The Madras High Court in the case of Parle Agro Pvt. Ltd., has held that the Goods and Service Tax (GST) Council cannot impose a wrong classification of “Flavoured Milk” as a “Beverage Containing Milk” 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.
It was viewed that “Flavoured Milk” that was proposed to be manufactured by the petitioner at the time of institution of the Writ Petition has to be still classified under Tariff Heading 0402 of the Customs Tariff Act, 1974 and is therefore liable to Central Tax at 2.5% in terms of Entry 8 to First Schedule to Notification No.1/2017-CT(Rate) dated 28.06.2017.
The expression used in Sub Heading 2202 90to Customs Tariff Act, 1975 is “Beverage Containing Milk”. The expression “Milk” has not been defined in Chapter 22 of the Customs Tariff Act, of 1975. Sub-heading 2202 90 of the Customs Tariff Act, 1975 deals with “Other Forms of Beverages” viz., Non-Alcoholic Beverages. Sub-heading 2202 90 of the Customs Tariff Act, 1975 does not exclude fruit or vegetable juices of heading 2009.
It was found that “Beverages Containing Milk” has to necessarily contain alcohol of the specified strength in Chapter Note 3 to Chapter 22 of the Customs Tariff Act, 1975. Therefore, “Flavoured Milk” made out of dairy milk from milch cattle/dairy animals cannot come within the purview of Chapter 22 of the Customs Tariff Act, 1975.
“Beverage Containing Milk” can include only such “beverage” containing seed-based, fruit Sor plant-based milk. It will not extend to “Dairy Milk” from milch cattle. “Beverage Containing Milk” from dairy animals cannot come within the purview of subheading 2202 90 30 as “Beverage Containing Milk”.
A single bench of Justice C Saravanan viewed that “Since these Notifications classified “Flavoured Milk” / “Flavoured Milk of Animal Origin” as “Beverage Containing Milk” under Sub-Heading 2202 90 30 of the Central Excise Tariff Act, 1985 and were never contested by Assessees, as they benefited them, it cannot mean “Flavoured Milk” in fact did fall under Heading 2202 of the Customs Tariff Act, 1975”.
Further observe that these classifications adopted in the respective Notifications issued by the Central Government under the older regime under the Central Excise Act, 1944 r/w Central Excise Tariff Act, 1985 are not relevant for determining the correct classification under the new regime. “Flavoured Milk” has to be classified only under Heading 0402 of the Customs Tariff Act, 1975 and not under Heading 2202 of the Customs Tariff Act, 1975.
While allowing the petition, the Court held that the 3rd respondent GST Council cannot impose a wrong classification of “Flavoured Milk” as a “Beverage Containing Milk” under the residuary item as “Non-Alcoholic Beverages” under Sub Heading 2202 90 30 of the Customs Tariff Act, 1975.
“The Central Government can either tweak the rate on the recommendation of the 3rd respondent GST Council or by itself.”, the bench concluded.
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