TMI Blog2018 (5) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct which would aid in ascertaining the correct classification, the applicant was asked to give a report from a recognized Laboratory - the test report also gives no details of the additives and chemicals which are added while manufacturing the impugned product. The information as per website of applicant is that certain ingredients in the form of additives and chemicals are added to vegetable oils to make them function as a substitute for mineral oil in transformers and other apparatus. The impugned product with the processes undergone to produce the end product of coolant for transformer does not remain vegetable oil per se. In the present case, we have a final product which is a transformer coolant. Though the Test Report shows the percentage of the chemicals to be 1% or the vegetable oils to be at 98.5% would not mean that a new commodity has not been produced. We have seen above an extract from an article that while there are data and international standards galore for mineral oils, there are as yet no IEC standards addressing the composition or testing of the natural ester oils with their different chemical composition. Each manufacturer has his own set of ingredient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2017 [hereinafter referred to as the CGST Act and MGST Act ] by CARGILL INDIA PRIVATE LIMITED, the applicant, seeking an advance ruling in respect of the applicability of GST on: Whether Natural Easter Dielectric Fluid (hereinafter referred to as ' Envirotemp FR3') fall under Serial no. 90 of Schedule I of Notification No. 1/2017-State Tax (Rate) dated 29th June, 2017 issued under the Maharashtra Goods and Services Tax Act, 2017 and Notification No. 1/2017- Central Tax (Rate) dated 28th June, 2017 issued under the Central Goods and Services Tax Act, 2017 is taxable at the rate of 2.5% (State tux and Central tax) OR Whether Envirotemp FR3) fall under Serial no, 27 of Schedule II of Notification No. 1/2017-State Tax (Rate) dated 29th June, 2017 issued under the Maharashtra Goods and Services Tax Act, 2017 and Notification No. 1/2017Central Tax (Rate) dated 28 th June, 2017 issued under the Central Goods and Services Tax Act, 2017 is taxable at the rate of 6% (State tax and Central tax)? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nourish and treat animals 1.3 In India, under food segment of Applicant's business there are three manufacturing units at Kandla, Gujarat, Kurkumbh, Maharashtra and Devengere, Karnataka. In addition to the manufacturing plants, the Applicant has depots, warehouses and branches across 23 states in India. 2. ABOUT THE PRODUCT-NATURAL ESTER DIELECTRIC FLUID 2.1 One of the products manufactured by the Applicant is Natural Ester Dielectric Fluid, commonly known as Envirotemp FR3. The said product is manufactured by the Applicant in its Kurkumbh plant in Maharashtra and thereafter sold from there. 2.2 Natural ester dielectric fluid is a proficiently emerging product/technology in the field of transformer dielectric application in the global power industry, It is based on renewable resources and produced from vegetable seeds. The product is made up of refined soya beans oil after mixing some additives with the same, However the basic characteristics, nature of product remains the same even after mixing of additives. 2.3 In addition to being derived from renewable resources, it has numerous other advantages in terms of dielectric application. The said pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516 ; inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter , not elsewhere specified or included 4.2 As per First schedule of Central Excise Tariff Act, 1985, Excise duty was levied at the rate of 6% on all the products falling under Chapter heading 1518. Further, the said tariff heading was exempted by way of Notification no. 12/2012 - Central Excise dated 17th March 2012, implying that the effective Excise duty rate on this product was Nil under Excise law. 4.3 It is further submitted that under the erstwhile Maharashtra Value Added Tax Act, 2002 tariff heading 1518 was classified under serial no. 54 of the Schedule C as an Industrial input read with MVAT notification no. VAT-1505/CR-234/Taxation-I dated 1st September 2005, (Sl. No, 14). Thus, the effective rate of VAT on the said goods was 6%. 4.4 Under the Maharashtra Goods and Service Tax Act, 2017, Chapter heading 1518 is appearing under Schedule I and Schedule II of Notification No. 01/2017 - State Tax (Rate) dated 29th June 2017. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, in as much as, the said entry seems to also include inedible mixtures or preparation of vegetable fats or oils. 5. QUESTION FOR DETERMINATION OF THE HON'BLE AUTHORITY IN VIEW OF THE AMBIGUITY PERSISTING IN ENTRY 90 AND ENTRY 27 OF SCHEDULE I AND SCHEDULE II RESPECTIVELY. THE HON'BLE AUTHORITY IS HUMBLY REQUESTED TO PROVIDE A RULING ON THE BELOW-MENTIONED QUESTIONS 5.1 Whether Natural Ester Dielectric Fluid, being a chemically modified vegetable/soybean oil is classifiable under Entry 90 of Schedule I of the Notification No. 01/17-State Tax (Rate)under the MGST Act and taxable at the rate of 2.5% State Tax? 5.2 Whether Natural Ester Dielectric Fluid can be said to be a mixture of inedible vegetable oil which is not elsewhere classified, hence, classifiable under Entry 27 of Schedule II of Notification No. 01/2017 - State Tax (Rate), under the MGST Act, and taxable at the rate of 6%. State Tax? 5.3 Pass such other Ruling as it may be deemed fit in the interest of equity and good conscience. It is submitted that the Applicant is of the humble view that the product in question should be classified under Entry 90 of Schedule I of the said Notification and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemical modification is a process whereby, certain properties of the base oil is changed by adding chemicals to make the same Suitable for certain specific purpose. Owing to the unfavorable impact on the environment of mineral oil-based lubricants, there has been a steady increase in the demand for biodegradable, environment-friendly lubricants. Vegetable oils including soya bean oil is recognized as rapidly biodegradable and are thus promising candidates as base fluids in environment-friendly lubricants. 1.5 It is further submitted that the chemically modified base fluids which is soya bean in the present case, exhibit superior oxidation stability in comparison with unmodified vegetable oils. These base fluids in combination with suitable additives exhibit equivalent oxidation stability compared with mineral oil-based formulations. 1.6 In view of the above, it is amply clear that the product in question, namely, Natural Ester Dielectric Fluid is nothing but vegetable Oil Which is chemically modified to be used as lubricant for power sector, clearly falling within the ambit of the Entry 90 of Schedule I of the Notification No. 01/2017 - State Tax (Rate) under the MGST Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he process in the present case if purely of chemical modification of only soybean oil to convert it into a biodiesel fuel. Given the above. it is humbly submitted that in Natural Ester Dielectric Fluid. there is no mixture of or preparation of multiple vegetable oils or fats or their fractions. Hence, the product in question ought not to be classified in this Entry. 2.6. Without prejudice to the above, it is humbly submitted that the said entry covers only animal fats and oils which are chemically modified. When it comes to vegetable fats and oil, the said entry covers only mixtures and preparations of the same. Chemically modified vegetable fats and oil is only covered in Entry no. 90 of Schedule I of the Notification No. 01/2017 State Tax (Rate) under the MGST Act. Given the above, it is humbly submitted that Entry no. 27 of Schedule II of the Notification No. 01/2017 - State Tax (Rate) under the MGST Act does not cover chemically modified vegetable oil or fats and hence, the product in question should not be classified under the said Entry 3 SPECIFIC ENTRY SHOULD PREVAL OVER GENERAL ENTRY 3.1 Without prejudice to the above, even assuming that the product in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral description. The decision of the Hon ble Supreme Court in the case of HPL Chemicals Ltd. v. Commissioner of Central Excise, Chandigarh (supra) is squarely on the point. In that case, the Hon ble Apex Court held that since the goods in question were covered by a specific heading, the same could not be classified under the residuary heading. The Hon ble Apex Court further held that if the Department intends to classify the goods in question under a heading which is different from the heading under which an assessee classifies such goods, the burden of proof is on the Department which has to be discharged by adducing proper evidence. In the instant case, the onus was on the Department to justify the change of classification sought to be made by the impugned Circular, which onus, in my opinion, has not been discharged by the Department. Thus, it is evident that the impugned Circular is blatantly contrary to the said Rule and is thus, not sustainable. B. In the Case of Flora Agrotech versus The Commissioner of Central Excise, Vapi reported in 2015 (319) E.L.T. 333 (Tri. - Ahmd.) = 2014 (11) TMI 114 - CESTAT AHMEDABAD it was held as under A specific entry in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of nozzles in Chapter 69, we hold that ceramics nozzles are classifiable under Heading 69.01. In our view, no specific exclusion, as required to be given in Chapter 85 as nozzles are specifically covered by Chapter 69 of the Tariff. This was also the view expressed by the Tribunal in the case of Emco Lenze Pvt. Ltd. v. CC [2003 (156) E.L.T. 905]. We, therefore, do not agree with the view of the Tribunal in the case of NTB Hitech Ceramics (supra) and hold that ceramics nozzles are classifiable under Heading 69.01 of the Central Excise Tariff. Reference is answered accordingly. 