2018 (12) TMI 1865 - AAR - GST

Classification of goods - Breaded Cheese - classifiable as 'cheese' under Heading 0406 or otherwise? - rate of GST - Applicability of S. No. 13 of the Schedule-II appended to Notification No. 1/2017-Central Tax (Rate), dated June 28, 2017. Whether the subject goods retain the characteristics of cheese even after being coated with batter and bread crumbs and pre-cooked partially, as is done in the case of the subject goods? HELD THAT - It is found from the manufacturing process described as well as from label and packaging of goods that these are not cheese per se but have been converted into an article of cheese having the identity and characteristics of snack foods. Here it will be pertinent to mention that a number of similar items are available in the market which are normally based on flour, potatoes, soybeans, pulses etc. but all such items are not bought and sold as the ingredients of which they are predominantly composed (Potatoes, Flour, etc.) but as distinct snack food articles. Similar is the case of subject goods as after undergoing the manufacturing process and packaging, they lose the identity of cheese and acquire that of a snack food article made from cheese. It is found from the label/ packaging of the goods that the percentage of cheese is not more than 55%, which indicates that though cheese is the major component of the goods but it cannot be said to be present in such quantity that it predominates or overwhelms the presence of other ingredients. It is observed that the percentage of other ingredients is as high as 45%, which should prevent the goods from retaining the character of cheese. Therefore acceptance of these goods as cheese would not be the correct position. Since, the cheese balls themselves are not specified in the tariff and they are admittedly a food preparation, hence they are classifiable as 'Food preparations not elsewhere specified or included' under Heading No. 2106.

Summary

Issues: Classification of 'Breaded Cheese'

Analysis:
1. The applicant sought an advance ruling on the classification of 'Breaded Cheese' under GST.
2. The impugned goods contained cheese, milk solids, bread crumbs, and other ingredients.
3. The manufacturing process involved cutting cheese, coating with batter, breading, partial frying, and freezing.
4. The applicant claimed the product should be classified as 'cheese' under Heading 0406 for a lower tax rate.
5. The Jurisdictional GST Officer opined that the product should be taxed at 18% under Heading 2106 as a food preparation.
6. During the personal hearing, the applicant argued for classification under Heading 0406 as cheese.
7. The Authority noted the product was labeled and sold as "Cheese Balls" in the snacks category.
8. No test report specifying ingredients was provided by the applicant.
9. The crucial issue was whether the product retained the characteristics of cheese after processing.
10. The absence of a prescribed method to determine cheese characteristics led to a market-based identification approach.
11. The goods were found to resemble snack foods rather than cheese due to processing and packaging.
12. The percentage of cheese in the product was not dominant, indicating a snack food identity.
13. U.S. Customs rulings favoring cheese classification were deemed inapplicable due to differing conditions.
14. Since the product was a food preparation not specified elsewhere, it was classified under Heading 2106 at 18% GST.

Conclusion:
The Authority ruled that 'Cheese Balls' were classified under Heading 2106 as 'Food preparations not elsewhere specified or included,' attracting an 18% GST rate (9% CGST + 9% SGST).