The Telangana State Authority for Advance Ruling (TSAAR) recently passed an order clarifying the applicable GST rates for bio-fertilizers and immunity boosters manufactured by Avinja Biotechnologies Private Limited. This ruling provides important guidance for companies operating in the agriculture and healthcare sectors.
Background: Avinja Biotechnologies Private Limited
Avinja Biotechnologies manufactures bio-fertilizers under the brand names Urban Roots and Bio Kavach. Urban Roots contains phosphate solubilizing bacteria and plant extracts, while Bio Kavach contains Bacillus spp., Actinomycetes, and macro/micro nutrients. The company also manufactures an immunity booster called Avinja 7 containing herbal extracts. Avinja approached the Telangana AAR to determine the correct HSN codes and GST rates for these three products. The company suggested HSN codes that would attract GST rates of 5% for the bio-fertilizers and 12% for the immunity boosters.
Key Discussion Points by the Telangana GST AAR
i) Notification 1/2017 lists specific fertilizer products eligible for concessional GST rates of 2.5% or 6%. However, it does not mention bio-fertilizers.
ii) As per the Fertilizer Control Order 1985, bio-fertilizers are different from organic fertilizers. The suggested HSN code 31010092 for Avinja’s products covers only organic fertilizers.
iii) Immunity boosters are also not specified under any concessional rate categories.
iv) In the absence of clear classification, the products will fall under the residual entry attracting 18% GST.
v) However, the AAR referred to case laws on classifying healthcare/medicinal products under Chapter 30 or as cosmetics under Chapter 33.
vi) It laid down principles such as composition, intended use, label, etc. for determining the appropriate classification.
AAR Ruling on GST Rates
Based on the above discussion, the AAR ruled as follows on GST rates for Avinja’s products:
i) Urban Roots: Tax rate of 9% CGST and 9% SGST. Covered under Serial 453 of Schedule III.
ii) Bio Kavach: Tax rate of 9% CGST and 9% SGST. Covered under Serial 453 of Schedule III.
iii) Avinja 7 Immunity Booster: Tax rate of 9% CGST and 9% SGST. Covered under Serial 453 of Schedule III.
Therefore, the AAR clarified that the bio-fertilizers and immunity boosters will attract an effective GST rate of 18% instead of the concessional rates suggested by Avinja. This ruling sets an important precedent for other companies in similar sectors.
i) Bio-fertilizers and herbal healthcare products do not automatically qualify for lower GST rates just based on composition. Proper classification is important.
ii) Companies should evaluate product composition, labeling, marketing, etc. thoroughly before determining GST rates.
iii) Advance rulings can provide clarity on applicable taxes, avoiding penalties for incorrect classification.
The Telangana AAR order demonstrates the importance of seeking clarity on GST rates upfront to avoid penalties. Companies planning to launch new products should proactively evaluate product composition, labeling, intended use etc. and obtain expert advice on tax compliance. This will help avoid nasty surprises and ensure smooth GST compliance.
AAR Telangana GST Order Dated 17/11/2023: GST Rates for Bio-Fertilizers and Immunity Boosters Clarified by Telangana AAR (Avinja Biotechnologies Private Limited)