The Uttar Pradesh State Appellate Authority for Advance Ruling ( AAAR ) recently ruled that the manufacture of ‘cream’ to be used in food or cake preparation shall attract 5% Goods and Services Tax ( GST ) observing that the proposed product contains 23% vegetable fat and zero amount of dairy fat.
The Application for Advance Ruling was filed before the Uttar Pradesh AAAR by S.S. Traders, a proprietorship firm engaged in trading of packaged food items who sought to set up a new unit to manufacture ‘cream’ to be used in food preparation. The proposed cream shall be a liquid product with smooth white texture providing additional taste and texture to food items prepared using the cream.
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S.S. Traders raised a multi-faceted query before the AAAR querying the requisite chapter heading and the appropriate rate of GST leviable on their proposed product.
Upon analysing the composition of the proposed ‘cream’, AAAR noticed that edible vegetable fat constitutes 23% of the product while milk solids content is at just 3.2%.
At the outset, the AAAR opined that the Authority for Advance Ruling may have erred in denying classification of the product under HSN Code 1517 while observing that the sugar content in the product is only 1% while the premix containing emulsifiers, stabilizers, acidity regulators and preservatives constitutes 5.5% of the final product.
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Affirming that addition of sugar does not change the character of the impugned product, AAAR ruled that the AAR had erred in classifying the proposed ‘cream’ under Chapter Heading 2106 90 99 since Chapter 21 covers Miscellaneous Edible Preparations that are not specified elsewhere or included.
Furthermore, the two-member Bench of the Uttar Pradesh State Appellate Authority for Advance Ruling constituted by CGST Member Pramod Kumar and SGST Member Nitin Bansal observed that the proposed product is a mixture of sugar and premix on a vegetable fat base, without the inclusion of animal fat at any amounts.
In light of such observation, the AAAR ruled that the appropriate chapter heading for the proposed product to be 1517 90 90 and taxable at 5% GST.
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