GST Input Tax Credit Rules for De-oiled Cakes and By-products
The Appellate Authority for Advance Ruling ruled that de-oiled cakes are commercial products, requiring businesses to reverse input tax credit for exempted sales.
- Ruling
- Order No. 02/AAAR/12/2018 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 commercial products, not waste.
- Businesses must reverse input tax credit for exempted by-product sales.
- De-oiled mahua cake is taxable at 18% GST.
- Input tax credit must be split between taxable and exempted goods.
In short
The company asked if de-oiled cakes produced during oil extraction are 'waste' and if they could claim full input tax credit on raw materials. The authority decided these cakes are valuable products, not waste, meaning the company cannot claim full credit if they sell some of these products tax-free.
What has changed
How it worked before
Many businesses assumed that by-products like de-oiled cakes were simply 'waste' and did not need to account for them when calculating their input tax credit eligibility.
What has changed
The authority ruled that because these cakes are sold for money, they are commercial products. If you sell both taxable goods and exempted goods, you must reverse a portion of your input tax credit proportional to the exempted sales under Section 17(2) of the CGST Act.
Who this affects
Manufacturers of solvent-extracted oils or similar businesses that produce by-products sold as animal feed.
An example
A manufacturer produces oil and a by-product cake. They sell the oil with GST but sell the cake as an exempted animal feed. Under this ruling, they cannot claim the full GST paid on raw materials. They must calculate the portion of credit used for the exempted cake and reverse it.
What you should do
Review your production process to see if your by-products are sold for profit. If you sell exempted goods, you must reverse the corresponding input tax credit. Remember, this ruling only binds the company that asked; your local tax officer may have a different view.
If you do nothing
If you claim full input tax credit while selling exempted by-products, you risk a tax audit. The department may demand the reversed credit plus interest and penalties. You could face a lengthy legal dispute if your interpretation of 'waste' differs from the tax authority's view.
The terms explained
- Input tax credit
- The GST you pay on your business purchases that you can subtract from the GST you owe on your sales.
- Reverse input tax credit
- Paying back or giving up the tax credit you previously claimed because the goods you produced are not subject to GST.
- Exempted supply
- Goods or services that do not attract GST, meaning you cannot claim tax credits for the inputs used to make them.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. Khandelwal Extractions Ltd.
Order No. 02/AAAR/12/2018 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 business of purchasing Mahua oil cake and Rice Bran for the extraction of oil through a solvent extraction process. During this process, they produce solvent extracted oil as the primary product and de-oiled cake as a by-product. The applicant sought a ruling on whether the de-oiled cake constitutes 'waste' and the extent of their eligibility for input tax credit on the raw materials used.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of de-oiled cake as waste | Not waste; it is a commercially viable product. The authority determined it is a by-product, not waste. |
| Eligibility for input tax credit | Partially allowed; reversal required for exempted supplies. Reversal required for de-oiled rice bran cake (exempted); credit allowed for de-oiled mahua cake (taxable at 18%). |
The Appellate Authority ruled that the de-oiled cakes are not waste but are commercially viable products generated during the manufacturing process. Consequently, the applicant must reverse the input tax credit attributable to the supply of exempted de-oiled rice bran cake, while they are entitled to input tax credit on the supply of de-oiled mahua cake which is taxable at 18%.
Reasoning
The authority reasoned that the de-oiled cake is a **commercially viable product** rather than waste, as it undergoes further processing and is sold for consideration. Relying on the principle that taxing statutes should be interpreted to prevent the misuse of input tax credit, the authority applied Section 17(2) of the CGST Act, 2017. It concluded that since the applicant manufactures both taxable and exempted goods, they must reverse the input tax credit proportional to the exempted supplies. Furthermore, it determined that de-oiled mahua cake is not classifiable under Chapter 23 and is subject to a **GST rate of 18%** under the residuary entry.
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 during a manufacturing process that are sold for consideration are not 'waste' and are subject to GST provisions. It reinforces the requirement to **reverse input tax credit** under Section 17(2) when a taxpayer deals in both taxable and exempted supplies. Practitioners should note that the classification of specific de-oiled cakes depends on their actual usage and marketability rather than mere nomenclature.
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_02_2018-19_12.10.2018_kel.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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