ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 AND UNDER SECTION 98(4) OF THE KGST ACT, 2017

M/s. Sri Lakshminarasimha Agro Products, (hereinafter referred to as The applicant], No.57/2, Marasandra Village, Kanasavadi Post, Doddaballapur Taluk, Bengaluru Rural District-561203 having GSTIN 29ACEFS3506K1ZW have filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.

2. The Applicant is a Partnership firm registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act and KGST/SGST Act respectively). The Applicant is engaged in supply of coir pith compost. The Applicant states that he purchases coir pith and then the same is processed and converted into either ‘Decomposed coir pith compost’ or ‘Sterilized coir pith compost’ which is used as manure for agriculture and horticultural crops.

3. The applicant has sought advance ruling in respect of the following questions:-

i. Whether Notification No. 7/2022-Central Tax (Rate), dated 13-07-2022 applies to Coir-Pith Compost (HSN 53050040) mentioned in serial number 132-A of the Notification No.2/2017-Central Tax (Rate) dated 28-06-2017 as amended vide notification No. 19/2018-Central Tax (Rate), dated 26-07-2018?

ii. The registered person sells coir-pith compost in 30 kg and above quantity bags with un-registered brand name “SURYA”. In such cases, whether the registered person is liable to tax under the GST Acts?

iii. If the coir-pith compost in 30kg and above quantity bags are sold without any label (in plain bags), whether would it attract GST?

iv. If the registered person sells coir-pith compost in 25 kg and less prepacked and labelled bags to nurseries who buys for consumption, whether in such cases GST is payable?

v. Whether the nurseries, who are un-registered dealers, come under the definition of “Institutional consumers”?

vi. If the registered persons sells coir-pith compost with 30Kg and above pre-packed and labelled bags to nurseries who buys for consumption, whether in such cases GST is payable?

vii. Rule 3(b) of Legal Metrology (Packaged commodities) Rules, 2011, provides that the provisions of Chapter II of that Rules shall not apply to cement, fertilizers and agricultural farm produce sold in above 50 kg bags. Whether the coir-pith compost, which is also the bio-fertilizer, sold by the registered person, falls under this category and exempt from GST?

4. Admissibility of the application: The question is about the “applicability of a notification issued under the provisions of this Act” and “determination of the liability to pay tax on any goods or services or both” and hence is admissible under Section 97(2) (b) and (e) of the CGST Act 2017.

5. BRIEF FACTS OF THE CASE: The applicant furnishes some facts relevant to the issue:

5.1 The applicant states that they are engaged in purchase of coir pith from registered and unregistered dealers. The said coir pith is processed and converted into either “De-composed Coir Pith Compost” or “Sterilized Coir Pith Compost” which is organic manure, black in colour. This compost is used as manure for growing agriculture and horticulture crops including usage in nurseries. This ‘Coir-pith’ thus undergoes the process of de-composition and turn into’ Coir-pith compost’ and exempt from tax.

5.2 The applicant states that the coir-pith compost is exempt from 26-07-2018 as per serial number 132-A of the Notification No. 19/2018-Central tax (Rate) dated 26-07-2018 read with Notification No. 2/2017-Central Tax (Rate), dated 28-06-2017, provided the registered person foregoes voluntarily any actionable claim or enforceable right in respect of such brand name. They have an unregistered brand-name “SURYA”. Therefore, to claim exemption from tax, they have filed an affidavit dated 01-06-2022 with Central Tax Authorities foregoing voluntarily for any actionable claim or enforceable right.

5.3 The applicant states that the Notification No.7/2022-Central Tax (Rate), dated 13-07-2018, entry 132-A of Notification No. 2/2017-Central Tax (Rate), dated 28-06-2017 has been amended (so as to delete the provisions relating to putting up the same in unit container and bearing a registered brand name or bearing brand name in which an actionable claim or enforceable right in a court of law available or to claim exemption when such right for an actionable claim or enforceable right is foregone completely) so as to make it exemption only to those which are “other than pre-packaged and labelled”. They submit that the coir-pith compost with pre-packaged and labelled is taxable and other than the pre-packaged and labelled is exempt from tax.

