GST on De-oiled Cakes: Are By-products Considered Waste?
The Appellate Authority ruled that de-oiled cakes are marketable by-products, not waste, requiring businesses to reverse input tax credit for exempted sales.
- Ruling
- Order No. 05/AAAR/2019 dated 18/3/2019
- 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 classified as marketable by-products, not manufacturing waste.
- Sale of these by-products qualifies as a taxable supply under GST.
- Manufacturers must reverse input tax credit for any exempted by-product sales.
- De-oiled mahua cake is taxable at 5% GST.
In short
The company asked if de-oiled cakes, like rice bran or mahua cake, should be treated as waste generated during oil production. They argued that because these are by-products, they should not count as a supply, allowing the company to claim full input tax credit on raw materials. The authority disagreed, stating these are valuable, intended products that are sold commercially.
What has changed
How it worked before
Many manufacturers assumed that by-products created during a production process were simply 'waste' and did not need to be treated as a supply, allowing them to claim full input tax credit on all inputs.
What has changed
The authority confirmed that de-oiled cakes are taxable supplies. If you sell exempted goods alongside taxable ones, you must reverse the portion of your input tax credit that relates to those exempted sales. This means you cannot claim full credit if part of your output is exempt from GST.
Who this affects
Manufacturers of solvent-extracted oils or animal feed who produce by-products like de-oiled rice bran or mahua cake.
An example
A manufacturer produces soybean oil and sells the resulting de-oiled cake as animal feed. They previously claimed full input tax credit on the raw soybeans. Based on this ruling, they must now identify if the cake is an exempt supply and reverse the corresponding input tax credit. They should consult their tax advisor to calculate the exact reversal amount required.
What you should do
Review your production process to see if your by-products are sold commercially. If they are, you must check if they are exempt from GST and reverse your input tax credit accordingly. Remember, this ruling only binds the company that asked; your local tax officer may have a different view on your specific products.
If you do nothing
If you assume this ruling does not apply to you and continue to claim full input tax credit on exempted by-products, you risk a tax audit. A tax officer may demand the repayment of the incorrectly claimed credit, plus interest and potential penalties. Relying on a ruling that is not yours can lead to costly disputes if your specific facts differ.
The terms explained
- Input tax credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Supply
- Any sale, transfer, or exchange of goods or services made for a price in the course of business.
- By-product
- A secondary product derived from a manufacturing process that has commercial value.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. Indo Prosoya Foods (P) Ltd.
Order No. 05/AAAR/2019 dated 18/3/2019 · 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 and 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 manufacture of solvent extracted oil, a process which results in the production of de-oiled cakes as a by-product. The applicant contended that these de-oiled cakes are 'waste' generated during the manufacturing process and should not be treated as a 'supply' under the GST Act. Consequently, the applicant sought to claim the entire input tax credit on the raw materials used.
Ruling
| Question | What the authority ruled |
|---|---|
| Input credit on de-oiled rice bran cake | Must be reversed Attributable to exempted supply under Section 17(2) |
| GST rate on de-oiled mahua cake | 5% GST Allows input credit under Section 16 |
The Appellate Authority held that de-oiled cakes are not 'waste' but are intended, marketable by-products of the manufacturing process, and thus their sale constitutes a 'supply'. Consequently, the applicant is required to reverse the input tax credit attributable to the supply of exempted goods, specifically de-oiled rice bran cake. Regarding de-oiled mahua cake, the authority ruled it is taxable at 5% GST, allowing for the corresponding input tax credit.
Reasoning
The authority determined that the de-oiled cakes are **commercially viable products** rather than unintended waste, as they are sold with emphasis and undergo specific processing. Relying on the principle established in State of Karnataka vs. M.K. Agro Tech (P) Ltd., the authority concluded that the sale of these by-products qualifies as a 'supply' under Section 2(92) of the CGST Act. Therefore, the provisions of Section 17(2) apply, requiring the reversal of input tax credit for exempted supplies. The classification of de-oiled mahua cake was determined to fall under chapter heading 2306, attracting 5% GST.
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 Central Tax (rate) dated 28 June, 2017
For the practitioner
This ruling clarifies that by-products generated during a manufacturing process are generally considered **intended supplies** rather than 'waste', even if they are by-products. It reinforces the requirement to reverse input tax credit under Section 17(2) when a manufacturer deals in both taxable and exempted supplies. Practitioners should note that the classification of specific de-oiled cakes under chapter 2306 is upheld, confirming the applicable GST rate.
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_05_2018-19_18.03.2019_ipflp.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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