In re Hindustan Coca-Cola Beverages Private Limited (GST AAAR Gujarat)
The Gujarat Appellate Authority for Advance Ruling modify the advance ruling order by holding that the product ‘Fanta Fruity Orange’ manufactured and supplied by Hindustan Coca-Cola Beverages Pvt ltd is classifiable under sub heading 2202 10 and GST rate of 28% and GST compensation Cess rate of 12% are applicable to the said product.
FULL TEXT OF ORDER OF BEFORE THE AUTHORITY OF ADVANCE RULING,GUJARAT
The appellant M/s. Hindustan Coca-Cola Beverages Private Limited has submitted that it is engaged in the manufacture of aerated drinks and fruit pulp or fruit juice based drinks under different brand names, classifying the same under Chapter 22 of the First Schedule to the Central Excise Tariff Act, 1985 / Customs Tariff Act, 1975.
2. The Appellant commenced manufacturing of a new product “Fanta Fruity Orange” on 10th August, 2017 and made first supply of the said product on 24th August, 2017. The appellant submitted that the major ingredients for the manufacture of “Fanta Fruity Orange” are Orange Juice consisting 10.5% fruit juice content, Carbonated Water, Sugar, Acidity Regulators, Preservatives, Stabilizers, Sweeteners, and Synthetic Food Colour. The manufacturing process starts with procurement of Orange juice concentrate from approved vendor and stored in -18 C cold storage which forms the base of product. This juice concentrate is then blended with sugar syrup which is prepared by mixing granulated sugar with treated water, additives and preservatives to form the beverage. Thereafter, this beverage is carbonated before being filled in bottles. It has submitted the details of the ingredients used for the manufacture of “Fanta Fruity Orange” and the process involved for manufacturing of the said product.
3. The appellant filed an application for Advance Ruling before the Gujarat Authority for Advance Ruling (hereinafter referred to as the ‘GAAR’) and sought ruling on following questions –
Whether “FANTA FRUITY ORANGE” product is classifiable under CH 22029920 at Sl. No. 48 under Schedule – II as “Fruit pulp or fruit juice based drinks”, or under CH 22029990 at Sl. No. 24A under Schedule – III as “Other non-alcoholic beverages” or under 220210 at Sl. No. 12 under Schedule IV as “All goods [including aerated waters], containing added sugar or other sweetening matter or flavoured” under Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 (as amended) and Notification No. 1/2017- State Tax (Rate) dated 30.06.2017 (as amended) ?
4. The appellant submitted that the product “Fanta Fruity Orange” with 10.5% Orange juice, would be classifiable under Tariff Item 2202 99 20 as “Fruit pulp or fruit juice based drinks”.It submitted that “Fruit pulp or fruit juice based drinks” are specifically covered under tariff item 2202 99 20 under the sub-heading 2202 99 which covers other non-alcoholic beverages.
5.1 The GAAR, in Advance Ruling No. GUJ/GAAR/RULING/07/2019 dated 30.03.2019 has observed that as per the label of the product, Orange Juice Concentrate is 1.6% of the product and that the Orange Juice is reconstituted out of this Orange Juice Concentrate. It has been observed that the terms used in the said tariff item is ‘Fruit pulp’ or ‘fruit juice’ based drinks and the said entry do not refer to the term ‘Fruit juice concentrate’ based drinks.Therefore, the said entry would cover the ‘Fruit pulp based drinks’ or ‘Fruit juice based drinks’ only. The ‘Fruit juice concentrate based drink’ are not covered under the said entry. Under the circumstances, the said product do not fall under the Tariff Item 2202 99 20.
5.2 The GAAR also referred to the decision of Hon’ble Central Excise and Service Tax Appellate Tribunal in the appellant’s own case (though for different product), reported as Hindustan Coca Cola Beverages P. Ltd. Vs. Commissioner of Central Excise, Chennai – IV.
5.3 The GAAR further observed that even if the ‘common parlance test’ is applied, the industry refers the ‘fruit pulp or fruit juice based drinks’ differently than the ‘fruit juice concentrate based drinks’. Therefore even by applying the ‘common parlance test’, the product ‘Fanta Fruity Orange’ would not fall under Tariff Item 2202 99 20.
5.4. It was observed that Carbon dioxide is added to the beverage as a preservative only and not for any other purpose,therefore, the product ‘Fanta Fruity Orange’ would not fall under Tariff Sub Heading 2202 10 – ‘All goods including aerated waterscontaining added sugar or other sweetening matter or flavoured’.
