2022 (9) TMI 254 - AAAR - GST

Classification of goods - rate of GST - Flavoured Milk - classifiable under Chapter 0402 or under Chapter 2202? - HELD THAT - The Customs Tariff adopted for the purposes of GST is aligned to HSN and the arrangement of the products in the Tariff has been done in a schematic manner. The initial Sections/Chapters contain live animals, not processed goods and the later Chapters contain the processed goods. i.e., Section I covers Live Animals and Animal Produce in which Chapter 4 covers Dairy produce; birds eggs; natural honey; edible products of animal origin, not elsewhere specified or included and Section IV covers Prepared Foodstuffs, Beverages, Spirits And Vinegar, Tobacco And Manufactured Tobacco Substitutes in which Chapter 22 covers Beverages, spirits and vinegar . From the classification scheme adopted in the Tariff, it can be seen that products in their natural state are classified in the initial chapters and when such products undergoes certain process, they are classified in the later chapters. In the present case, flavoured milk is not the natural form of milk but obtained after application of specific processes on the milk - NDDB being a nodal agency in the Dairy products and the Flavoured Milk is categorized as Beverage as can be seen above. Further, Beverage as per the Oxford dictionary definition is any type of drink except water . Thus, it becomes evident that the product in hand is a Beverage. In similar facts of case the Appellate Authority for Advance Ruling, Tamil Nadu, in the case of IN RE M/S. BRITANNIA INDUSTRIES LIMITED 2021 (8) TMI 193 - APPELLATE AUTHORITY ADVANCE RULING, TAMILNADU , held that flavoured milk is not classifiable under Tariff Heading 0402/0404 but classifiable under CTH 2202 99 30. The appeal filed by appellant M/s. Gujarat Co-operative Milk Marketing Federation Ltd is rejected.

Summary

Issues Involved:
1. Classification of Flavored Milk under GST Tariff.
2. Applicability of Chapter 4 vs. Chapter 22 of the Customs Tariff Act, 1975.
3. Relevance of previous case laws and judgments in determining classification.
4. Interpretation of 'milk' and 'beverage containing milk' under GST.

Detailed Analysis:

1. Classification of Flavored Milk under GST Tariff:
The primary issue was to determine whether flavored milk should be classified under Chapter 4 (dairy produce) or Chapter 22 (beverages) of the Customs Tariff Act, 1975. The appellant argued that flavored milk, consisting of 92% milk and 8% sugar and flavors, should be classified under Chapter 4, specifically under Heading 0402, which covers milk and cream, concentrated or containing added sugar or other sweetening matter.

2. Applicability of Chapter 4 vs. Chapter 22 of the Customs Tariff Act, 1975:
The appellant contended that flavored milk is essentially milk and should be classified under Chapter 4. However, the GAAR held that flavored milk is classifiable under Chapter Heading 2202 99 30 as a "beverage containing milk." The GAAR relied on the explanatory notes of HSN 0402, which exclude beverages consisting of milk flavored with cocoa or other substances from Chapter 4.

The appellate authority noted that Chapter 4 covers dairy produce in their natural state, while Chapter 22 includes processed beverages ready for consumption. They emphasized that flavored milk, obtained after processes like pasteurization and homogenization, does not remain in its natural form and thus falls under Chapter 22.

3. Relevance of Previous Case Laws and Judgments:
The appellant cited several case laws to support their argument, including judgments from the Punjab and Haryana High Court and the Supreme Court, which classified milk products under Chapter 4. However, the appellate authority found these cases irrelevant to the present issue, as they pertained to the classification of skimmed or partially skimmed milk, not flavored milk.

The authority also referenced the National Dairy Development Board's classification of flavored milk as a dairy-based beverage, further supporting the classification under Chapter 22.

4. Interpretation of 'Milk' and 'Beverage Containing Milk' under GST:
The appellant argued that flavored milk should be classified as milk under Chapter 4, as it is sold, purchased, and consumed as milk. They pointed out that Chapter Note 1 to Chapter 4 defines milk as full cream or partially/completely skimmed milk, and flavored milk falls under this definition.

However, the appellate authority concluded that flavored milk, with added flavors and sugar, is excluded from Chapter 4 based on the explanatory notes of HSN 0402. They emphasized that beverages with a basis of milk and cocoa are specifically included under Chapter Heading 2202.

Conclusion:
The appellate authority upheld the GAAR's ruling that flavored milk is classifiable under Tariff Item 2202 99 30 as a "beverage containing milk." They rejected the appellant's appeal, affirming that flavored milk, due to its processing and added ingredients, falls under Chapter 22 of the Customs Tariff Act, 1975. The authority emphasized that the classification scheme under the Customs Tariff Act, aligned with the HSN, clearly distinguishes between natural dairy produce and processed beverages.