Supply of Poultry Meal attracts 5% GST while Poultry Fat will attract 12% GST

An issue arose recently in front of the Telangana Authority of Advance Ruling (AAR) as to what will be the rate of GST of the supply of Poultry Meal and Poultry Fat. This was sought by M/s Sushi Pet Nutriscience, is a partnership firm which is engaged in manufacturing or rendering of ‘Poultry Meal’ and ‘Poultry Fat’.

Both these products were used as one of the protein raw materials for the manufacturing of animal feed industries, aqua feed industries. Let us refer this case in detail to understand what was ruled by the AAR.

Facts of the Case:-

• M/s Sushi Pet Nutriscience, was a partnership firm engaged in manufacturing/rendering of ‘Poultry Meal’ and ‘Poultry Fat’
• Both these products were used as one of the protein raw material for the manufacturing of animal feed industries, aqua feed industries
• The major raw material for manufacturing poultry meal and poultry fat was chicken wastages such as chicken legs, chicken head, intestine, feathers, skin etc. which they bought from the chicken stall owners.
• After processing waste materials, it loses its essential characteristics of original material and a new product emerged in powder form.

Question raised before AAR:

The applicant sought for advance ruling with regard to the tax rate in respect of ‘poultry meal’ (commonly known as ‘animal feed supplement’) and ‘poultry fat’ manufactured by them.

Observations of AAR with reference to Customs Tariff Act, 1975

• The Central Government, on the recommendation of the GST Council, issued Notification No. 01/2017-CT (Rate) dated 28.06.2017 & 02/2017-CT (Rate) dated 28.06.2017 prescribing the rates of tax in respect of specified goods basing on their classification.
• Similarly Notification No.02/2017-CT (Rate) dated 28.06.2017 was issued by the Government providing for exemption from tax in respect of goods listed there under.
• In terms of explanation (iii) and (iv) provided in these notifications, tariff heading, sub-heading, heading and chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 and the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall be applied for the interpretation and classification of goods.
• Thus, while the rate notifications under GST law prescribe the rate of tax in respect of supply of goods and services, in order to interpret these notifications for the purposes of levy of GST, one has to read the same along with the first schedule (including the Section and Chapter Notes and General Explanatory Notes) of the Customs Tariff Act, 1975

Observations of AAR with respect to the manufacturing process of the applicant

• On scrutinizing the manufacturing process of “poultry meal” it revealed that the manufacturing process involves cooking of chicken remnants, drying by subjecting to high temperature.
• Later, the same will be powdered to form the end product ‘poultry meal’.
• It was the submission of the applicant that the raw material i.e. chicken waste would lose its original characteristics after these processes.
• The applicant also stated that the product so manufactured will be used by the end user as animal/poultry/aqua feed.
• Thus they suggested that their product falls Chapter Heading No. 2309 under the category of ‘concentrates for compound animal feed’

Observations of AAR with respect to the suggestion of the applicant that their product falls Chapter Heading No. 2309

• The Chapter Note attached to Chapter No. 23 of the first schedule to the Customs Tariff Act, 1975 lays down that Heading No.2309 includes products of a kind used in animal feeding, not elsewhere specified or included, obtained by processing vegetable or animal materials to such an extent that they have lost the essential characteristics of the original material, other than vegetable waste, vegetable residues and byproducts of such processing.
• Taking into consideration and the description of the goods listed in chapter heading No. 2309, it can be concluded that the said chapter heading covers animal feeds which are used for feeding the animals.
• In the case on hand, the applicant categorically stated in their application that the product ‘poultry meal’ manufactured by them would be used for further manufacture of ‘animal feed’.
• The AAR thus held that the product manufactured was not animal feed, but a raw material for ‘animal feed’.
• There is a distinction between the product ‘animal feed’ and raw material for animal feed.
• The same was supported by the decision of the Supreme Court in the case Commissioner of Customs (Import) v. Dilip Kumar [2018] wherein it was laid down that inputs for animal feed are different from the animal feed.
• The AAR thus held that that the product manufactured by the applicant could not be classified under Chapter Heading No. 2309.

What is Chapter heading No. 2301?

• AAR found that the Chapter heading No. 2301 is the other one which can accommodate the product manufactured by the applicant.
• Chapter heading No. 2301 pertains to “Flours, meals and pellets, of meat or meat offal, of fish or of crustaceans, mollusks or other aquatic invertebrates, unfit for human consumption; greaves”
• Chapter heading No. 2301.10 covers Flours, meals and pellets, of meat or meat offal whereas sub-heading No. 2301.10.10 covers meat meals and pellets (including tankage).
• AAR was of the opinion that the product ‘poultry meal’ manufactured by the assessee which was manufactured out of residue meat is to be appropriately classified under Chapter sub-heading No. 2301 10 90 which covers the ‘others’ category.

Is the supply covered under Exemption Notification No 2/2017-CT (Rate) dated, 28.06.2017?

• Entry No. 102 of the Exemption Notification No 2/2017-CT (Rate) dated, 28.06.2017 (as amended) exempts tax in respect of certain feeds falling under chapter heading Nos. 2301, 2302, 2308, 2309 which pertains to Aquatic feed including shrimp feed and prawn feed, poultry feed & cattle feed, including grass, hay & straw, supplement & husk of pulses, concentrates & additives, wheat bran & de-oiled cake [other than rice bran]
• The aforesaid entry covers different types of products which are basically in the nature of feeds.
• This entry does not apply to raw material/inputs like fish meals or meat cum bone meal (MBM) falling under heading 2301.
• As stated above, the product manufactured by the applicant is not a feed but raw materials for feed and therefore the same were not covered under the the above entry.
• The AAR thus held that the product manufactured by the applicant was not exempted from tax.

Opinion of the AAR on what will be the rate of tax of the product manufactured by the applicant

• AAR found that the disputed product (classifiable under chapter subheading number 2301.10.90) attracted GST rate of 5% (2.5 % CGST + 2.5% SGST) under sl. No. 103 of the Schedule-1 of the Notification No. 01/2017-CT (R), dated 28.06.2017 (as amended).
• With regards to ‘poultry fat’, it was noticed that the said product originated as a by-product during the process of chicken remnants for manufacture of the primary product viz., ‘poultry meal’.
• Tariff Heading No. 0209 covered ‘poultry fat’ not rendered/otherwise extracted and Tariff Heading No. 1501 covered ‘poultry fat’ other than that of Tariff Heading No. 0209.
• In the case on hand, the applicant submitted that the ‘poultry fat’ supplied by them is extracted as a by-product during the process of their main product ‘poultry meal’.
• Therefore, AAR was of the opinion that the product ‘poultry fat’ supplied by the applicant was to be classified under Tariff item No. 1501 90 00.
• As per entry No. 19 of Schedule-II of  Notification No. 01/2017-CT (R) dated 28.06.2017 (as amended), ‘poultry fat’ attracts 12% GST (6% CGST + 6% SGST/UTGST).
• AAR held that “poultry meal” manufactured and supplied by the applicant attracted GST rate of 5% (2.5 % CGST + 2.5% SGST) under sl. No. 103 of the Schedule-1 of the Notification No. 01/2017-CT (R), dated 28.06.2017 (as amended)and the product “poultry fat” supplied by the applicant attracts 12% GST (6% CGST + 6% SGST/UTGST) in terms of Notification No. 01/2017-CT (R) dated 28.06.2017 (as amended).

It can be thus concluded that:-