Under what Schedule and Entry No. of the Applicable Act would Natural Easter Dielectric Fluid fall?

Case:CARGILL INDIA PVT. LTD.
Citation:2018 (12) G.S.T.L. 585 (A.A.R. - GST)
Issue:Under what Schedule and Entry No. of the Applicable Act would Natural Easter Dielectric Fluid fall?

Brief Facts:The present Advance Ruling application is being filed by M/s. Cargill India Private Limited (“hereinafter referred to as the “The Applicant’), a company incorporated under the laws of India, having its registered office at Y-65, Ground Floor, Hauz Khas, New Delhi-16. The applicant is registered in the State of Maharashtra under Maharashtra Goods and Service Tax Act, 2017 having GST registration number 7AAACC3269J1ZK with its principal place of business at 7th, 701, South Block, Sacred World, Wanawadi, City Pune MCORP, Taluka, Pune City, Thane, Maharashtra, 411040. The Applicant is a subsidiary of a leading US multinational; Cargill Inc. Cargill provides food, agriculture, financial and industrial products and services to the world. Together with farmers, customers, governments and communities, the company helps people thrive by applying its market leading insights and 150 years of experience. Cargill, globally, has more than 155,000 employees in 70 countries who are committed to feeding the world in a responsible way, reducing environmental impact and improving the communities In India, the Applicant is broadly engaged in the following businesses:-

•            Processing, refining and marketing imported and indigenous vegetable oils serving food industry customers with vegetable oils, fats, blends and bakery shortenings and serving household consumers with a portfolio of fortified and healthy branded edible oils.
•            Offering high quality food ingredients to serve food manufacturers and food service industry.
•            Origination, processing, storing, trading and marketing a wide range of agricultural commodities such as grains, oilseeds, sugar and cotton.
•            Offering premix, compound feed and therapeutic care products to nourish and treat animals.
In India, under food segment of Applicant’s business there are three manufacturing units at Kandla, Gujarat, Kurkumbh, Maharashtra and Devengere, Karnataka. In addition to the manufacturing plants, the Applicant has depots, warehouses and branches across 23 states in India.

ABOUT THE PRODUCT-NATURAL ESTER DIELECTRIC FLUID: The starting point in the production of vegetable oil-based dielectric fluid is the vegetable seeds from trees. In case of the Applicant, the ester fluid is made from Soybean oil. After separation of solid matter, the oil is treated with special solvents to remove unwanted components. Bleaching is usually done by clay filter presses, which further purify the oil. Deodorization by steam removes volatiles that produce odour. The final stage is the further purification and processing of Refined Bleached Deoderized oil. During processing additives are added to make the final product suitable for customer. After this, appropriate quality checks are done and final product is ready for the market
One of the products manufactured by the Applicant is Natural Ester Dielectric Fluid, commonly known as Envirotemp FR3. The said product is manufactured by the Applicant in its Kurkumbh plant in Maharashtra and thereafter sold from there.Natural ester dielectric fluid is a proficiently emerging product/technology in the field of transformer dielectric application in the global power industry. It is based on renewable resources and produced from vegetable seeds. The product is made up of refined soyabeans oil after mixing some additives with the same. However, the basic characteristics, nature of product remains the same even after mixing of additives.In addition to being derived from renewable resources, it has numerous other advantages in terms of dielectric application. The said product has very high fire point which in turn provides high fire safety for transformers. It is best suitable for densely populated areas where a transformer fire can lead to a huge loss of life and property.Envirotemp FR3 is an FM Global Approved. Besides a much higher fire safety, this fluid improves the life of the insulation paper of the transformer which leads to improved life of the asset. The improved life of the transformer leads to the economic benefits for the end customer by reducing the overall cost.Envirotemp FR3 has immensely helped utility companies and end consumers globally by increasing cost savings and efficiency without requiring major operational changes or capital investments. In India, the procurement of Natural Ester fluid is done through the tendering process. In most cases, the fluid is procured by the Original Equipment Manufacturers (OEMs) who further supply the fluid to the end user along with the transformer. The end user is generally a utility or an industrial client. In certain cases, these utilities directly procure the fluid as well. Due to this reason, the end customer buying or placing the purchase order to the Applicant varies from different transformer manufacturers present in the market to the different categories of end users.