5.4 The applicant states that they sell the product (“De-composed coir-pith compost” and “sterilized coir-pith compost”) to both industrial consumers and institutional buyers and in some cases to retail buyers.

5.5. The applicant states the process adopted in producing coir-pith compost as follows

5.5.1 Processing of ‘Coir-pith compost’ from ‘Coir-pith’:

Coir-pith contains constituents like lignin (30%) and cellulose (26%), which do not degrade quickly but can be decomposed by employing the Gypsum powder with urea supplementation. At the end of the composting period, the coir pith is changed into a well-decomposed black mass. The C:N ratio is reduced to nearly 24:1 with the N content enhanced from 0.26 to 1.06%. The advantages of coir pith compost over other compost materials are it adds micronutrient to the soil which enhances microbial activity and reduces soil erosion. In addition to the higher moisture content, coir pith compost is known to supply micro and secondary nutrients such as magnesium, sulphur, calcium besides nitrogen, phosphorous and potassium.

5.5.2 Process adopted by the applicant:-

Step 1: Uniformly spreading of Ten ton of coir-pith over a flat land.

Step 2: Careful mixing of 75kg Urea into Coir-pith so that urea is uniformly covered to entire mass.

Step 3: Careful mixing of 100kg Gypsum into coir pith so that Gypsum is uniformly covered to entire mass.

Step 4: After proportionate mixing of Urea and Gypsum into coir pith, watering on the surface of the mixed mass will be undertaken. Sufficient moisture should be ensured for speedy decomposition in this composting process. To ensure the moisture content at all times, the mixture will be wetted initially and again when necessary during the composting process. Air must be supplied to all parts of the heap so that oxygen can get to the microorganisms and flush out the CO2 produced.

When the heap begins the composting process the material becomes slightly acidic, as the simple organic acids are the first to break down. It then turns slightly alkaline as proteins are attacked and ammonia released. It takes nearly ten to twelve months for complete decomposition of coir pith indicated when its colour changes to black.

Step 5: The mixed heap will be kept for decomposition process as it is for a period of 10 to 12 months till the change of colour from brown to black. At the end, the entire con-pith converts as organic coir pith compost.

Step 6: Since some buyers require sterilized coir-pith compost, the applicant sterilizes the same by passing through sterilization process by layer wise blowing steam accurately (hot air of 80 degrees centigrade). After the process, the sterilized coir pith compost will be formed in black colour. The sterilized coir pith compost (invoiced as S.G. Coir pith compost) will be supplied whoever requires it. Otherwise, they supply ‘De-composed coir pith compost’ (invoiced as D.C. Coir-Pith Compost).

Coir pith Compost is a good source of organic manure for dry land agriculture and Horticulture as it can absorb water five times its weight and thereby when applied to soil increase the water holding capacity of soil.

5.6 The applicant states that, having purchased coir pith (which is brownish in colour) from registered and un-registered dealers, it is converted into either ‘De-composed coir pith compost’ or ‘Sterilized coir pith compost’ which is black in colour. The ‘Coir-pith’ thus undergoes the process of de-composition and becomes ‘coir-pith compost’ and exempt from tax.

5.7 The applicant states that presently they are selling these products in 30kg and above quantity pre-packaged and labelled bags. Hence the same is not liable for GST as provided under the notification No. 7/2022-Central Tax (Rate), dated 13th July 2022, read with relevant provisions of the Legal Metrology Act, 2009 and The Legal Metrology (Packaged Commodities) Rules, 2011. Thus, they are not levying and collecting GST on these produce.

However, Rule 3 (Chapter II) of the Legal Metrology (Packaged Commodities) Rules, 2011 provides that the provisions of Chapter II shall not apply to –

(a) Packages and commodities containing quantity of more than 25 kilograms or 25 litres;

(b) Cement, fertilizer and agricultural farm produce sold in bags above 50 kilograms; and

(c) Packaged commodities meant for industrial consumers or institutional consumers.

