2019 (12) TMI 1577 - AAAR - GST

Classification of goods - rate of duty - outward supply of flavoured milk - whether 'flavoured milk' is classifiable under tariff item 2202 9930 of the First Schedule to the Customs Tariff Act, 1975 as a beverage containing milk with the rate of tax as 12% GST as per the ruling of AAR or it is classifiable under HSN 0402 9990 with the rate of tax as 5% under Notification No.1/2017 - Central Tax (Rate) as per the contention of the appellant? - Whether 'flavoured milk' can be considered a beverage containing milk? - N/N. 3/2005-C.E. HELD THAT - In common parlance, a beverage is (chiefly in commercial use) a drink other than water. It is a liquid for drinking especially such liquid other than water (as tea, milk, fruit juice, beer) usually prepared (as by flavouring, heating, admixing) before being consumed . The instant product, the flavoured milk is undoubtedly a beverage containing milk. It is moreover, a 'preparation' made as per the description given by the appellant in the flow chart submitted by him - even though the product in question is a dairy produce and also an edible product of animal origin, the qualifier that it is not elsewhere specified or included makes it ineligible to be classified under the chapter 4. The product in dispute as it is already specified and included under chapter 22 dealing with goods /items of Beverages, spirits and vinegar makes it ineligible to be classified under chapter 4. Thus, the commodity 'flavoured milk' merits classification under beverage containing milk under tariff heading 2202 90 30. The rate of tax applicable for the said tariff item is 12% GST under entry no. 50 of Schedule II of Notification No.1/2017 - Central (Rate) dated 28.06.2017 as amended - the Ruling of the AAR is in tune with legal position and it needs no interference and the appeal is accordingly dismissed.

Summary

Issues Involved:
1. Classification of 'flavoured milk' under the appropriate HSN code.
2. Applicable GST rate for 'flavoured milk'.

Issue-wise Detailed Analysis:

1. Classification of 'flavoured milk' under the appropriate HSN code:

The appellant, engaged in the manufacturing of milk and milk products including flavoured milk, sought clarification on the HSN code and the applicable GST rate for their product. The appellant contended that flavoured milk should be classified under HSN code 0402, which pertains to "Milk and cream, concentrated or containing added sugar or other sweetening matter," and thus should attract a GST rate of 5%. The appellant argued that flavoured milk does not change the essential character of milk and is merely a modification involving no manufacturing process.

The Authority for Advance Ruling (AAR), Andhra Pradesh, had earlier classified flavoured milk under tariff item 2202 9930 of the First Schedule to the Customs Tariff Act, 1975, as a "beverage containing milk," attracting a GST rate of 12%. The appellant challenged this ruling, arguing that the AAR had erred in its classification.

The appellant cited several legal precedents and explanatory notes to support their contention that flavoured milk should fall under HSN code 0402. They referenced the Supreme Court's decision in CCE Vs. Amrit Food, which stated that products of milk and cream would be covered by Chapter 4, and the addition of sugar or other sweeteners would not change this classification. The appellant also pointed to the decision of the Advance Ruling Authority, Karnataka, which had classified flavoured milk under Chapter 4.

2. Applicable GST rate for 'flavoured milk':

The main issue was whether flavoured milk should be taxed at 5% under HSN code 0402 or at 12% under HSN code 2202 9930. The appellant argued that the AAR's reliance on the minutes of the 31st GST Council Meeting was misplaced and that the correct classification should be under HSN code 0402, attracting a GST rate of 5%.

The Appellate Authority for Advance Ruling examined the competing entries under Schedule I (5% GST) and Schedule II (12% GST) of Notification No.1/2017 - Central Tax (Rate). They noted that Chapter 4 deals with dairy produce not elsewhere specified or included, while Chapter 22 deals with beverages, spirits, and vinegar, including beverages containing milk.

The authority concluded that flavoured milk, being a beverage containing milk, should be classified under tariff heading 2202 90 30. They emphasized that the product is a preparation involving various processes and should be considered a beverage in common parlance. The authority noted that the classification of flavoured milk under Chapter 22 had been clarified in the agenda of the 31st GST Council Meeting, which stated that flavoured milk is classifiable under HS code 2202.

Conclusion:

The Appellate Authority upheld the AAR's ruling, confirming that flavoured milk is classifiable under tariff heading 2202 90 30 as a beverage containing milk, with a GST rate of 12% (6% CGST + 6% SGST). The appeal was dismissed, and the decision of the lower authority was confirmed and upheld.