The Chhattisgarh Authority for Advance Ruling (AAR) in the case of M/s Shraddha Traders vide Advance Ruling No. STC/AAR/08/2022 dated 31.10.2022, has held that 5% GST is payable on rejected or damaged paddy seeds.
The AAR has observed that rejected paddy seed that is not fit for human consumption would merit classification under chapter heading 100610.
The applicant is engaged in the business of running a rice mill, and the present application has been filed by them seeking a ruling regarding the classification and applicability of GST on the sale of rejected paddy seed, which has been informed to be not fit for human consumption and could be used for industrial purposes, cattle feed production, manure production, etc.
The applicant informed that they had recently been awarded a tender by the Chhattisgarh State Cooperative Marketing Federation for the purchase of rejected paddy and that, out of the purchase, a certain portion could be sold. The applicant is planning for the sale of rejected paddy in bags having a quantity of more than 25 kg.
The applicant has sought an advance ruling on the issue of classification and the applicability of the GST rate on the sale of rejected paddy seed in a bag weighing more than 25 kg.
The applicant contended that the sale of rejected paddy seed in quantities greater than 25 kg per bag would be considered a sale of rejected paddy other than pre-packaged and labeled. Therefore, it would be eligible for exemption in terms of S. No. 70 of the amended exemption notification 2/2017 dated July 28, 2017; accordingly, the sale of rejected paddy is exempt from the levy of any taxes.
The AAR held that purely based on the description of the goods mentioned in the tender or agreement document with the Chhattisgarh State Cooperative Marketing Federation, i.e., rejected or damaged paddy (not fit for human consumption), would merit classification under chapter heading 100610, subject to stipulations and conditions.
The AAR has stated that the supply of “rejected paddy” or “damaged paddy” is not eligible for the full tax exemption.
Further, regarding the categorization of rejected paddy based on its usage such as animal feed, cattle feed, poultry feed, industrial use, manure etc., the AAR finds that the applicant has not furnished any process or method by which such rejected paddy would be converted/ produced to animal feed,, cattle feed, manure etc., and accordingly it would be practically impossible to arrive at a conclusive ruling regarding classification from the GST perspective based on HSN.