3.6. Basis the above judicial precedents, it is clear that in case a specific entry exists, the goods must be classified in the said entry, even though there is a general/residual entry as well. It is further submitted that the Entry no.27 of Schedule II is a residual or a general entry as the said entry ends with the words not elsewhere specified or included. It is humbly submitted that by adding these words in the Entry, the intention of the legislature is to render this entry as a residual entry. Thus, if the products can be classified in any other more specific entry, it should be done as such and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment, this appears to be the proper construction of tariff item No. 68. Even if two constructions are possible of the phrase not elsewhere specified the construction which favours the tax-payer must be preferred. Therefore, in my judgment, the expression all other goods, not elsewhere specified appearing in tariff item No. 68 would only mean goods which have not been specified under tariff item Nos. 1 to 67 either for the imposition of duty or for the purpose of granting exemption from duty. 3.8. It is submitted that in view of the above judicial pronouncements, It is a settled law that classification in residuary entry can be done only if the goods cannot be classified in any entry of the schedule. In the present case, Natural Ester Dielectric Fluid is a chemically modified soybean oil is classifiable under Entry 90 of Schedule I of the said Notification. Hence, it is humbly submitted that the said product cannot be classified in the residuary entry no. 27. 4. COMMON TRADE PARLANCE MEANING SHOULD BE CONSIDERED 4.1 Without prejudice to the above, it is humbly submitted that while classifying goods under any entry, how the product is known in common trade p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excise, the said product was classified under Chapter Heading 1518 under the description, Animal or vegetable fats and oils and their fractions, boiled oxidised, dehydrated suphaurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516 inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of the this chapter not eleswher specified of included 5.3. As per First schedule of Central Excise Tariff Act, 1985, Excise duty was levied at the rate of 6% on all the products falling under Chapter heading 1518. Further, the said tariff item was exempted by way of Notification no. 12/2012 - Central Excise dated 17th March 2012, implying that the effective Excise duty rate on this product was Nil under Excise law. 5.4. It is further submitted that under the erstwhile Maharashtra Value Added Tax Act, 2002 tariff heading 1518 was classified under serial no. 54 of the Schedule C as an industrial input read with MVAT notification no. VAT-1505/CR-234/Taxation-I dated 1st September 2005, (SL No. 14). Thus, the effective rate of VAT on the said goods was 6% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Additives are added into veg Oil thereby the basic characteristics of the vegetable Oils not remains same. 4. covered in Schedule II 5. Raw material is beg. Oil but in the process it loses its identity and character and final product does not remain veg. oil but a coolant. Hence the claim of the applicant is not acceptable. The Product - Natural Ester Dielectric fluid commonly known as Envirotemp FR3 is basically inedible mixture of vegetable oil additive. This product is covered under schedule II and taxable rate of 6% state tax (SGST) and 6% central tax (CGST) i.e. covered in sr.no. 27 of schedule II on following material fact- 1. Definition of food as given in the Food Safety and Standard Act , 2006 is given below As per sec 3 clause J of FDA Act 2006 (j) food means any substance, whether processed, partially processed or unprocessed, which is intended for human consumption and includes primary food, to the extent defined in clause (ZK) genetically modified or engineered food or food containing such ingredients, infant food, packaged drinking water, alcoholic drink, chewing gum, and any substance, including water used into the