Thus, they are of the view whether the finished product, i.e, ‘coir-pith compost’ can be called ‘fertilizer’ or agricultural farm product since the same is derived from coconut.

Secondly, they also sell their produce to some of the ‘Industrial consumers’ and ‘institutional consumers’ who use it for themselves. The Registered person wants to know whether in such cases, the produce sold is exempt from tax if the package is less than 25kg or 50kg and mentioned as “not for retail sale”.

6. Applicant’s Interpretation of Law:

6.1 The applicant is of the opinion that the said goods, coir pith compost, if sold in prepackaged and labelled bags of 25 kg and less, it is taxable and if sold in pre-packaged and labelled bags of 30 kg and above, it is exempt, as per notification No.7/2022-Central Tax (Rate), dated 13-07-2022.

6.2 The applicant is of the view that even if the pre-packaged and labelled bags with 30 kgs and above contain the un-registered brand name “SURYA”, it is exempt from tax as per notification no. 7/2022-Central Tax (Rate), dated 13-07-2022.

6.3 The applicant is of the view that if the coir-pith compost sold in 30 kg and above plain bags (without any brand-name or label) is exempt as per notification No.7/2022-Central Tax (Rate), dated 13-07-2022.

6.4 The applicant is of the view that the sales of coir-pith compost made to nurseries, though un-registered dealers, is exempt from GST as per rule 3(c) of Legal Metrology (Packaged Commodities) Rules, 2011. The said rule envisages that the provisions of that Chapter shall not apply to packaged commodities meant for industrial consumers and institutional consumers.

6.5 The applicant is of the opinion that the nurseries, which are un-registered dealers and buy coir-pith compost for their use, are nothing but institutional consumers. As provided under Rule 3 of the Legal Metrology (Packaged commodities) Rules, 2011, the said Chapter 3 does not apply to Nurseries.

6.6 The applicant is of the view that the sale of coir-pith compost with 30 kg and above pre-packed and labelled bags to nurseries who buys for consumption, such sales are exempt as per notification No.7/2022-Central Tax (Rate), dated 13-07-2022.

6.7 The applicant submits that the coir-pith compost is a ‘fertilizer’ and also ‘agricultural farm produce’ as provided under Rule 3(b) of Chapter II of Legal Metrology (Packaged Commodities) Rules, 2011. In such cases, the applicant to get exemption from GST as per notification number 7/2022-Central Tax (Rate), dated 13-07-2022, needs to sell the goods in 50kg above pre-packaged and labelled bags.

6.8 The applicant states that there is difference between fertilizer and organic manure and coir pith compost being organic manure has to be distinguished from fertilizer. The applicant has requested to keep this in view and issue the advance ruling.

PERSONAL HEARING / PROCEEDINGS HELD ON 18-08-2022

7. Sri Y.C. Shivakumar, Advocate and Duly Authorised Representative appeared for personal hearing proceedings held on 18-08-2022 and reiterated the facts narrated in their application.

FINDINGS & DISCUSSION

8. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.

9. We have considered the submissions made by the applicant in their application for advance ruling. We have also considered the issues involved on which advance ruling is sought by the applicant and the relevant facts along with the arguments made by their authorized representative and also their submissions made during the time of hearing.

10. The Applicant is engaged in supply of coir pith compost. The Applicant states that he purchases coir pith and then it is mixed with urea and gypsum and then the same is processed and converted into either ‘De-composed coir pith compost’ or ‘Sterilized coir pith compost’ which is used as manure for agriculture and horticultural crops.

11. Now we proceed to answer first question. In this regard we invite reference to entry No. 132A of Notification No.2/2017-Central Tax (Rate) dated:28.06.2017 amended by Notification No.l9/2018-Central Tax(Rate) dated:26.07.2018 which is as below:

This entry was amended vide Notification No. 7/2022 Central Tax (Rate) dated: 13.07.2022 as below:

(xiv) against S. No.132A, in column (3), for the portion beginning ivith the words “other than those put up” and ending with the words “as in the ANNEXURE I]”, the words “, other than pre-packaged and labelled” shall be substituted;

(B) after the Schedule, in the Explanation, for clause (ii), the following clause shall be substituted, namely:-

“(ii) The expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clauses (I) of section 2 of the Legal Metrology Act, 2009 (1 of 2010) where, the package in which the commodity is prepacked or a label securely affixed thereto is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder.”.

