Zuari Farmhub Limited ., In re

FULL TEXT OF THE ORDER OF APPELLATE  AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH

(Under Section 101 of the Central Goods and Service Tax Act and the Andhra Pradesh Goods and Service Tax Act).

At the outset, we would like to make it clear that the provisions of both the CGST Act and the APGST 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 provisions under the APGST Act.

The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and APGST Act”] by M/s. Zuari Farmhub Limited (herein after referred to as the “Appellant”) against the Advance Ruling No. AAR No. 11/AP/GST/2023 Dtd.01.12.2023 issued by Authority for Advance Ruling, Andhra Pradesh.

1. Background of the Case:

• The applicant, M/s. Zuari Farmhub Limited is engaged in manufacturing trading and marketing of chemical Fertilisers, water soluble Fertilisers, seeds, pesticides and supply of allied services, all used in agriculture.
• The process procures various raw materials generally known as micronutrients, such as Zinc, Manganese, Ferrous and so on, by way of imports or domestic purchases and prepares a mixture, to make it a micronutrient Fertiliser, by way of blending, as approved by Ministry of Agriculture of the particular State. It is understood that the mixture varies based on the soil culture. Currently, the Applicant is in the process of manufacturing two different sets of products, the composition of which is detailed in tabular format herein below:

The Authority for Advance Ruling Andhra Pradesh in its orders in AAR No. 1l/AP/GST/2023 dated 15.12.2023 held:

Question 1 : Whether the products referred supra i.e., Mangala Borosan and Mangala G1 are classifiable under Chapter Heading 3105 as Fertilisers?

Answer 1: No

Question 2 : If the answer to the question no. 1 is in negative, what would be the appropriate classification of the said micronutrient Fertilisers?

Answer 2 : 2833 29 90 (Under Schedule III- 18 % (CGST-9% and SGST- 9 % or IGST-18%)

Aggrieved by the impugned order, the appellant has filed the present appeal on the following grounds.

2. Grounds of Appeal:

Appellant’s submissions are broadly summarised based on the following:

A. Products in question (Mangala Borosan and Mangala Gl) are nothing but Fertilisers.

• • Chapter31 of the Customs Tariff Act,1975 and in particular HSN codes 3101 to 3105 specifies technical descriptions of Fertilisers. However, the term “Fertiliser” is not defined either under Customs Tariff Act, 1975, or HSN explanatory note. Therefore, a reference has to be made to the Fertiliser (Control) Order, 1985 (“FCO, 1985“).
  • According to Section 2(h) of FCO, 1985 “Fertiliser” means any essential substance, either in straight or mixed form and derived from either inorganic, organic or mixed sources, that is used or intended to be used to provide essential plant nutrients or beneficial elements or both for the soil or for the crop or makes essential plant nutrients available to the plants either directly or by biological process or by both in the soil or plant as notified from time to time by Central Government and specified in the schedules appended to this order or as may be notified by the State Governments, and includes a biostimulant and nanofertiliser.

• Chapter31 of the Customs Tariff Act,1975 and in particular HSN codes 3101 to 3105 specifies technical descriptions of Fertilisers. However, the term “Fertiliser” is not defined either under Customs Tariff Act, 1975, or HSN explanatory note. Therefore, a reference has to be made to the Fertiliser (Control) Order, 1985 (“FCO, 1985“).
• According to Section 2(h) of FCO, 1985 “Fertiliser” means any essential substance, either in straight or mixed form and derived from either inorganic, organic or mixed sources, that is used or intended to be used to provide essential plant nutrients or beneficial elements or both for the soil or for the crop or makes essential plant nutrients available to the plants either directly or by biological process or by both in the soil or plant as notified from time to time by Central Government and specified in the schedules appended to this order or as may be notified by the State Governments, and includes a biostimulant and nanofertiliser.

Explanation: For the purpose of Fertiliser,-

(i) ‘the essential plant nutrients’ include Primary Nutrients (Nitrogen, Phosphorous and Potassium), Secondary Nutrients (Calcium, Magnesium and Sulphur) and Micronutrients (Zinc, Manganese, Copper, Iron, Boron and Molybdenum)

(ii) “Mixture of Micronutrients” is defined in Section 2(mb) of the FCO, 1985 as a mixture which are made by mixing of micronutrients notified in Schedule-I under sub-heading “Ig MICRONUTRIENTS” of said Order.

