Karnataka AAR Clarifies GST Classification of Biodiesel and High-Speed Diesel Blends Under HSN Codes 2710 and 3826

The Authority for Advance Ruling (AAR), Karnataka, has delivered a significant ruling on the classification of biodiesel blends with high-speed diesel (HSD) for the purposes of Goods and Services Tax (GST). The applicant, engaged in manufacturing biodiesel from used cooking oil, sought an advance ruling on the appropriate HSN codes for various blends of biodiesel and HSD, specifically B20 (20% biodiesel, 80% HSD), B30, B40, B50, B60, and B70.

The applicant argued that the classification of goods under GST is governed by the Customs Tariff Act, 1975, which aligns with the Harmonised System of Nomenclature (HSN). They contended that B20 should be classified under HSN 2710 20 20, which covers diesel fuel blends containing 6% to 20% biodiesel, and is not liable to GST. For blends with higher biodiesel content (B30 and above), the applicant submitted that these should be classified under HSN 3826 00 00, as they contain less than 70% petroleum oils and are thus liable to GST.

The AAR examined the relevant provisions of the Customs Tariff Act, GST rate notifications, and HSN Explanatory Notes. The Authority emphasized that the Customs Tariff Act provides the statutory framework for classification under GST, and that the GST Tariff follows the HSN-based classification. The AAR noted that while certain petroleum products, including HSD, are excluded from GST, this exclusion is product-specific and does not automatically extend to all blends containing petroleum oils.

In its detailed analysis, the AAR referred to Chapter 27 of the GST Tariff, which covers mineral fuels and oils, and specifically Heading 2710, which includes preparations containing by weight 70% or more of petroleum oils. Sub-heading 271020 covers preparations containing biodiesel, and tariff item 27102020 specifically covers diesel fuel blends (B6 to B20) conforming to IS 16531. The AAR found that B20, conforming to IS 16531, is classifiable under tariff item 27102020. For B30 (30% biodiesel, 70% HSD), the Authority noted the absence of a specific tariff entry under Heading 2710 and held that it should be classified under the residual tariff item 2710 20 90 as “Other petroleum oil preparations.”

For blends containing less than 70% by weight of petroleum oils (B40, B50, B60, B70), the AAR relied on the HSN Explanatory Notes, which exclude such blends from Heading 2710 and instead classify them under Heading 3826. Accordingly, these blends are classifiable under tariff item 38260000, which covers “Biodiesel and mixtures thereof, not containing or containing less than 70% by weight of petroleum oils or oils obtained from bituminous minerals.”

In conclusion, the AAR ruled as follows:
1. B20 (20% biodiesel, 80% HSD), conforming to IS 16531, is classifiable under HSN 27102020.
2. B30 (30% biodiesel, 70% HSD) is classifiable under HSN 27102090 as a residual petroleum oil preparation.
3. Blends B40, B50, B60, and B70, with less than 70% petroleum oils, are classifiable under HSN 38260000.

This ruling provides much-needed clarity for manufacturers and suppliers of biodiesel blends regarding the applicable GST classification and rates, ensuring consistency with the statutory framework and HSN-based classification system.