Thus entry 132A of Notification No.2/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No.7/2022-Central Tax (Rate), dated 13-07-2022 applies to Coir-Pith Compost other than pre-packaged and labelled.

12. Now we proceed to answer second question. The Applicant states that he sells coir pith compost in a sack of 30 kg and above with unregistered brand name ‘SURYA’ and wants to know the taxability on the same. In this regard we invite reference to entry No. 215 of Notification No. 1/2017-Central Tax(Rate) dated:28.06.2017 amended by Notification No. 18/2018-Central Tax(Rate) dated:26.07.2018 and the same is reproduced below:-

(A) in Schedule I – 2.5%,

(iv) in S. No. 215, in the entry in column (3), the comma and words”, including coir pith compost put up in unit container and bearing a brand name” shall be inserted at the end;

This entry is again amended vide Notification No.6/2022-Central Tax (Rate), dated 13.07.2022 as below:-

B. in Schedule I-2.5%,

(xvi) against S. No. 215, in column (3), for the words “put up in unit container and bearing a brand name”, the words “, pre-packaged and labelled” shall be substituted;

———————

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G. after the Schedule VII, in the Explanation, for clause (ii) and the entries relating thereto, the following clause shall be substituted, namely :-

(ii) The expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (I) of section 2 of the Legal Metrology Act, 2009 (1 of 2010) where, the package in which the commodity is pre-packed or a label securely affixed thereto is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder.

12.1 In this regard we invite reference to section 2(1) of The Legal Metrology Act, 2009 which is as below:-

(I) “pre-packaged commodity” means a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a predetermined quantity;

Now we invite reference to Chapter-II of The Legal Metrology (Packaged Commodities) Rules, 2011 which is about provisions applicable to packages intended for retail sale. Rule 3 of The Legal Metrology (Packaged Commodities) Rules, 2011, deals with Applicability of the chapter and the same is reproduced below:-

3. Applicability of the Chapter –

The provisions of this Chapter shall not apply to,-

(a) packages of commodities containing quantity of more than 25 kg or 25 litre excluding cement and fertilizer sold in bags up to 50 kg; and

(b) packaged commodities meant for industrial consumers or institutional consumers.

This means that the provisions of Chapter II of The Legal Metrology (Packaged Commodities) Rules, 2011 applies to cement and fertilizers even though they are sold in bags up to 50 Kg.

12.2 Now let us examine whether coir pith compost is a fertilizer. In this regard we invite reference to the definition of ‘Fertiliser’ and ‘Organic Fertiliser’ as per Fertiliser (Control) Order 1985, issued by Department of Agriculture and Rural Development, Government of India, and the same is reproduced below:-

(h) “fertilizer” means any substance used or intended to be used as a fertilizer of the soil and/or crop and specified in Part A of Schedule I and includes a mixture of fertilizer and special mixture of fertilisers provisional fertilizer ,customized fertilizer, Bio-fertilizers specified in Schedule III and Organic fertilizers specified in Schedule IV;

(oo) “Organic fertilizer” means substances made up of one or more unprocessed material (s) of a biological nature (plant/animal) and may include unprocessed mineral materials that have been altered through microbiological decomposition process;

The Process adopted by the applicant in manufacturing coir pith compost is narrated in detail in para 5.5.2 supra. The Applicant states that coir pith compost is manufactured by mixing coir pith with required amount of urea and Gypsum and watering the same for speedy decomposition; that the mixture will be kept for decomposition process for a period of 10 to 12 months till the colour changes from brown to black and then they get coir pith compost.