Manufacturing Process: The starting point in the production of vegetable oil-based dielectric fluid is the vegetable seeds from trees. In case of the Applicant, the ester fluid is made from Soybean oil. After separation of solid matter, the oil is treated with special solvents to remove unwanted components. Bleaching is usually done by clay filter presses, which further purify the oil. Deodorization by steam removes volatiles that produce odour.
The final stage is the further purification and processing of Refined Bleached Deodorized oil. During processing additives are added to make the final product suitable for customer. After this, appropriate quality checks are done and final product is ready for the market.

Appellant’s contention: Sh. Rajat Bose, Advocate, attended on behalf of the applicant and made submissions as well as orally argued and explained the difficulty that they were facing in classification of their product in the GST regime. He explained that under the erstwhile Central Excise regime, the said product was classifiable under Tariff Heading 1518 which read as under -
‘Animal or vegetable fats and oils and their fractions, boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516, inedible mixtures or preparations of animal or vegetable fiats or oils or of fractions of different fats or oils of this chapter not elsewhere specified or included”.
As per First Schedule of Central Excise Tariff Act, 1985, Excise duty was levied at the rate of 6% on all the products falling under Chapter heading 1518. Further, the said Tariff heading was exempted by way of Notification No. 12/2012-Central Excise, dated 17th March, 2012, implying that the effective Excise duty rate on this product was Nil under Excise law.
It is further submitted that under the erstwhile Maharashtra Value Added Tax Act, 2002. Tariff Heading 1518 was classified under Serial No. 54 of the Schedule C as an industrial input read with MVAT Notification No. VAT-1505/CR-234/ Taxation-1, dated 1st September, 2005, (Sl. No. 14). Thus, the effective rate of VAT on the said goods was 6%.
Under the Maharashtra Goods and Service Tax Act, 2017, Chapter Heading 1518 is appearing under Schedule I and Schedule II of Notification No. 01/2017-State Tax (Rate), dated 29th June, 2017. The relevant extract of both the said Schedules are as under:
A.    Schedule I - Taxable at the rate of 2.5% State Tax

S. No.	Chapter/ Heading/ Sub-heading/ Tariff item	Description of Goods
88	1516	Vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined, but not further prepared.
90	1518	Vegetable fats and oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516

B. Schedule II - Taxable at the rate of 6%. State Tax

S. No.	Chapter/ Heading/ Sub-heading/ Tariff item	Description of Goods
25	1516	Animal fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined, but not further prepared.
27	1518	Animal fats and animal oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516 : inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified of included

The product in question, i.e., natural ester dielectric fluid is nothing but vegetable oil which is chemically modified to make it fit for transformers and other electricity storage devices. From a reading of the above entries, it appears that the product in question falls under Entry 90 of Schedule I of the MGST Act and taxable at 2.5%.
Further, it also appears that Entry 27 of Schedule II of the said Notification covers animal fats and oil only. However, the Second part of the said entry, i.e., inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified of included creates an ambiguity with respect to the classification of the said product, inasmuch as, the said entry seems to also include inedible mixtures or preparation of vegetable fats or oils. It is submitted that the Applicant is of the humble view that the product in question should be classified under Entry 90 of Schedule I of the said Notification and not under Entry 27 of Schedule II.

