In a ruling in favour of Parle Agro Pvt. Ltd., the Madras High Court has held that the Goods and Service Tax (GST) Council cannot classify goods under the Customs Tariff Act, 1975.
The Petitioner filed the writ of Mandamus to call for the records of the decision of the 3rd respondent GST Council’s Minutes of Meeting taken on 22nd December 2018 classifying “flavoured milk” under HS Code No. 2202 instead of HS Code 0402 as being contrary to the decision of the Supreme Court in Commissioner versus Amrit Food and to quash the same and to direct the 2nd respondent to classify “flavoured milk” under HS Code 0402 in terms of decision of the Hon’ble Supreme Court ancillary and collect Goods And Service Tax.
The Authority for Advance Ruling followed the impugned recommendation of the GST Council based on the decision of the Fitment Committee of the GST Council. The product in hand is a ‘ready to drink’ product. The appellant has contended that their product though is ready to drink, is Milk, being a dairy produce in which additions as admissible under the GMP as allowed under the FSSAI Regulations are only added and has further contended that to be a ‘Beverage’, the product should have ‘water’ as the dominating ingredient.
The department stated that flavoured milk is liable to tax at 6% in terms of Sl. No.50 to Second Schedule to Notification No. 1/2017-Central Tax (Rate) dated 28.6.2017. On the other hand, if flavoured milk is to be classified under Heading 0402 of the HS Code 0402 as has been claimed by the petitioner, it would be liable to tax at 2.5% in terms of Sl. No.8 to the first schedule to Notification No. 1/2017Central Tax (Rate) dated 28.6.2017.
The petitioner contended that the GST Council can only recommend the rate but cannot determine the classification of goods or services. It is submitted that “flavoured milk” was naturally classifiable under Heading 0402.
It was observed that the recommendation of the GST in its meeting held on 22.12.2018 has concluded that flavoured milk is classifiable under HSN Code 2202 and thereby has suggested that flavoured milk will be liable to tax at 6% CGST. Consequently, flavoured milk will be classifiable under Heading 2202 of HSN. The function of the GST is not to determine the classification under the provisions of the Customs Tariff Act, of 1975.
A single bench of Justice C Saravanan held that “The recommendation of the GST Council is recommendatory. It is not binding on the Government as evident from a reading of Article 279-A(4) of the Constitution of India. “
Further held that “The impugned recommendation of the 3rd respondent GST Council cannot be upheld. Classification ought to have been independently determined by the Assessing Officer. The power of the 3rd respondent GST Council is merely recommendatory. It is for the Government to fix appropriate rates on the goods that are classifiable under the Customs Tariff Act, 1975.”, the court concluded.
While allowing the Writ Petition, the court left it open for the Government to issue a fresh Notification for amending Entry Nos.8 & 50 to Notification No.1/2017-CT(Rate) dated 28.06.2017 to tweak the rate of tax.
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