food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heories are commonly resorted to arrive at correct conclusion. A Common Parlance Test - The applicant's product, though claimed as vegetable oil, is commonly known as 'Trans former Coolant in the trade and not a vegetable oil, Further, it can be seen from the leaflet of the product, it is termed as fire Resistant natural Ester Dielectric coolant. Thus, it is basically Dielectric coolant- a soya oil based transformer fluid and not a vegetable- edible oil B End Use Theory - Going by this theory also, the product cannot be termed as vegetable oil falling under HSN 1518, The end users of the product are Electricity generation/ transmission' distribution utilities. The product is never intended to be put to use as vegetable oil. C. Dictionary Meaning - Edible oil - Edible oils defined by govt as food substance composition manufactured for human consumption only. It is categorically being pointed out that, the applicant's product is inedible mixture or preparation of vegetable fats or oil or fractions of different fats. As per applicant s say and information available for the same product of another manufacturer [ Cooper Envirotemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIONS We have gone through the facts of the case. The product before us is described as Envirotemp FR3 . The packing of the product describes Envirotemp FR3 Fluid as Fire Resistant Natural Ester Dielectric Coolant for transformers and related electrical apparatus. The product, as informed, is made up of refined soya beans oil after mixing some additives with the same. The process of manufacture, as informed is thus - Step I Hot water is added to crude soya bean oil for degumming. In water degumming, a sticky viscous oil-water emulsion or gum is removed by using water and a centrifuging process. By way of this process, gums, phospholipids, proteins etc., is separated from the crude oil. These are insoluble in oil when hydrated. Step 2 After degumming, caustic soda is added to remove the free fatty acid This process neutralizers fatty free acids in the oil using caustic soda, thereby converting the acids into soaps, These soaps are easily removed by decantation or by centrifugal force. Step 3 After Neutralization, bleaching earth is added for bleaching. In this process Clay adsorbent is mixed intimately With the Oil under specified conditions t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices Test Report Sample Particulars: Nature of sample No. of samples Envirotemp FR3 Fluid (One Sample) Brand Name, if any None Batch No. 214 Sample Quality Packing 500ml, Pet Bottle Date of Performance of test 10th - 13th March, 2018 Method of Sampling Sample is provided by Cargill India Pvt. Ltd. Analysis Report S. No. Parameter Test Result Protocol 1. Vegetable Oil, % by wt. 98.5 AOCS Ea 8 -58 2 Number of Vegetable present Oils 1 FL/SOP/HPLC -09 3 Other Chemicals, % 1.0 FL/SOP/FC - 280 Inference : The sample is one single Vegetable oil only, there is no blending with any other oil is detected. As can be seen, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular. Unlike transformer mineral oil, which is refi ned from petroleum derived from compressed plant and animal tissue (mostly microorganisms from 70 to 440 million years ago), these liquids are produced from renewable resources such as vegetable oils and seeds. . The main purpose for development of many of these dielectric liquids was to create an environmentally friendly product that was not only stable when used as an insulating liquid in electrical apparatus but also readily biodegraded when exposed to the environment. ........................................................ Examples of current, commercially-known, natural ester dielectrics are shown in Table 1. Table 1 - Natural Ester Dielectric Liquids NAME TYPE MANUFACTURER BIOTEMP Comprised mostly of mono-un saturated high oleic acid triglyceride vegetable oils. The oleic acid group is defined as having one carbon double bond, part of the eighteen carbon atoms in the hydrocarbon chain of a carboxylic acid. Examples of high oleic oils are sunflower, safflower, and rapeseed (canola). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as soybeans. A degumming step is necessary to remove materials other than oil, such as chlorophyll. This is performed either by physical separation, which takes time, or by combining the material with water and caustic material to accelerate the separation process. The next step, a bleaching process that is part of a neutralization process, also subjects the oil to clay treatment to remove polar compounds. Deodorizing the oil is accomplished via steam distillation under vacuum up to 200 degrees Centigrade to remove unwanted volatile compounds. The last step, winterizing, which may be optional and depends on the starting material and the degree of refining, involves chilling the oil to remove excessive saturates. Because these refining techniques can be carefully controlled, a more consistent product is produced. In addition, the new natural ester dielectrics differ from their predecessors not only in the refining process but also in the additives used. Whereas the early natural esters had no additives, the new ones have a variety of additives enhancing performance. Additives The natural ester dielectric liquids contain additive packages consisting of chemicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne) Pour Point Depressant: (polyvinyl acetate oligomers and polymers and/or acrylic oligomers and polymers) Antimicrobial agent: (BHA, potassium sorbate, sorbic acid, monoglycerides and/or Vitamin E) Conclusions Natural esters have been used as a dielectric liquid since the invention of the oil-filled transformer. Because of their chemistry these liquids have some limitations in their use. Recent advances in research and refining and additive packages have produced a new breed of natural esters that try to address these limitations http://www.gegridsolutions.com/alstomenergy/grid/Global/CleanGrid/Resources/Documents/Ester%20Oils%20-%20Think%20Grid%20n%C2%B07%20.pfd While there are data and international standards galore for mineral oils, there are as yet no IEC standards addressing the composition or testing of the natural ester oils with their different chemical composition. This lack of standards could be seen as one of the limiting factors with regard to the initial rale of implementation of vegetable oils in PT (power transformers). With the above information, we see that certain ingredients in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and oils and their fractions, boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516; inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this Chapter, not elsewhere specified or included : --- Lin seed oil: 15180011 ---- Edible grade 15180019 ---- Other --- Castor oil, dehydrated : 15180021 ---- Edible grade 15180029 ---- Other --- Other Vegetable oil and its fats: 15180031 ---- Edible grade 15180039 ---- Other 15180040 --- Other From the Tariff Heading 1518 as reprodu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transformers. The end product has a distinct identity in the sense that when one desires to have vegetable oil, the impugned product would not be accepted. The short point that we would like to make is that the impugned product is not soyabean oil per se. The part I (as reproduced above) of Heading 1518 speaks of certain processes which have been subjected to vegetable and animal oils. But the HSN Notes say that despite undergoing these processes, the vegetable or animal oils should retain their original fundamental structure. In the present case, we have a final product which is a transformer coolant. Though the Test Report shows the percentage of the chemicals to be 1% or the vegetable oils to be at 98.5% would not mean that a new commodity has not been produced. We have seen above an extract from an article that while there are data and international standards galore for mineral oils, there are as yet no IEC standards addressing the composition or testing of the natural ester oils with their different chemical composition. Each manufacturer has his own set of ingredients to obtain a coolant for transformer. That is precisely the reason that the applicant has not preferred to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the deliberations as held hereinabove, we pass an order as follows : ORDER (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-08/2017/B-12 Mumbai, dt. 20/03/2018 For reasons as discussed in the body of the order, the questions are answered thus - Q. Whether Natural Easter Dielectric Fluid (hereinafter referred to as 'Envirotemp FR3') fall under Serial no. 90 of Schedule I of Notification No, 1/2017-State Tax (Rate) dated 29th June, 2017 issued under the MGST Act, 2017 and Notification No. 1/2017- Central Tax (Rate) dated 28th June, 2017 issued under the CGST Act, 2017 is taxable at the rate of 2.5 0/0 (State tax and Central tax)? A. Answered in the negative. Q. Whether Envirotemp FR3 falls under Serial no. 27 of Schedule II of Notification No. 1/2017-State Tax (Rate) dated 29th June, 2017 issued under the MGST Act, 2017 and Notification No. 1/2017-Central Tax (Rate) dated 28th June, 2017 issued under the CGST Act, 2017 is taxable at the rate of 6% (State tax and Central tax)? A. Answered in the affirmative. - - TaxTMI - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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