The Applicant explained that Natural Ester Dielectric Fluid, being a processed vegetable/soyabean oil is classifiable under Entry 90 of Schedule I of the Notification No. 1/2017-State Tax (Rate) under the MGST Act and taxable at the rate of 2.5% State Tax. In support of its contention, the Applicant submits the following grounds amongst others.
THE PRODUCT IS A CHEMICALLY MODIFIED VEGETABLE OIL
Natural Ester Dielectric Fluid is an alternative to conventional forms of fluid for power transformers and is derived by treating the oil with special solvents to remove unwanted components through bleaching, deodorization, dehumidification and degasification.
In other words, the product is nothing but a chemically treated/ modified form of soyabean oil which is used as fuel for power transformers. In this regard, it is pertinent to analyze Entry 90 of Schedule II. The said Entry is reproduced below for ease of reference -
“Vegetable fats and oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516”.
The above Entry essentially has three aspects namely -
The Entry covers only vegetable fats and oils;
The vegetable fat and oil should have undergone one of the processes mentioned in the said entry, i.e., boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas.
The vegetable fat or oil may otherwise be chemically modified
It is submitted that the said Entry No. 90 is wide enough to cover all vegetable oils and fats which are chemically modified. Chemical modification is a process whereby, certain properties of the base oil are changed by adding chemicals to make the same suitable for certain specific purpose. Owing to the unfavourable impact on the environment of mineral oil-based lubricants, there has been a steady increase in the demand for biodegradable, environment-friendly lubricants. Vegetable oils including soyabean oil is recognized as rapidly biodegradable and are thus promising candidates as base fluids in environment-friendly lubricants.
It is further submitted that the chemically modified base fluids which is soyabean in the present case, exhibit superior oxidation stability in comparison with unmodified vegetable oils. These base fluids in combination with suitable additives exhibit equivalent oxidation stability compared with mineral oil-based formulations.
In view of the above, it is amply clear that the product in question, namely, Natural Ester Dielectric Fluid is nothing but vegetable oil which is chemically modified to be used as lubricant for power sector, clearly falling within the ambit of the Entry 90 of Schedule I of the Notification No. 1/2017 - State Tax (Rate) under the MGST Act.
THE PRODUCT IN QUESTION DOES NOT FALL IN ENTRY 27 OF SCHEDULE II
It is submitted that Entry 27 of Schedule II is not the proper classification for Natural Ester Dielectric Fluid. For the ease of reference, Entry 27 has been reproduced below -
“Animal fats and animal oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516, inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified of included.”
From a reading of the above entry, it appears the following points emerge -
The said Entry has two parts; the first part covers animal fats and animal oils and their fractions and the second part covers inedible mixtures or preparations of animal or vegetable fats and oils.
The first part, i.e., animal fats and oils should have undergone one of the processes mentioned in the said entry, i.e., boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas. Animal fat or oil may otherwise be chemically modified.
The second part of the entry covers inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified of included.
In the instant case, it is clear that soyabean oil is not animal fat or animal oil. Hence, clearly, soyabean oil is not covered in the first part of the Entry. Thus, it needs to be seen whether soya-bean oil can be covered in the second part of the Entry, i.e., inedible mixtures or preparations of vegetable fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified of included.
In this regard, it is imperative to understand the meaning of inedible mixtures or preparation of vegetable fats or oils. The term inedible mixture or preparation of vegetable fats or oils will mean that the mixture or preparation shall be of different vegetable fats or oils. In other words, two or more vegetable fats or oils must be combined together to form an inedible mixture.
In the present case, it is submitted that there is no mixing or preparation of vegetable oil which is taking place. The process in the present case if purely of chemical modification of only soyabean oil to convert it into a biodiesel fuel. Given the above, it is humbly submitted that in Natural Ester Dielectric Fluid, there is no mixture of or preparation of multiple vegetable oils or fats or their fractions.Hence, the product in question ought not to be classified in this Entry.
Without prejudice to the above, it is humbly submitted that the said entry covers only animal fats and oils which are chemically modified. When it comes to vegetable fats and oil, the said entry covers only mixtures and preparations of the same. Chemically modified vegetable fats and oil is only covered in Entry No. 90 of Schedule I of the Notification No. 1/2017-State Tax (Rate) under the MGST Act. Given the above, it is humbly submitted that Entry No. 27 of Schedule II of the Notification No. 1/2017-State Tax (Rate) under the MGST Act does not cover chemically modified vegetable oil or fats and hence, the product in question should not be classified under the said Entry.
SPECIFIC ENTRY SHOULD PREVAIL OVER GENERAL ENTRY
Without prejudice to the above, even assuming that the product in question, i.e., Natural Ester Dielectric Fluid may be termed as a mixture or preparation of vegetable fat and oil, it is submitted that Entry No. 90 of Schedule I which covers chemically modified vegetable oil is much more specific entry as compared to Entry 27 of Schedule II which covers only preparation and mixtures of vegetable fats and oil.
Natural Ester Dielectric Fluid is derived by chemically modifying soyabean oil by adding special additives. The process of conversion of the product in question is completely different as compared to mere mixing of two or more vegetable fats or oil.
In this regard, it is pertinent to refer to Explanation 4 of Notification No. 1/2017-CentraI Tax (Rate) which provides the classification and rate of various products under GST. As per the said Explanation, the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of the said Notification No. 1/2017.
In terms of Rule 3(a) of Interpretative Rules of the Customs Tariff Act, 1975, when a specific entry is available for classification, goods cannot be classified in a general entry. Taking a cue from the above, it is submitted that Entry No. 90 of Schedule I which covers chemically modified vegetable oil is much more specific entry as compared to Entry 27 of Schedule II which covers only preparation and mixtures of vegetable fats and oil and hence, the product in question ought to be classified in Entry 90 of Schedule I.
In this regard, reliance may be placed on the following judicial pronouncements -
In the case of Sanwar Aggarwal v. The Commissioner of Customs (Port)
In the case of Flora Agrotech v. The Commissioner of Central Excise, Vapi
In the Case of The Commissioner of Central Excise, Aurangabad v. IVP Ltd.
Basis the above judicial precedents, it is clear that in case a specific entry exists, the goods must be classified in the said entry, even though there is a general/residual entry as well. It is further submitted that the Entry No. 27 of Schedule-II is a residual or a general entry as the said entry ends with the words - ‘not elsewhere specified or included. It is humbly submitted that by adding these words in the Entry, the intention of the legislature is to render this entry as a residual entry. Thus, if the products can be classified in any other more specific entry, it should be done as such and such specific entry shall be considered over the general entry. In this regard, reference can be drawn from the case of H.P.L. Chemicals Ltd. v. Commissioner of Central Excise, Chandigarh.
Further reliance may be placed on the case of Gopal Hosiery v. Assistant Collector of Central Excise.
It is submitted that in view of the above judicial pronouncements, it is a settled law that classification in residuary entry can be done only if the goods cannot be classified in any entry of the schedule. In the present case, Natural Ester Dielectric Fluid is chemically modified soyabean oil is classifiable under Entry 90 of Schedule I of the said Notification. Hence, the applicant submits that the said product cannot be classified in the residuary Entry No. 27.
COMMON TRADE PARLANCE MEANING SHOULD BE CONSIDERED
Without prejudice to the above, it is humbly submitted that while classifying goods under any entry, how the product is known in common trade parlance should be given due consideration. In the present case, Natural Ester Dielectric Fluid is known as chemically modified biodiesel which is used as transformer fuel in general trade parlance. It is not known as mixture or preparation of vegetable fats or oils.In this regard; reference may be made to the case of Atul Glass Industries Ltd. v. Collector of Central Excise.
It is submitted that in common trade parlance the product in question is known as an alternative fuel for transformer derived by chemically modifying certain properties of vegetable/Soyabean oil. Hence, going by the general trade understanding the said product ought to be classified under Entry 90 of Schedule I as chemically modified vegetable oil.
PRINCIPLE OF EQUIVALENCE VIS-A-VIS THE ERSTWHILE INDIRECT TAX REGIME SHOULD BE FOLLOWED
It is submitted that while fixing the rates of goods and services under GST, the GST council largely followed the principle of equivalence vis-a-vis the rate structure under the pre-GST regime.
In this regard, it is pertinent to mention that under Central Excise, the said product was classified under Chapter Heading 1518 under the description,
“Animal or vegetable fats and oils and their fractions, boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516, inedible mixtures or reparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter not elsewhere specified or included”.
As per First schedule of Central Excise Tariff Act, 1985, Excise duty was levied at the rate of 6% on all the products falling under Chapter heading 1518. Further, the said tariff item was exempted by way of Notification No. 12/2012-Central Excise, dated 17th March, 2012, implying that the effective Excise duty rate on this product was Nil under Excise law.
It is further submitted that under the erstwhile Maharashtra Value Added Tax Act, 2002 Tariff Heading 1518 was classified under Serial No. 54 of the Schedule C as an industrial input read with MVAT Notification No. VAT-1505/CR-234/Taxa-tion-I, dated 1st September, 2005, (Sl. No. 14). Thus, the effective rate of VAT on the said goods was 6%.
Given the above, since the effective tax rate on the product under the erstwhile indirect tax regime was 6%, the intention of the GST Council would be to tax the said product under the GST regime at 5% to keep it close to the existing rate, following the principle of equivalence which has formed the basis of classification of various goods and services into different rate brackets under GST.
Thus, it is submitted that following the principle of equivalence, the said product ought to be classified in Entry 90 of Schedule I of the Notification No. 1/2017-State Tax (Rate) under the MGST Act and be subject to 2.5% State tax.

