2021 (4) TMI 1292 - AAAR - GST

Classification of goods - HSN code - flavoured milk - whether it is to be considered under either 0402 or 2202 90 30? - Notification No.1/2017 Central Tax (Rate) dt 28.6.2017 - whether flavoured milk can be considered a beverage containing milk? - HELD THAT - 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 which was proved, substantiating the present argument. 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 - 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 (6% CGST 6% SGST) 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 and HSN code for Flavoured Milk.
2. Applicability of GST rate on Flavoured Milk.
3. Misinterpretation of the process of making Flavoured Milk by the Authority for Advance Ruling (AAR).
4. Reliance on extraneous documents by AAR.

Issue-wise Detailed Analysis:

1. Classification and HSN Code for Flavoured Milk:
The appellant argued that Flavoured Milk should be classified under Chapter 4 of the APGST Act, which pertains to dairy products, and not under tariff heading 2202, which deals with water-based beverages. They contended that Flavoured Milk retains the same nutritional value and basic characteristics as normal milk, even after the addition of sugar and flavours. The appellant referenced several legal precedents, including the judgment of the Hon’ble High Court of Allahabad in the case of Gujarat Milk Marketing Federation Ltd Vs State of U.P, which held that Flavoured Milk is a form of milk and not a derivative or milk product.

2. Applicability of GST Rate on Flavoured Milk:
The appellant sought clarification on the applicable GST rate for Flavoured Milk. They argued that it should be taxed at 5% under Chapter 4, similar to other milk products. However, the Authority for Advance Ruling had classified Flavoured Milk under tariff heading 2202 9930, attracting a GST rate of 12% (6% CGST and 6% SGST). The appellant contended that this classification was erroneous and based on a misunderstanding of the product's nature.

3. Misinterpretation of the Process of Making Flavoured Milk by AAR:
The appellant argued that the AAR had misconstrued the process of making Flavoured Milk, thereby incorrectly classifying it as a preparation rather than milk. They explained that the processes of filtration, pasteurization, and homogenization are standard procedures in the milk industry to maintain quality and hygiene. The addition of sugar and flavours, according to the appellant, does not alter the basic characteristics of milk.

4. Reliance on Extraneous Documents by AAR:
The appellant criticized the AAR for relying on extraneous documents, specifically the agenda of the 31st GST Council Meeting held on 22.12.2018, without considering developments between 2015 and 2018. They argued that the agenda is merely a preparatory document and does not reflect the final decisions of the GST Council. The appellant contended that the AAR's reliance on this document was arbitrary and whimsical.

Discussion and Findings:
The Appellate Authority examined the appellant's contentions and the classification history of Flavoured Milk under the Central Excise regime. Initially classified under entry 0401.11 and later under 0402 9990, Flavoured Milk was eventually placed under Chapter 22 with a specific entry as "flavoured milk of animal origin" under tariff heading 2202 90 30. The Authority noted that the product's classification had been consistent over the years.

The Authority also referred to the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011, which define food additives as substances that affect the characteristics of food. The addition of flavours to milk, therefore, constitutes a preparation, changing its basic nature and properties.

Regarding the reliance on the GST Council's agenda, the Authority clarified that the fitment committee had already addressed the classification issue, and no further clarification was deemed necessary. The Authority emphasized the sanctity of the GST Council's procedures and decisions.

Conclusion:
The Appellate Authority upheld the AAR's ruling, confirming that Flavoured Milk merits classification under tariff heading 2202 90 30 as a beverage containing milk, attracting a GST rate of 12% (6% CGST and 6% SGST). The appeal was dismissed, and the decision of the lower Authority was confirmed.