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TMI Blog2018 (5) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 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 28th 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 a mention IS specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act" 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim could be seen thus- STATEMENT OF THE RELEVANT FACTS HAVIN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 product has very high fire point which in turn provides high fire safety for transformers. It is best suitable for densely populated areas where a transformer fire can lead to a huge loss of life and property 2.4 Envirotemp FR3 is an FM Global Approved. Besides a much higher fire safety, this fluid improves the life of the insulation paper of the transformer which leads to improved life of the asset. The improved life of the transformer leads to the economic benefits for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 extract of both the said Schedules are as under A. Schedule I - Taxable at the rate of 2.5% State Tax S. No. Chapter/Heading/ Sub-heading / Tariff item Description of Goods 88. 1516 Vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined, but not furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 not under Entry 27 of Schedule II. In support of its view, the Applicant, hereby humbly submits its interpretation of the relevant Entries of Schedule I and II. 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 not under Entry 27 of Schedule II. In support of its view, the Applicant, hereby humbly submits its interpretation of the relevant Entries of Schedule I and II in Annexure II below. STATEMENT CONTAINING THE APPLICANT'S INTERPRETATION OF LAW AND 'OR FACTS, AS THE CASE MAY BE, IN RESPECT OF THE QUESTION(S) ON WHICH THE A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 2. THE PRODUCT IN QUESTION DOES NOT FALL IN ENTRY 27 OF SCHEDULE II 2.1 It is submitted that Entry 27 of Schedule II is not the proper classification for Natural Ester Dielectric Fluid. For the ease of reference, Entry 27 has been reproduced below - " Animal fats and animal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parations 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, i.e., Natural Ester Dielectric Fluid may be termed as a mixture or preparation of vegetable fat and oil, it is submitted that Entry no. 90 of Schedule I which covers chemically modified vegetable oil is much more specific entry as compared to Entry 27 of Schedule II which covers Only preparation and mixtures of vegetable fats and oil. 3.2. Natural Ester Dielectric Fluid is derived by chemically modifying soybean oil by adding special additives. The process of conversion of the product in question is completely different as compared to mere mixing of two or more vegetable fats or oil. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment 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 the CETA, 1985 has to be the proper classification than a general entry in Chapter 39 of the CETA, 1985, as per the Rules of interpretation to the CETA, 1985. The Synthetic & Art Silk Mills Research Association (SASMIRA), Mumbai SASMIRA is linked to the Ministry of Textiles, Govt. of India, SASMIRA and after giving the definitions of Synthetic Textiles, warp knitted fabric etc., opined in their letter, dated 18-4-2012 & 15-3-2013 that the product manufactured by the appellant is 'Warp Knitted Fabrics Technical Textile made up of man-made synthetic yarn of width less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly." 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 such specific entry shall be considered over the general entry In this regard, reference can be drawn from the case of H.P.L. Chemicals Ltd. versus Commissioner of Central Excise, Chandigarh, reported in 2006 (197) E.L.T. 324 (S.C.) = 2006 (4) TMI 1 - SUPREME COURT OF INDIA , wherein the hon'ble Supreme Court has held as under - "The aforesaid reasoning of the Tribunal in our view is incorrect. Heading No. 38.23 (which was subsequently renumbered as Heading No. 38.24) is a residuary heading which applied only to "residual products of chemical and allied industries, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 parlance should be given due consideration. In the present case, Natural Ester Dielectric Fluid is known as chemically modified biodiesel which is used as transformer fuel in general trade parlance. It is not known as mixture or preparation of vegetable fats or oils. 4.2. In this regard, reference may be made to the case of Atul Glass Industries Ltd. Versus Collector of Central Excise reported in 1986 (25) E.L.T. 473 (S.C.) = 1986 (7) TMI 90 - SUPREME COURT OF INDIA wherein the Hon'ble Supreme Court has held as under- "The test commonly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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% 5.5. Given the above, since the effective tax rate on the product under the erstwhile indirect tax regime was 6%, the intention of the GST Council would be to tax the said product under the GST regime at 5% to keep it close to the existing rate, following the principle of equivalence which has farmed the basis of classification of various goods and services into different rate brackets under GST 5.6. Thus, it is humbly submitted that following the principle of equivalence, the said product ought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing 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 during its manufacture, preparation or treatment but does not include any animal feed, live animals unless they are prepared or processed for placing on the market for human consumption, plants prior to harvesting, drugs and medicinal products, cosmetics, narcotic or psychotropic substances: Provided that the Central Government may declare, by notification in the Official Gazette, any other article as food for the purposes of this Act having regards to its use, nature, substance or quality; The product EFR3 is Non edible Product i.e. it is mixture of veg oil & certain additive. Mainly following additives are used in EFR3 Product - as can be see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on' 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 FR 3] the product is derived by mixing some additives to soya bean oil. As per the competitor manufacturer's literature 5% mass fraction is related to additives & 95% mass fraction relates to Degummed soya bean oil. Thus considering all factors, discussed at length in the foregoing paras, it is once again re-iterated that the applicant's product is a inedible mixture of vegetable oil/ fats falling under HSN 1518 and therefore liable for 12% GST [6% CGST + 6% SGST] covered by entry No. 27 of schedule II of Notification No. 01/2017 dtd 29.06.2017." 