Reasoning of Judgement: The Authority for Advance Ruling stated that it has considered the submissions made by the applicant in their application for advance ruling as well as the written submissions made. The authority intended to know as to what werethe other chemicals or oils mixed with soyabean oil to make it their final product.After considering the matters stated in the report the authority statedthat the packing of the product describes “Envirotemp FR3 Fluid” as Fire Resistant Natural Ester Dielectric Coolant for transformers and related electrical apparatus. The product, as informed, is made up of refined soya beans oil after mixing some additives with the same.After considering the submissions made by the applicant it can be seen that various processes are involved in the manufacture of the impugned product. In Step 6of the manufacturing process, some additives are added. But the applicant has not informed the details of these additives. In Step 9, there is addition of some chemicals and again, the applicant has preferred not to divulge the details. To have a correct understanding of the product which would aid in ascertaining the correct classification, the applicant was asked to give a report from a recognized Laboratory. With the information supplied, we see that certain ingredients in the form of additives and chemicals are added to vegetable oils to make them function as a substitute for mineral oil in transformers and other apparatus. The impugned product with the processes undergone to produce the end product of coolant for transformer does not remain vegetable oil per se, with this understanding; we come to the classification under the Customs Tariff.
The applicant’s invoice for the period prior to GST shows the product being cleared under the Tariff Heading 1518 00 39. Under GST, the applicant seeks a confirmation as to whether the impugned product is covered under the Heading 1518 as found in Schedule I or Schedule II of the Notification No. 1/2017-Central/State Tax (Rate). The rate of tax for the purpose of both the entries differs. For quick reference, we shall reproduce these entries thus –