In view of the definition of organic fertilizer mentioned above and the process adopted by the applicant to manufacture coir pith compost, we can say that coir pith compost is an organic fertilizer which is covered under the definition of Fertilizer mentioned above i.e., organic fertilizer is a subset of fertilizer.

The Applicant in his additional submissions has stated that there is difference between fertilizer and organic manure and coir pith compost being organic manure has to be distinguished from fertilizer. Now let us see what the definition of Manure is.

1. As per Tamilnadu Agricultural University website( https://agritech.tnau.ac.in) ‘Manures are the organic materials derived from animal, human and plant residues which contain plant nutrients in complex organic forms. Naturally occurring or synthetic chemicals containing plant nutrients are called fertilizers.’

2. As per https: / /www.collinsdictionary.com manure is ‘any natural or artificial substance for fertilizing the soil’

3. As per https://www. merriam-webster.com, Manure is a ‘material that fertilizes land’

Thus from the above definitions we can say that, anything which increases the fertility of soil is Fertilizer. Since Manure is also used to increase the fertility of soil, the same is also a Fertilizer whether organic or chemical.

If the Applicant sells coir pith compost which is a fertilizer, in a sack of 30 kg and above i.e., prepacked and labelled with unregistered brand name i.e., ‘SURYA’ then it is exigible to GST at 5% as explained in para 12 supra.

13. Now we proceed to answer third question. The applicant wants to know whether GST is applicable if the coir-pith compost in 30 kg and above quantity bags are sold without any label. In this regard we invite reference to rule 4 of The Legal Metrology (Packaged Commodities) Rules, 2011, which stipulates that pre-packaged commodity must bear thereon a label securely affixed thereto and the said rule is as under:-

4. Regulation for pre-packing and sale etc. of commodities in packaged form. – On and from the commencement of these rules, no person shall pre-pack or cause or permit to be pre-packed any commodity for sale, distribution or delivery unless the package in which the commodity is pre-packed bears thereon or, a label is securely affixed thereto such declarations as are required to be made under these rules.

Explanation.- The existence of packages without the declaration of retail sale price within the manufacturer’s premises shall not be construed as a violation of these rules and it shall be ensured that all packages leaving the premises of manufacturer for their destination shall have declaration of retail sale price on them as required in these rules.

Further we also invite reference to the explanation given to ‘pre-packaged and labelled in Notification No.6/2022-Central Tax (Rate), dated 13.07.2022 which is reproduced in para 12 supra.

‘Pre-packaged and labelled’ means a ‘pre-packaged commodity’ (as defined in clause (1) of section 2 of the Legal Metrology Act, 2009) where, the package in which the commodity is pre-packed or a label securely affixed thereto is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 and the rules made thereunder. Thus, if the Applicant sells coir-pith compost pre-packed in 30kg and above quantity bags without label also it is taxable (as explained in para 12 supra) since it is already prepacked and bearing a label is mandatory.

14. Now we proceed to answer fourth question. The Applicant wants to know whether GST is applicable if the registered person sells coir-pith compost in 25 kg and less prepacked and labelled bags to nurseries who buys for consumption. We can see in paragraph 12.1 supra about the Chapter -II of The Legal Metrology (Packaged Commodities) Rules, 2011 which is about provisions applicable to packages intended for retail sale. Rule 3(a) of the same says that these rules are not applicable to packages of commodities containing quantity of more than 25 kg or 25 litre. Since the applicant intends to sell coir-pith compost in bags of 25 kg and less i.e pre-packed and labeled the same is exigible to GST at 5% as per entry No. 215 of Notification No.1/2017-Central Tax (Rate) dated: 28.06.2017 as amended vide Notification No.6/2022-Central Tax (Rate), dated 13.07.2022.