5.5 The GAAR vide aforesaid Advance Ruling, ruled as follows :-
“The product ‘Fanta Fruity Orange ‘ manufactured and supplied by M/s. Hindustan Coca-Cola Beverages Private Limited (GSTIN 24AAACH3005M1ZX) is classifiable under Tariff Item 2202 99 90 and Goods and Service Tax rate of 18% (CGST 9% + GGST 9% or IGST18%) is applicable to the said product as per Sl. No. 24A of Schedule III of Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended, issued under the CGST Act, 2017 and Notification No. 1/2017-State Tax (Rate) dated 30.06.2017, as amended, issued under the CGST Act, 2017 or IGST Act, 2017.
6. Aggrieved by the aforesaid Advance Ruling, the appellant has filed the present appeal.
7.1 The appellant has submitted that the GAAR has failed to appreciate scope of Chapter Heading 2202 and mis-classified ‘Fanta Fruity Orange’ under the residuary entry. It has been submitted that ‘Fruit pulp or fruit juice based drinks’ are specifically covered under Tariff Item No. 2202 99 20 under the sub-heading No. 2202 99 as ‘other non-alcoholic beverages’.It has been further submitted that the intention of the Legislature is to include those beverages under Tariff Item No. 2202 90 20, wherein the fruit imparts the essential character of the beverage. The appellant referred to the dictionary meaning of the term “base” given in different dictionaries.
7.2 The appellant has submitted that ‘Fanta Fruity Orange’ is prepared with orange juice as its base, which is added to the syrupy liquid consisting of water, sugar and other constituents. The percentage of orange juice is 10.5% of the total beverage. It is the active ingredient of the product in question, and imparts the basic attribute to the drink, including the taste and characteristics. Therefore, the product in question will be an ‘orange juice based drink’, qualifying as ‘fruit juice based drink’ under the Tariff Item No. 2202 99 20.
7.3 In support of the above interpretation, the appellant placed reliance upon ‘D. Hicks (ed.), Production and Packaging of Non-carbonated Fruit Juices and Fruit Beverages, 1990’. The appellant submitted that Shri Rajesh Nair, Associate VicePresident – Quality Assurance & Product Integrity of the Appellant Company, in his affidavit, had categorically clarified that total orange juice content in ‘Fanta Fruity Orange’ is 10.5% of the total beverage and this forms the base of the beverage, however, the GAAR ignored this aspect of the affidavit in its impugned ruling. It is further submitted that the appellant submitted certificates from eminent persons viz. Dr. Lambert Rodruigues, Former Reader in Food Technology, Food and Fermentation Technology Department, Institute of Chemical Technology (ICT), University of Mumbai and Dr. MadhukarBhotmange of Laxminarayan Institute of Technology, Nagpur University, however, the GAAR not only failed to appreciate these certificates, but also failed to discuss these in the impugned ruling.
7.4 The appellant relied upon the decision of CESTAT in the case of CCE, Bhopal V. Parle Agro Pvt. Ltd. [2008 (226) ELT 194 (Tri.)] affirmed by the Hon’ble Supreme Court [2010 (254) ELT A13 (SC)] and judgement of Parle Agro (P) Ltd. V. Commissioner of Commercial Taxes, Trivandrum [2017 (352) ELT 113 (SC)].
7.5 The appellant also submitted that the Additional Commissioner, Central Tax & Central Excise, Vadodara-I vide letter dated 15.12.2018 to the GAAR opined that ‘Fanta Fruity Orange’ is classifiable under Schedule-II of Notification No. 1/2017-CT (Rate) dated 28.06.2017 (as amended) and attracts CGST of 6%.
7.6 As regards the conclusion of the GAAR that Tariff Item 2202 99 20 will not cover drinks made from fruit juice concentrates, the appellant has submitted that as long as beverages are ‘based’ on fruit juices and such fruit juices impart the essential character to the beverage, they will continue to fall under Tariff Item No. 2202 99 20 as a ‘fruit pulp or fruit juice based drink’, even though they are produced from fruit juice concentrates. The appellant submitted that frozen Orange juice is specifically classified under Tariff Item No. 2009 11 00 which includes Orange juice concentrate within its ambit. Therefore, ‘fruit juice based drinks’ under Tariff Item No. 2202 90 20 will also include ‘fruit juice concentrates based drinks’ within its ambit. The appellant also referred to Explanatory Notes to the Harmonized Commodity Description and Coding system of Chapter Heading 20.09.
