2024 (11) TMI 775 - AAR - GST

Classification of goods - Natural Antioxidant Water with natural Betel Leaf extract and natural Ajwain extract - to be classified under HSN 2202 9920 or not - taxable @ 12% for the products manufactured from end or not - HELD THAT - The comments offered by both Central and State jurisdictional authorities that both the authorities have stated categorically that the HSN classification 2202 9920 adopted by the applicant is wrong as the product does not comprise of any Fruit Juice and Fruit Pulp'. Hence, the description of goods falling under the Tariff item 2202 99 20 of the Customs Tariff Act, 1975 reveals that the said Tariff entry is relating to Fruit pulp or fruit juice based drink. Whereas the ANTIOXIDANT WATER manufactured by the applicant, does not contain any Fruit Pulp or Fruit Juice. The raw materials utilized in the manufacturing process are extracts of betel leaves/Ajwain seeds dissolved in propylene glycol and Menthol crystals. As observed from the process description furnished by the Applicant and on the facts and circumstances of the case, we are of the view that the classification 2202 99 20 adopted by the applicant is not correct. Whether the Rate of Tax @12% adopted by the applicant on the above said product is correct? - HELD THAT - It is clear that the ANTIOXIDANT WATER manufactured by the applicant is nothing but Paan flavored water , wherein Menthol crystals dissolved in propylene glycol is also added as a flavouring additive, for which the CSIR-CFTRI has licensed the applicant to undertake commercial production of the product. Hence, the view of the State Jurisdictional authority that the antioxidant water (i.e. Paan Flavored water) manufactured by the applicant is classifiable under HSN 2201 1010 is not correct, because of the exclusion clause of nor flavoured find place in the goods description under the tariff 2201 of the Customs Tariff Act 1975. The Anti-Oxidant water, i.e., the 'Paan Flavored water', as certified by the CSIR-CFTRI is rightly classifiable under HSN 2202 1090 as All goods (including aerated waters , containing added sugar or other sweetening matter or flavoured, and taxable @ 28%, vide Sl. No 12 to Schedule IV of the Notification No 1/2017, Central Tax (Rate) dated 28.06.2017, and compensation Cess at 12% vide Sl. No 4 of Notification No 1/2017-Compensation Cess (Rate) dated 28.06.2017.

Summary

Issues Involved:

1. Classification of the product "Natural Antioxidant Water" under the correct HSN code.
2. Applicability of the correct GST rate on the product.

Issue-wise Detailed Analysis:

1. Classification of the Product:

The primary issue was whether the classification of "Natural Antioxidant Water" under HSN 2202 99 20 was correct. The applicant classified their product under this code, which pertains to "Fruit pulp or fruit juice based drinks." However, both the State and Central tax authorities reported that this classification was incorrect. They highlighted that the product does not contain fruit pulp or fruit juice, which is a requirement for classification under HSN 2202 99 20. Instead, the product comprises extracts of betel leaves and Ajwain seeds dissolved in propylene glycol with menthol crystals, making it a "flavoured drink."

The ruling concluded that the product should not be classified under HSN 2202 99 20. Instead, it was determined that the product, known as "Paan Flavored Water," should be classified under HSN 2202 10 90. This classification includes "All goods [including aerated waters], containing added sugar or other sweetening matter or flavoured," which accurately describes the nature of the product as a flavoured water.

2. Applicability of the Correct GST Rate:

The second issue concerned the GST rate applicable to the product. The applicant had been charging a 12% GST rate based on their classification under HSN 2202 99 20. This rate was derived from Schedule II of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, which applies to fruit pulp or fruit juice-based drinks.

However, since the product was reclassified under HSN 2202 10 90 as a flavoured drink, the applicable GST rate changed. The correct GST rate for products under HSN 2202 10 90 is 28%, as per Schedule IV of the same notification. Additionally, a Compensation Cess of 12% is applicable, as specified in Notification No. 1/2017-Compensation Cess (Rate) dated 28.06.2017.

Conclusion:

The ruling determined that the applicant's classification and GST rate were incorrect. The product "Natural Antioxidant Water" should be classified under HSN 2202 10 90, attracting a GST rate of 28% and a Compensation Cess of 12%. The applicant's previous classification under HSN 2202 99 20 and the GST rate of 12% were deemed incorrect.