S. No.	Chapter/ Heading/ Sub-heading/ Tariff item	Description of Goods	Rate [CGST + MGST]
90	1518	Vegetable fats and oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516	5% [2.5 + 2.5]
27	1518	Animal fats and animal oils and their fractions, boiled, oxidised, dehydrated, sulphurised, blown, polymerised by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516; inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, not elsewhere specified of included	12% [16 + 6]

We shall also reproduce herein the position as appearing in the Customs Tariff Heading 1518 -

1518		ANIMAL OR VEGETABLE FATS AND OILS AND THEIR FRACTIONS, BOILED, OXIDISED, DEHYDRATED, SULPHURISED, BLOWN, POLYMERISED BY HEAT IN VACUUM OR IN INERT GAS OR OTHERWISE CHEMICALLY MODIFIED, EXCLUDING THOSE OF HEADING 1516; INEDIBLE MIXTURES OR PREPARATIONS OF ANIMAL OR VEGETABLE FATS OR OILS OR OF FRACTIONS OF DIFFERENT FATS OR OILS OF THIS CHAPTER, NOT ELSEWHERE SPECIFIED OR INCLUDED
1518 00	-	Animal or vegetable fats and oils and their fractions, boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516; inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this Chapter, not elsewhere specified or included :
	---	Lin seed oil :
151800 11	----	Edible grade
151800 19	----	Other
	---	Castor oil, dehydrated :
15180021	----	Edible grade
151800 29	----	Other
	---	Other Vegetable oil and its fats :
1518 00 31	----	Edible grade
1518 00 39	----	Other
1518 00 40	---	Other