(iii) “Mixture of Fertiliser” is defined in Section 2(n) of the FCO, 1985 as a mixture of Fertilisers made by physical mixing of two or more ertilisers with or without inert material in physical or granular form and includes a mixture of NPK fertilisers, a mixture of micronutrient fertilisers and a mixture of NPK with micronutrient fertilisers;

• In this backdrop, Appellant would like to mention that the products of the Appellant are covered under the Andhra Pradesh state government notification approving the standards of various grades of manufacturing the mixtures of micronutrients to be used as fertilisers. Concurrent reading of both definition and state notification establishes that products supplied by the Appellant are nothing but Fertilisers as per FCO, 1985

B. Most appropriate classification of the Fertilisers will be under chapter 31 of the First Schedule to The Customs Tariff Act, 1975.

• The outset, the Appellant invites attention to the provisions of Chapter 31 to the First Schedule to the Customs Tariff Act, 1975, which prescribes for the classification of “Fertilisers”. Further, relevant entry that provides for mineral or chemical Fertilisers (including other Fertilisers) is 3105. The relevant extract from Chapter 31 is reproduced hereunder:

• Further, in the scheme of classification i.e., First Schedule to Customs Tariff Act, 1975, where classification of “Fertilisers” is provided for in a separate Chapter i.e., Chapter 31 of the Tariff Act, Appellant for reasons detailed below is of the view that, products manufactured and supplied as “Micronutrient Fertilisers” is classifiable under Chapter 31 and in specific 8-digit heading being 3105 9090.
• The proposed products are covered under the Andhra Pradesh State government notification which provides for Fertilisers. Further, multiple Chemicals (Micronutrients) to be used in manufacture of proposed products are covered in SI. No. 1(g) of Fertiliser Control Order (1985), which specifies necessary technical information for each chemical and mixtures thereto that can be used to manufacture a Micronutrient Fertiliser;
• Appellant draws attention of this Authority to Note 6 of Chapter 31, which reads as follows: “For the purposes of heading 3105, the term “other Fertilisers” applies only to products of a kind used as Fertilisers and containing, an essential constituent, at least one of the fertilising elements nitrogen, phosphorous or potassium”. In the instant case, products manufactured by the Appellant though does not involve direct application of nitrogen, phosphorous or potassium (N, P, K, as they are referred to in the chemical terminology), it is relevant to take note that, in the process of application of the product by the end user, one of the trace elements, viz., nitrogen gets emanated, with help of which i.e., nitrogen, it becomes possible to deliver the metal ions or micronutrients to the plant system.
• Therefore, though not directly, in the mixture of chemicals (micronutrients), one of the trace elements, viz., Nitrogen is most certainly produced/emanates therein, when put to use, thus clearly making it Fertilizer for the purposes of classification under HSN 3105 9090 – as referred in Note 6 to Chapter 31 of the Customs Tariff Act, 1975. Therefore, the same would be most appropriately classifiable under HSN 3105 9090.
• Further, the said fact has been accepted by various tribunal decisions, which confirms that micronutrients used as Fertilisers are classifiable under Chapter 31 and in specific 3105 9090. Details of ruling along with relevant extracts is provided below for immediate reference:-

(a) In the case of CIBA India Ltd. Versus Commissioner of Customs, Chennai – 2009 (237) E.L.T. 207 (Tri. -Chennai);

(b) Commissioner of Customs, Chennai Versus SLV Fertichem – 2018 (363) E.L.T 847 (Tri. -Chennai).

C. Resorting to classification under Chapter 38 which provides for classification of miscellaneous chemical products, and includes preparations of chemical industry or allied industries, would be inappropriate.

• At the outset, Appellant herein brings to the attention of this Authority that the product in the instant case is being made of multiple chemicals and is being looked up as preparations of chemical industry and resort to classification under Chapter 38, in specific heading 3824, which provides for classification of chemical products and preparations of chemical industry or allied industries is also considered in various fora. The relevant extract from Chapter 38 is reproduced hereunder:

• Given the extract, it is identifiable that the said Chapter is providing a miscellaneous/generic description of all mixtures which are not classifiable under any other chapter. As stated supra from para 3.1 to 3.10, the products in question are clearly classifiable under Chapter 31, specifically under 3105 90 90 and hence resort to Chapter 38 and in specific heading 3824 would be incorrect and inappropriate.

D. Conclusion by the LAAR, the product is mixture of inorganic chemicals is erroneous as the product is nothing, but a fertiliser made up of micronutrients specified under serial number 1(g) of Schedule 1, Part (A) of the Fertilizer Control Order, 1985.

