GST on De-oiled Cakes: Are They Waste or Taxable Products?
The Appellate Authority for Advance Ruling ruled that de-oiled cakes are marketable products, not waste, requiring GST input tax credit reversals.
- Ruling
- Order No. 04/AAAR/18/3/2019 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 products, not manufacturing waste.
- Manufacturers must reverse input tax credit for exempted de-oiled rice bran cake.
- De-oiled mahua cake is a taxable supply subject to 5% GST.
In short
Khandelwal Extraction Ltd. asked if de-oiled cakes produced during solvent extraction were merely 'waste' or actual products. They wanted to know if they could claim full input tax credit on the raw materials used to make these cakes. The authority decided these cakes are valuable, marketable goods, which changes how the company handles its tax credits.
What has changed
How it worked before
Many businesses assumed that by-products like de-oiled cakes were simply waste generated during production, allowing them to claim full input tax credit on the raw materials used to create them.
What has changed
The authority ruled that because these cakes are packaged, tested, and sold, they are taxable products. This means businesses must now reverse the input tax credit linked to any exempted de-oiled rice bran cake produced, as the law does not allow credit for inputs used to make exempt goods.
Who this affects
Manufacturers of solvent-extracted oils and animal feed ingredients who produce de-oiled cakes as a by-product.
An example
A poultry feed manufacturer produces de-oiled rice bran as a by-product of their oil extraction process. They previously claimed full input tax credit on all raw materials. Based on this ruling, they should now consider if they must reverse the portion of credit attributable to the rice bran, as it is now viewed as a marketable product rather than waste.
What you should do
This ruling only applies to the company that asked the question. If you are in a similar business, you should review your classification of by-products with a tax professional, as your local tax officer may take a different view.
If you do nothing
If you treat these products as waste when they are actually taxable, you risk an audit finding that you claimed excess input tax credit. This can lead to demands for the unpaid tax, plus interest and potential penalties for incorrect reporting.
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.
- Exempted goods
- Products that are not subject to GST, meaning the business cannot claim credit for the taxes paid on the materials used to make them.
- Solvent extraction
- A chemical process used to remove oil from seeds or other materials, which often leaves behind a solid residue known as cake.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. Khandelwal Extractions Ltd.
Order No. 04/AAAR/18/3/2019 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 solvent extraction process, which results in the production of oil and de-oiled cakes. The applicant contended that the de-oiled cakes are unintended waste generated during the manufacturing process and sought to claim full input tax credit on the raw materials used. The Appellate Authority reviewed the matter following a High Court direction to decide the appeal afresh.
Ruling
| Question | What the authority ruled |
|---|---|
| Input tax credit for de-oiled rice bran cake | Reversal required Attributable to exempted supply under Section 17(2) of the CGST Act 2017 |
| GST on supply of de-oiled mahua cake | GST @ 5% Allows input tax credit under Section 16 of the CGST Act 2017 |
The Authority held that the de-oiled cakes are not waste but are marketable products generated during the intended manufacturing process. Consequently, the applicant must reverse the input tax credit attributable to the supply of exempted goods, specifically de-oiled rice bran cake, while GST is payable on the supply of de-oiled mahua cake.
Reasoning
The Authority determined that de-oiled cakes are **commercially viable products** rather than unintended waste, as they undergo specific 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 **taxable supply**. Therefore, the provisions of Section 17(2) of the CGST Act 2017 apply to the exempted supply of de-oiled rice bran cake. Furthermore, the Authority classified de-oiled mahua cake under heading 2306 of the Customs Tariff Act, making it subject to 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
- Section 3 of the CGST Act 2017
- Notification No. 07/2018-CT(R)
- Notification No. 01/2017 Central Tax (rate)
For the practitioner
This ruling clarifies that de-oiled cakes produced during solvent extraction are **marketable products** and not waste, thereby attracting GST and triggering input tax credit reversal obligations. It serves as a precedent for manufacturers to classify such by-products as taxable supplies rather than exempt waste. Practitioners should note that the specific tax treatment depends on the classification of the cake under the relevant tariff headings.
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_04_2018-19_18.03.2019_kel.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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