15. Now we proceed to answer fifth question. The Applicant wants to know whether the nurseries, who are un-registered dealers, come under the definition of “Institutional consumers”. In this regard we invite reference to Legal Metrology (Packaged Commodities) Rules, 2011 which was amended vide Legal Metrology (Packaged Commodities) Amendment Rules, 2017 dated: 23.06.2017 which has amended the definition of ‘institutional consumer’ as below:-

(ii) for clause (bc), the following clause shall be substituted, namely

‘(bc) “institutional consumer” means the institution which buys packaged commodities bearing a declaration ‘not for retail sale’, directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and not for commercial or trade purposes;’

From the above definition it is clear that for any institution to be an ‘institutional consumer’ they should satisfy these conditions:-

1. the packaged commodity bought by them should bear a declaration ‘not for retail sale’

2. should buy directly from a manufacturer or an importer or a wholesale dealer

3. packaged commodity bought, should be for their own use and not for commercial or trade purposes.

A plant nursery is an establishment that raises, propagates, multiplies, and sells seedlings, saplings, and other planting materials for commercial purpose and thus it does not qualify to be an institution. Further, nurseries buy coir pith compost to grow the plants and then sell the same i.e nothing but for commercial purpose. Since the nurseries use coir pith compost for commercial purposes, they are not covered under the definition of ‘institutional consumer’.

16. Now we proceed to answer sixth question. The Applicant wants to know whether GST is payable if the registered person sells coir-pith compost of 30Kg and above prepacked and labelled bags to nurseries who buys for consumption.

Since coir pith compost is a fertilizer as explained in para 12.2 supra, Chapter II of the Legal Metrology (Packaged Commodities) Rules, 2011, that is provisions applicable to packages intended for retail sale are applicable to fertilizer even though they are sold in bags up to 50kg. As explained in para 15 supra, nurseries are not covered under ‘institutional consumer’. Thus if the applicant supplies coir-pith compost of 30Kg and above which is prepacked and labeled even to nurseries, then it is exigible to GST at 5% (CGST 2.5% and SGST 2.5%) as explained in para 12 supra.

17. Now we proceed to answer seventh question. The Applicant wants to know whether coir pith compost sold in bag above 50kg is exempted from GST. Rule 3(b) of Legal Metrology (Packaged commodities) Rules, 2011 says that these rules are not applicable to packages of commodities containing quantity of more than 25 kg or 25 litre excluding cement and fertilizer sold in bags up to 50 kg i.e Chapter II of that Rules shall not apply to fertilizers sold in above 50 kg bags and hence they are not exigible to GST if sold in above 50 kg bags.

18. In view of the foregoing, we pass the following

RULING

i. Entry 132A of Notification No.2/2017-Central Tax (Rate) dated:28.06.2017 as amended by Notification No. 7/2022-Central Tax (Rate), dated 13-07-2022 applies to Coir-Pith Compost other than pre-packaged and labeled.

ii. If the registered person sells coir-pith compost in 30 kg and above quantity bags with un-registered brand name “SURYA”. Then the same is exigible to GST at 5%(CGST @ 2.5% and SGST 2.5%) as per entry No. 215 of Notification No.1/2017-Central Tax (Rate) dated:28.06.2017 as amended further.

iii. Coir-pith compost can’t be sold without any label in 30kg as label is mandatory for the pre-packed commodities and thus above quantity bags are also exigible to GST at 5%(CGST @ 2.5% and SGST 2.5%) as per entry No. 215 of Notification No.1/2017-Central Tax(Rate) dated:28.06.2017 as amended further.

iv. If the registered person sells coir-pith compost in 25 kg and less pre-packed and labelled bags to nurseries who buys for consumption, then also the said pre-packed and labelled bags are exigible to GST at 5% (CGST @2.5% and SGST 2.5%) as per entry No. 215 of Notification No. 1/2017-Central Tax(Rate) dated:28.06.2017 amended further.

v. The nurseries, who are un-registered dealers, are not covered under the definition of “Institutional consumers”.

vi. If the registered persons sells coir-pith compost with 30Kg and above pre-packed and labelled bags to nurseries who buys for consumption, in such cases GST is payable at 5%(CGST @ 2.5% and SGST 2.5%) as per entry No. 215 of Notification No.l/2017-Central Tax(Rate) dated:28.06.2017 amended further

vii. The coir-pith compost is exempted from GST when sold in above 50 kg bags.