• The appellant would like to bring to the attention of Learned Appellate Authority for Advance Ruling (hereinafter referred as “LAAAR”), that LAAR has erred in concluding our product as a mixture of inorganic chemicals as our product is made up of micronutrients specified under serial number 1(g) of Schedule 1, Part (A) of the Fertilizer Control Order, 1985 blended at a specific ratio prescribed by the state governments which enables the end product, suitable to be used as fertiliser and it would be inappropriate to conclude that our product is inorganic chemical or mixture of inorganic chemicals.
• Further, the Appellant submits that the majority of the micronutrients are inorganic chemicals, but all inorganic chemicals are not meant to be micronutrients for Eg: Sulphate of Aluminium, Sulphate of Nickel, Sulphate of Barium and Quinidine Sulphate, whereas Sulphates which qualifies as Micronutrients are Copper Sulphate, Zinc Sulphate, Manganese Sulphate and Ferrous Sulphate.Therefore, it can be said that among all inorganic chemicals that are covered under Chapters 28/38, only a few of such chemicals are specifically considered as Micronutrients and are made part of FCO, 1985.
• At this juncture, it is relevant to note that, though LAAR has held that the product is a blend of inorganic chemicals but failed to appreciate the fact that, it is a blend of such inorganic chemicals, which are specifically included in FCO, 1985 as micronutrients and hence more they cannot be merely said to be mixture of inorganic chemicals and classify under HSN 2833 29 90. Here, LAAR has failed to appreciate the inclusion of set of micronutrients in FCO, 1985 which are to be used as fertilizers only and nothing else.

E. Product being a fertilizer should attract GST at the rate of 5% under HSN 3105 90 90. However, without prejudice to the said submissions, even if the product is to be considered as mixture of micronutrient as per FCO order, then rate of GST should be 12% under Chapter 38.

• Basis the reading of the above facts and extracts of the judgements cited supra, the Appellant is of the view that products proposed to be manufactured and sold as micronutrient fertilizers are classifiable under Chapter 31 of the Customs Tariff Act, 1975 and specifically would bear an 8-digit code as 3105 9090.
• Assuming that, the classification to be adopted for the products referred supra is 3105 9090, the rate of GST would be applicable as tabulated below:

• From the above table, two things emerge i.e., chemicals or minerals used as Fertilisers, will be classified under Schedule I to the Notification No. 01/2017 – Central Tax (Rate) dated 28.06.2017 read with relevant State Rate Notification and taxable at 5% GST. Whereas, if such chemicals or minerals cannot be used as Fertilisers, then such items will be classified under Schedule III to the said notifications and taxable at the rate of 18% GST.
• In this backdrop, where the Appellant’s products will be sold and used, as fertilizers in the field of agriculture, the said products will be classifiable under Schedule I to the above referred Notifications and taxable at the rate of 5% GST. Assuming but not admitting that the product is not classifiable under Heading 3105 90 90, and classifiable under chapter 38,rate of GST would be applicable as tabulated below:

• From the above, it is clear that the product in the instant caseis nothing but a blend/mixture of micronutrients which are listed underSI.No. 1(g) of Schedule I, Part (A) of FCO 1985, which is to be used as fertilizers, it would merit classification under the Entry 56 of schedule II, if not under Heading 3105 90 90 of the Customs Tariff Act, 1985as referred in SI. No. 1 of table appended to para 4.1 supra.
• For the reasons stated supra it is clear that the classification adopted by the Appellant is substantiated by its composition as expounded in the existing literature. The presence of micronutrients which are specifically provided for in the FCO, 1985 and blended in a ratio prescribed by the state governments enabling to use of the end products as fertilizers, substantiates its classification under the entries stated supra and renders the classification prescribed by LAAR as Considering the same as mixture of inorganic chemicals under 2833 29 90, inappropriate.

• The Appellant submits that, in the light of the facts and the grounds in this regard, the proposed product to be manufactured by the appellant is rightly classifiable under 3105 9090 and gets covered under Entry 182D of Schedule I to the Notification No. 01/2017 – Central Tax (Rate) dated 28.06.2017 read with relevant State Rate Notification and taxable at 5%. However, the only alternate classification would be under Chapter 38 as micronutrients prescribed in FCO, 1985 i.e., 3824 99 00, which is taxable under Entry 56 of Schedule II to Notification No. 01/2017 – Central Tax (Rate) dated 28.06.2017 and would therefore attract rate of GST at 12%.

3. Personal Hearing:

The proceedings of hearing were conducted through video conference on 21.03.2024. The authorized representative Badrinath N R, Partner, attended and submitted Certificate of Confirmation by Mangalore Chemicals and Fertilizers Limited and reiterated the submissions already made to this Authority.