From the Tariff Heading 1518 as reproduced above and from the Harmonized Commodity Description and Coding System Explanatory Notes (HSN), we see that -
There are 2 parts to Tariff Heading 1518 thus -
•Part 1 - Animal or vegetable fats and oils and their fractions, boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified, excluding those of heading 1516;
•Part 2 - Inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this Chapter, not elsewhere specified or included :
Of the Tariff Heading 1518, Schedule Entry 90 covers portion relating to vegetable fats and oils and their fractions AND Schedule Entry 27 covers portion relating to animal fats and oils and their fractions.
The Schedule Entry 27, additionally, covers the portion of the Tariff Heading 1518 pertaining to inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of Chapter of 15.
The HSN Notes in respect of the part 1 (as reproduced above) of Heading 1518 say thus -
“This part covers animal or vegetable fats and oils and their fractions which have been subjected to processes which modify their chemical structure thereby improving their viscosity, drying power (i.e., the property of absorbing oxygen when exposed to the air and forming elastic films) or modifying their other properties, provided they retain their original fundamental structure and are not more specifically covered elsewhere, e.g. :
Thus, the Notes make it clear that the animal or vegetable fats and oils and their fractions should retain their original fundamental structure.
In the present case, we have seen that soyabean oil has to be modified or adapted for use in the transformers. There are chemicals and additives which are added to it. The processes or chemicals or additives are added so as to formulate a certain product which could be used in electrical apparatus. So the processes are intended to manufacture a new commodity in which soyabean oil would be the prime ingredient. And this is precisely why the product is described as one based on soyabean oil or one which is derived or formulated from vegetable oils. The final product obtained after subjecting soya-bean oil to different processes is used as a coolant for transformers. The end product has a distinct identity in the sense that when one desires to have vegetable oil, the impugned product would not be accepted. The short point that we would like to make is that the impugned product is not soyabean oil per se. The part 1 (as reproduced above) of Heading 1518 speaks of certain processes which have been subjected to vegetable and animal oils. But the HSN Notes say that despite undergoing these processes, the vegetable or animal oils should retain their original fundamental structure. In the present case, we have a final product which is a transformer coolant. Though the Test Report shows the percentage of the chemicals to be 1% or the vegetable oils to be at 98.5% would not mean that a new commodity has not been produced. We have seen above an extract from an article that while there are data and international standards galore for mineral oils, there are as yet no IEC standards addressing the composition or testing of the natural ester oils with their different chemical composition. Each manufacturer has his own set of ingredients to obtain a coolant for transformer. That is precisely the reason that the applicant has not preferred to divulge the details. Thus, by addition of the needful additives and chemicals, we have different transformer coolants made from vegetable oils, each with their different chemical composition. The requirement of retaining the original fundamental structure would not be possible by the use of the additives and chemicals. The vegetable oils are used as the base to manufacture the final product which is a distinct product. The applicant is also selling the product as a Fire Resistant Natural Ester Dielectric Coolant for transformers and related electrical apparatus. The packing of the applicant’s product mentions the product as “Envirotemp FR3 Fluid”. Thus, it is described as a “fluid”. Is a fluid same as an oil? A fluid is different from even a liquid, let alone oil. The product is not being sold as a modified vegetable oil but as the product which is resulting from the adaptation of the vegetable oils to obtain a coolant for a transformer. In view thereof, we are convinced that the impugned product would not be covered by the part 1 (as reproduced above) of Heading 1518.
We now come to part 2 (as reproduced above) of Heading 1518. This part covers inedible mixtures or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of the Chapter 15. The present product, as discussed above, is a preparation from vegetable oil. It is derived from soyabean oil. In addition, it is inedible. Therefore, it could very well be covered by the description “inedible preparations of vegetable oils’.
Now the aspect which remains to be seen is “not elsewhere specified or included”. We have not found any specific description which covers a “Fire Resistant Natural Ester Dielectric Coolant for transformers and related electrical apparatus”. We are not in doubts that entry 90 of Schedule I of the Notification No. 1/2017-Central/State Tax (Rate) would not cover the impugned product. It is felt that the description “inedible preparations of vegetable oils’ perfectly fits the impugned product and hence, the entry 27 of Schedule II of the Notification No. 1/2017-Central/State Tax (Rate) which covers the aforesaid description would be applicable.

Decision:Envirotemp FR3 falls under Serial No. 27 of Schedule II of Notification No. 1/2017-State Tax (Rate) dated 29th June, 2017 issued under the MGST Act, 2017 and Notification No. 1/2017-Central Tax (Rate) dated 28th June, 2017 issued under the CGST Act, 2017 is taxable at the rate of 6% (State tax and Central tax)
Comment: The gist of this case is that after considering all the submissions made by the applicant Natural Easter Dielectric Fluid would fall under Schedule II of the Notification No. 1/2017-State Tax (Rate) dated 29th June, 2017 issued under the MGST Act, 2017 and Notification No. 1/2017-Central Tax (Rate) dated 28th June, 2017 issued under the CGST Act, 2017.

Prepared by: Adit Gupta

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PJ/Case Law/2016-2017/3464

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