7.7 The appellant has further submitted that in classification disputes, a specific entry is to be preferred over a general entry. Therefore, when the Customs Tariff Act, 1975 provides for a specific Tariff Entry No. 2202 99 20 for ‘fruit pulp and fruit juice based drinks’, there is no need to place reliance on the residuary entry for classification of a product, if such entry is self sufficient to classify a particular product. The appellant also referred to Rule 3(a) of the General Rules for Interpretation of the Customs Tariff Act, 1975.
7.8 The appellant has submitted that the product ‘Fanta Fruity Orange’ satisfies the common parlance test inasmuch as its label reads ‘FANTA FRUITY ORANGE WITH FRUIT JUICE’ and the label clearly also specifies that ‘ORANGE JUICE CONTENT IN THE BEVERAGE IS 10.5%. CONTAINS FRUIT”. The appellant has further submitted that the GAAR has held that even if the ‘common parlance test’ is applied, the industry refers the ‘fruit pulp or fruit juice based drink’ differently from the ‘fruit juice concentrate based drink’ and therefore, the product would not fall under Tariff Item No. 2202 99 20, however, the GAAR has not led in any evidence to substantiate its bald claim that industry refers to fruit juices and fruit concentrates differently.
7.9 As regards the reliance by the GAAR upon appellant’s own case[Hindustan Coca Cola Beverages P. Ltd. Vs. Commissioner of Central Excise, Chennai – IV – 2017 (6) GSTL 200 (Tri. – Chen)] in the Advance Ruling, the appellant has submitted that the said decision is inapplicable to the instant case, as the products ‘Maaza Orange and Maaza Pineapple’ are completely different from ‘Fanta Fruity Orange, inasmuch as ‘Maaza Orange and Maaza Pineapple’ are non-aerated drinks, whereas ‘Fanta Fruity Orange’ is fruit juice based drink which is aerated. It has been submitted that the Hon’ble Tribunal, in reaching the conclusion that the products are not ‘fruit juice based drinks’ held that ‘Maaza Orange and Maaza Pineapple’ were manufactured from fruit concentrate and not from fruit juice itself, has drawn inference from a redundant Board Circular No. 309/25/97-CX dated 21.03.1997.
FINDINGS:-
8. We have considered the submissions made by the appellant in the appeal, further submission dated 21.06.2019 as well as submissions at the time of personal hearing.
9. The main issue involved in this case is the correct classification of the product ‘Fanta Fruity Orange’ being manufactured and supplied by the appellant i.e. whether ‘Fanta Fruity Orange’ is classifiable under Sub-heading 2202 10 at S. No. 12 under Schedule IV as “All goods [including aerated waters], containing added sugar or other sweetening matter or flavoured”, or under Tariff Item 2202 99 20 at S. No. 48 under Schedule II as “Fruit pulp or fruit juice based drinks” or under Tariff Item No. 2202 99 90 at S. No. 24A under Schedule III as “Other non-alcoholic beverages”.
10.1 The appellant has submitted that the manufacturing process starts with procurement of Orange juice concentrate from the vendor and the same is stored in -20oto -16oCelsius cold storage. Orange juice (which constitutes 10.5% of the total beverage) is then obtained by adding water to the Orange juice concentrate. Thereafter, sugar syrup (which is prepared by mixing granulated sugar with treated water), along with flavor, additives and preservatives is blended with Orange juice base to obtain the final mixture. This mixture is then carbonated, before being filled in PET bottles. It is submitted that Orange juice concentrate is produced from real orange juice after extraction of water and is easier to transport. It is for this reason i.e. to facilitate ease of transportation that the appellant procures Orange juice concentrate instead of orange juice for manufacturing ‘Fanta Fruity Orange’.
10.2 On the label of the product, it is mentioned as follows :-
“CARBONATED FRUIT BEVERAGE
INGREDIENTS : CARBONATED WATER, SUGAR, ORANGE JUICE CONCENTRATE* (1.6%), ACIDITY REGULATOR (330), PRESERVATIVES (202,211), STABILIZERS (414, 445), SWEETENER (960), CONTAINS PERMITTED SYNTHETIC FOOD COLOUR (110) AND ADDED ORANGE FLAVOURS (NATURAL AND NATURE-IDENTICAL FLAVOURING SUBSTANCES).
*ORANGE JUICE CONTENT IN THE BEVERAGE IS 10.5%. CONTAINS FRUIT.”
11.1 In order to examine the classification of product ‘Fanta Fruity Orange’, it will be useful to refer to Explanatory Notes of Harmonised System of Nomenclature (HSN) for Tariff Heading 2202 and also Heading 2202 of Customs Tariff.
11.2 The Explanatory Notes of HSN for Tariff Heading 2202 are reproduced below :-
