GST Input Tax Credit Rules for De-oiled Cakes and By-products
The Appellate Authority for Advance Ruling decided that commercially viable by-products are not waste, requiring input tax credit reversal for exempted sales.
- Ruling
- Order No. 03/AAAR/12/10/2018 dated 12.10.2018
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- De-oiled cakes are marketable products, not waste.
- Selling exempted goods requires reversing input tax credit.
- Taxable by-products allow for full input tax credit.
- The ruling follows the Supreme Court's M.K. Agro Tech decision.
In short
The company asked if de-oiled cakes produced during oil extraction are 'waste' or taxable products under the Goods and Services Tax (GST) law. Because these cakes are sold commercially, the authority ruled they are not waste but are instead taxable or exempted supplies. This distinction determines whether a business can claim the tax paid on raw materials used to make them.
What has changed
How it worked before
Many manufacturers assumed that by-products created during a production process were simply 'waste' and did not impact their ability to claim input tax credit on raw materials.
What has changed
The authority ruled that if a by-product is sold for profit, it is a supply. If that supply is exempt from GST, you must reverse the input tax credit linked to it. If the supply is taxable, you can keep the credit.
Who this affects
Manufacturers who produce by-products or secondary goods during their main production process.
An example
A flour mill produces bran as a by-product while making flour. They sell the bran as cattle feed, which is exempt from GST. Under this ruling, the mill cannot claim the full input tax credit on the wheat purchased. They must reverse the portion of the credit that relates to the bran production.
What you should do
Review your by-products to see if they are sold commercially. If you sell both taxable and exempted goods, consult your tax advisor to calculate the correct input tax credit reversal. Remember, this ruling only binds the company that asked; your local tax officer may have a different view.
If you do nothing
If you assume this ruling applies to you and stop reversing your input tax credit, you may face a tax demand later. A tax officer can issue a notice for incorrect credit claims, leading to penalties and interest. Never treat an advance ruling as a universal law for your specific business.
The terms explained
- Input tax credit
- The tax a business pays on its purchases that it can subtract from the tax it owes on its sales.
- Reverse
- To pay back or cancel the tax credit you previously claimed because the goods you produced are exempt from tax.
- Exempted supply
- Goods or services on which no GST is charged, meaning you cannot claim credit for the taxes paid on the inputs used to make them.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. Indo Prosoya Foods (P) Ltd.
Order No. 03/AAAR/12/10/2018 dated 12.10.2018 · Uttar Pradesh
Questions before the authority
- Whether Mahua De-oiled cake/ De-oiled Rice Bran, being used as an ingredient of Cattle Feed, Poultry Feed and other animal feeds is 'Waste generated' during the Solvent Extraction process?
- Whether the applicant is eligible to get entire tax input credit of GST paid on purchase of Mahua Oil Cake/Rice Bran Oil cake used in the manufacture of solvent extracted oil?
Facts
The applicant is engaged in the purchase of Mahua oil cake and Rice Bran for the extraction of oil through a solvent extraction process. During this process, De-oiled Mahua Cake and De-oiled Rice Bran are produced as by-products. The applicant sought a ruling on whether these by-products constitute 'waste' and the eligibility of input tax credit on the raw materials used.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of de-oiled cakes as waste | Not waste; they are intended, commercially viable products. The authority rejected the contention that these are mere technological necessities. |
| Eligibility for input tax credit | Partially allowed; reversal required for exempted supplies. De-oiled rice bran is exempted, while de-oiled mahua cake is taxable at 18%. |
The authority held that the de-oiled cakes are not waste but are intended, commercially viable products generated during the manufacturing process. Consequently, the applicant must reverse input tax credit attributable to the supply of exempted de-oiled rice bran, while input tax credit is allowed for the supply of de-oiled mahua cake which is taxable at 18%.
Reasoning
The authority determined that the de-oiled cakes are not waste because they are sold with equal emphasis as the primary oil product and undergo further processing, testing, and packaging. Relying on the Supreme Court decision in State of Karnataka vs. M.K. Agro Tech (P) Ltd., it concluded that the sale of these items constitutes a 'supply' under the GST Act. As De-oiled Rice Bran is exempted under Notification No. 07/2018-CT(R), the applicant must reverse input tax credit under Section 17(2) of the CGST Act. De-oiled Mahua Cake, not being specifically classified, falls under the residuary entry and is taxable at 18%, thus allowing input tax credit.
Provisions relied on
- Section 17(2) of the CGST Act, 2017
- Section 16 of the CGST Act, 2017
- Section 2(92) of the CGST Act, 2017
- Notification No. 07/2018-CT(R) dated 25.01.2018
- Notification No. 01/2017-CT(R) dated 28.06.2017
For the practitioner
This ruling clarifies that by-products generated in a manufacturing process that are **commercially viable and marketable** are not considered 'waste' and their sale constitutes a taxable supply. It reinforces the requirement to **reverse input tax credit** under Section 17(2) when a manufacturer produces both taxable and exempted goods. Practitioners should note that the classification of such by-products depends on their specific end-use and marketability.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/up_aaar_03_2018-19_12.10.2018_ipfpl.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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