04. HEARING The case was taken up for hearing on dt.18.01.2018 when Sh. Rajat Bose, Advocate, attended on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to remove unwanted color bodies and other contaminants. Through this process, Carotenoids are removed, chlorophyll and its decomposition products are removed, Gossypol-like pigments are removed, Toxic agents, such as polycyclic aromatic hydrocarbons are removed (if carbon is used in quantity). Step 4 After bleaching, the soya bean oil is deodorized. Deodorizing is essential for removing undesired components such as moisture, color, and odor that negatively impact the taste, smell, and appearance of the final product. Effective deodorization is a complex vacuum steam distillation process that involves using high-pressure steam to heat the oil to a precise temperature for stripping impurities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be seen, the test report also gives no details of the additives and chemicals which are added while manufacturing the impugned product, Let us see how the inference and the incomplete particulars could help classifying the impugned product. The website of the applicant describes the product as - Envirotemp FR3 fluid is a natural ester derived from renewable oils providing improved fire safety transformer life loadability and environmental benefits that are superior to mineral oil and unsurpassed by any other dielectric coolant. The applicant themselves advertise the impugned product thus - FR3 fluid is a soybean-oil based product for use as a coolant and insulator in high-voltage electric transformers. For the past 30 years, mineral oil has been the dominant dielectric fluid used in transformers. However, mineral oil is flammable and can be toxic to the environment. FRB fluid is much less flammable than mineral oil; it biodegrades easily and is carbon neutral, nontoxic and non-hazardous in soil and water* - and it offers superior performance to mineral oil. FR3 fluid can handle a much higher rise in temperature than mineral oil. Which means manufacturers can des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, methyl esters produced from soybeans, palm or coconut oils used to thin the dielectric liquid Cargill Envirotemp (r) FR3 Edible-seed oil based dielectric liquid. It is a natural ester (triglyceride - fatty acid ester) containing a mixture of saturated and unsaturated fatty acids with 14 to 22 carbon length chains containing one to three double bonds. Suitable vegetable oils, which may be used independently or combined, include: soya, sunflower, and rapeseed (canola). Cooper Power Systems Coconut Oil Coconut Oil University of Moratuwa, Sri Lanka What is a Natural Ester? Esters can be natural, such as those derived from vegetable oils as discussed in this article, or they can be made synthetically from a group of chemicals chosen to yield certain properties. "Ester" is a term applied to chemical compounds with a certain structure. Refining of a Natural Ester Dielectric Liquid? Natural esters are refined in a totally different manner than transformer mineral oils. The first major difference is the source of the material for refining. In the case of transformer mineral oils, crude oil is extracted from the ground by drilling and goes through a series of air ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PC (2,6-ditertiary-butyl paracresol, BHT) or DBP (2,6-ditertiary-butyl phenol) in concentrations up to 0.3 percent. DBPC and DBP have had a lengthy history of use in transformer oil and no adverse effects have been documented. The U.S. patents for BIOTEMP (r), BIOTRANS (r) and Envirotemp (r) FR3 (r) incorporate enough variation into the descriptions of each liquid that the exact combination and concentration cannot be determined. Most of these additives have been well-established in the chemical and food industries for some time, but it is not fully known if there are any adverse characteristics when used in transformers over a long period. The table below provides a listing of the additives and their described use. It must be emphasized that not all of these additives are used but the possibility for some or combination thereof to be used does exist. In some of the dielectric liquids listed in the table, the additive package can make up as much as three percent of the liquid. Possible Additives in BIOTEMP (r), BIOTRANS (r) and Envirotemp (r) FR3 TM Liquid Additive and Function BIOTEMP Oxidation Inhibitors: Phenolic antioxidants such as: BHA (butylate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt seeks a confirmation as to whether the impugned product is covered under the Heading 1518 as found in Schedule I or Schedule Il of the Notification No. 1/2017- Central / State Tax (Rate). The rate of tax for the purpose Of both the entries differs. For quick reference, we shall reproduce these entries thus - S. No. Chapter / Heading / Subheading / Tariff item Description of Goods Rate [CGST + MGST] 27. 1518 Animal fats and animal oils and their fractions, boiled, oxidised, dehydrated, sulphurised, 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 this chapter, not elsewhere specified of included 5% [2.5 + 2.5] 90. 1518 Vegetable fats and oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516 12% [6+6] We shall also reproduce herein the position as appearing in the Customs Tariff Heading 1518 ANIMAL OR VEGETABLE FATS AND OILS AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his part covers animal or vegetable fats and oils and their fractions which have been subjected to processes which modify their chemical structure thereby improving their viscosity, drying power (i.e., the property of absorbing oxygen when exposed to the air and forming elastic films) or modifying their other properties, provided they retain their original fundamental structure and are not more specifically covered elsewhere, e.g.: Thus, the Notes make it clear that the animal or vegetable fats and oils and their fractions should retain their original fundamental structure. e. In the present case, we have seen that soyabean oil has to be modified or adapted for use in the transformers, There are chemicals and additives which are added to it. The processes or chemicals or additives are added so as to formulate a certain product which could be used in electrical apparatus. So the processes are intended to manufacture a new commodity in which soyabean oil would be the prime ingredient. And this is precisely why the product is described as one based on soyabean oil or one which is derived or formulated from vegetable oils. The final product obtaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We now come to part 2 (as reproduced above) of Heading 1518. This part covers inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of the Chapter 15. The present product, as discussed above, is a preparation from vegetable oil. It is derived from soya bean oil. In addition, it is inedible. Therefore, it could very well be covered by the description "inedible preparations of vegetable oils'. Now the aspect which remains to be seen is " not elsewhere specified or included". We have not found any specific description which covers a "Fire Resistant Natural Ester Dielectric Coolant for transformers and related electrical apparatus". We are not in doubts that entry 90 of Schedule I of the Notification No. 1/2017- Central / State Tax (Rate) would not cover the impugned product. It is felt that the description "inedible preparations of vegetable oils' perfectly fits the impugned product and hence, the entry 27 of Schedule II of the Notification No. 1/2017- Central / State Tax (Rate) which covers the aforesaid description would be applicable. g. We have gone through th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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