4. Discussion and Findings:

Findings & Observations:

1. We have gone through the Appeal filed before this Authority, the various, submissions and additional submissions made by the Appellant, and also perused the extracts and other documents along with Certificate of Confirmation given MCFL on record in the matter.

2. The question before the Authority for Advance Ruling, Andhra Pradesh (AAR) and Ruling dated 15-12-2023 of the AAR was as follows:

I. Whether the products referred supra i.e. Mangala Borosan and Mangala G1 are classifiable under Chapter Headings 3105 as Fertilisers?

Answer: No.

II. If the answer is negative, what would be the appropriate classification of the said micronutrient Fertilisers ?

Answer: 2833 29 90 (Under Schedule III – 18% (CGST-9% and SGST-9% or IGST-18%).

3. The Appellant had submitted technical literature along with Cerificate of Confirmation given by MCFL and contended that the product “Mangala Borosan” / “Mangala Gl” under classification is in the nature of a Fertilizer falling under Chapter Heading 3105 90 90and urged the AAAR to uphold their contention.

As per the Certificate of Confirmation given by MCFL .where in it was stated that, Mangalore Chemicals & Fertilizers Limited, Mangaluru have been approached by Zuari Farm Hub Limited, having its registered office at No.74, Prestige Feroze, 3rd Floor , Cunningham Road, Vasant Nagar, Bengaluru – 560 052, Karnataka., to analyse the composition of the products referred in, meant to be used as fertilisers and confirm whether the said product comprises or it is made up of “Micronutrients” or ” Mixture of Micronutrients”.

MCFL performed analysis and confirm that the composition of the products is as tabulated below:

–

Further stated, to refer to serial number 1 (g) of Schedule 1, Part (A) of The Fertilizer (Inorganic, Organic or Mixed) (Control) Order, 1985 and certified that out of the above composition, the following are micro-nutrients.

A. Manganese Sulphate (Entry No. 2)

B. Copper Sulphate (Entry No. 4)

C. Iron/Ferrous (II) Sulphate (Entry No. 5)

D. Zinc Sulphate Mono-hydrate (Entry No. 9)

E. Magnesium Sulphate (Entry No. 10)

F. Boran / Borax (Entry No. 16)

Further certify that the products, Mangala Borosan and Mangala G1 are mixtures of micronutrients and are fertilizers meant for use in agriculture only.

The Appellant has stated that the constituents of the products are as follows:

We have further seen the submissions made by the Appellant. It is pertinent to mention that as per “Explanation” under Notification No.1/2017-CT(Rate), reference to Tariff, Heading, sub-Heading, Chapter shall refer to the First Schedule of the Customs Tariff Act, 1975. It further goes on to add that the Rules of Interpretation as per the Customs Tariff Act, the Section Notes and the Chapter Notes shall apply for interpretation of the said Notification. The relevant provision of the Explanation under Notification No. 1/2017-CT(Rate) is reproduced hereunder for ready reference:

Explanation. – For the purposes of this notification, –

………….

(iii) “Tariff item”, “sub-heading” “heading” and “Chapter” shall mean respectively a tariffitem, sub-heading, heading and chapter as specified in the First Schedule to the CustomsTariff Act, 1975 (51 of 1975).

(iv) The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51of 1975), including the Section and Chapter Notes and the General Explanatory Notes of theFirst Schedule shall, so far as may be, apply to the interpretation of this notification.

Therefore, in order to arrive at a conclusive classification of the product -“Mangala Borosan” / “Mangala Gl”, the relevant Section Notes and Chapter Notes of Chapter 31 of the Customs Tariff Act are reproduced hereunder.-

Chapter – 31

Chapter Notes

……….

6. For the purposes of heading 3105, the term other fertilisers applies only to products of a kind used as fertilisers and containing, as an essential constituent, at least one of the fertilising elements nitrogen, phosphorus or potassium.

4. It is clearly evident that as per said Chapter Notes, for a product to be classified under Heading 3105 as Other Fertilisers, the same should contain at least one of the fertilizing elements namely – Nitrogen (N), Phosphorus (P), or Potassium (K). Further, in all the headings referring to Fertilizers, there is a clear necessity that the said products should contain one or more of the fertilizing elements viz. Nitrogen, Phosphorous or Potassium”.

