned and based on the Harmonised System of Nomenclature Codes [HSN Codes].

According to Rules 4 of General Rules for interpretation of  Schedule-I to Customs Tariff Act, 1975, goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin. Thus, 'Ada' is to be classified under the heading appropriate to the goods to which it is most similar in character.

The AAR also relied on following judgments –

• COMMISSIONER OF CENTRAL EXCISE Versus M/s WOCKHARDT LIFE SCIENCES LTD - 2012 (3) TMI 40 - Supreme Court

• WESTERN INDIA PLYWOODS LTD. Versus COLLECTOR OF CUSTOMS, COCHIN - 2005 (10) TMI 90 - Supreme Court

• BHARAT FORGE & PRESS INDUSTRIES (P) LTD. Versus COLLECTOR OF C. EX. - 1990 (1) TMI 70 - Supreme Court

• COLLECTOR OF C. EX. Versus JAYANT OIL MILLS PVT. LTD. - 1989 (3) TMI 132 - Supreme Court

• DUNLOP INDIA LTD. & MADRAS RUBBER FACTORY LTD. Versus UNION OF INDIA AND OTHERS - 1975 (10) TMI 94 - Supreme Court

Based on above, AAAR thus concluded that  ‘Ada’, in sum and substance, is something akin, i.e., similar in character to ‘Vermicelli’. Both are made from 'maida or rice flour' or 'maida and rice flour' and are manufactured through an identical process and ‘ada’ is used for giving richness to certain regional varieties of payasams called ‘Ada Pradhaman’ and ‘Palada Pradhaman’, which are popular in Kerala and certain parts of Tamil Nadu. There is indeed nothing to differentiate ‘ada’ from ‘vermicelli’ except for the dies that are used in the manufacturing process which gives it a different shape.

Hence, ‘Ada’ is rightly classifiable under HSN 1902 of the 1st Schedule [S. No. 97-Seviyan (Vermicelli)] of Notification No. 01/2017-CentraI Tax (Rate) dated 28.06.2017 and State Government Notification No. 360/2017 dated 30.06.2017 attracting 5% GST.