5. This requirement is also evident in the GST Rate Notifications in vogue, wherein Fertilizers under Heading 3105 are covered both under Schedule-I and Schedule-Ill chargeable to tax at the rate of 5% and 18% respectively. The relevant extracts are reproduced hereunder for ready reference:

The description of each of the Headings is as under:

6. The appellant is aware that their product does not contain the essential constituents of Nitrogen, Phosphorous or Potassium as stipulated by the Chapter Notes cited above. This is also evidenced by the constituents furnished by the Appellant and which was reproduced above. While the Appellant is claiming the same to be Fertilisers, yet for the purpose of taxation, the relevant Entry in the Tariff determines the Tax rate. As seen from the Customs Tariff as well as the GST Rate Notification, the description for Other Fertilisers is clearly mentioned and there is a pre-requisite that such products must contain one or more of the fertilizing elements viz.,Nitrogen, Phosphorous or Potassium. Further, while Fertilizers are classified under Chapter 31 of the Tariff, however, classification of a product is a function of not only the description of the Entries therein, but the inclusion / exclusions mentioned in the Section Notes and Chapter Notes further read with the General Rules of Interpretation.

7. The appellant submitted further that “in the instant case, products manufactured by the appellant though does not involve direct application of nitrogen, phosphorous or potassium (N, P, K as they are referred to in the chemical terminology), it is relevant to take note that, in the process of application of the product by the end user, one of the trace elements, viz. nitrogen gets emanated, with help of which i.e. nitrogen, it becomes possible to deliver the metal ions or micronutrients to the plant system. Therefore, though not directly, in the mixture of chemicals (micronutrients)”. However, the Chapter Notes 6 to Chapter 31 of Customs Tariff Act, 1975 specifies and classifies the products / goods based on the contents at the time of import/export but not based on the elements that are produced / emanated during the use of the same.

Thus, the appellant’s contention that the Nitrogen is emanated during the use of the products in question and thus eligible for classification under Chapter 31 of the Customs Tariff is not tenable. Products are to be assessed based on the form and contents at the time of presentation / supply and not on the results of their usage.

8. The appellant relied upon The Fertilizer Control Order (FCO), 1985 for classification of the products in question under Chater 31 or alternatively Chapter 38. As seen from the relevant Notification, there is no reliance on the FCO Order to determine the classification of the product. The Appellant has missed a key element of the definition of Fertilizer under the FCO. The relevant definition as provided by the Appellant is extracted hereunder for ready reference:

3.2. According to Section 2(h) of FCO, 1985 “Fertiliser” means any essential substance, either in straight or mixed form and derived from either inorganic, organic or mixed sources, that a used or intended to be used to provide essential plant nutrients or beneficial elements or both for the soil or for the crop or makes essential plant nutrients available to the plants either directly or by biological process or by both in the soil or plant as notified from time to time by Central Government and specified in the schedules appended to this order or as may be notified by the State Governments, and includes a biostimulant and nanofertiliser.

Explanation:- For the purpose of Fertiliser, –

(i) “the essential plant nutrients ” include Primary Nutrients (Nitrogen, Phosphorous and Potassium). Secondary Nutrients (Calcium Magnesium and Sulphur) and Micronutrients (Zinc, Manganese, Copper, Iron, Boron and Molybdenum);

(ii) “Beneficial element” means any element as notified by the Central Government from time to time.

‘Mixture of Micronutrient” is defined in section 2(mb) of the FCO, 1985 as a mixture which are made by mixing of micronutrients notified in Schedule I under the sub-heading “1(g) MICRONUTRIENTS” of said Order.

“Mixture of Fertiliser” is defined in Section 2(n) of the FCO,1985 as a mixture of fertilisers made by physical mixing two or more fertilisers with or without inert material in physical or granular form and includes a mixture of NPK fertilisers, a mixture of micronutrient fertilisers and a mixture of NPK with micronutrient fertilisers.

9. In the “Explanation” under the said Section 2(h) it is clarified that for the purpose of Fertilizer, Essential plant nutrients include Primary Nutrients (Nitrogen, Phosphorous and Potassium) … It may be noted that in the definition under Section 2(h) cited, “Fertiliser” means any essential substance used or intended to be used to provide “essential plant nutrients”. As per the Explanation, such essential plant nutrients should contain Nitrogen, Phosphorous and Potassium. Relying on this definition does not change the ingredients required under the Customs Tariff / GST Rate Notification for determination of a product as Other Fertilizer / Fertilizer. It may be a fact that micronutrients mentioned by the Appellant are those Notified by the State Government, However, this does not change the classification of the product under the GST law.

10. In view of the above, we are in agreement with the Ruling of the Authority for Advance Ruling, Andhra Pradesh passed in Order AAR No. 11/AP/GST/2023 Dtd.01.12.2023 and the Ruling appears to be Legal and Proper. Hence, we pass the following order.

5. Decision:

The Ruling passed by AAR vide AAR No. 11/AP/GST/2023 Dtd.01.12.2023 is upheld.