In re Sri Chakra Milk Products LLP (GST AAAR Andhra Pradesh)
Ruling of AAR is upheld. ‘Flavoured milk’ merits classification under beverage containing milk under tariff heading 2202 90 30 with the applicable rate of tax @ 12% GST (6% CGST + 6% SGST) under entry no. 50 of Schedule II of Notification No.1/2017 – Central (Rate) dated 28.06.2017 as amended.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH
ORDER
M/s Sri Chakra Milk Products LLP., Door No: 23B-2-29B, Bendapudivari Street, Ramachandra Rao Pet, Eluru – 534002, West Godavari District, Andhra Pradesh (hereinafter referred to as appellant) registered under the Goods & Services Tax. The appellant engaged in manufacturing of milk and milk products including flavoured milk. The appellant seeks clarification regarding the HSN code, and rate of duty on their outward supply of “flavoured milk”.
The appellant had filed an application before the Appellate Authority for Advance Ruling in ARA-02 dated 12.09.2019, contending the Ruling passed by the Authority for Advance Ruling, A.P vide Ruling AAR NO. 27/AP/GST/2019, Dated 15.07.2019.
1. Brief History of the Case:
1. The appellant is engaged in the business of processing and sale of milk and milk products including flavoured milk. The appellant submits that flavoured Milk is obtained by adding sugar and different flavours to milk which does not change the essential character of milk. He states that it is a substitute for milk and a simple modification of milk which involves no manufacturing process. The appellant submits the process of obtaining flavoured milk as follows:
“The process of the flavoured milk is standardization of fresh milk according to the fat contents and then heating at certain temperature followed by filtration, pasteurization, and homogenization and then mixing of sugar and various flavours and finally bottling. As per the flow chart, it involves various operations by RMRD team, weighing team, processing team, packing team and warehousing / dispatch teams and thereby it is a preparation and no more it is fresh milk after adding flavours. The appellant obtains flavoured milk of badam”.
The appellant in his plea to the AAR, A.P had raised following question.
(a) What is the rate of GST applicable on outward supply of “Flavoured Milk”?
The Authority for Advance Ruling, A.P, had ruled that ‘flavoured milk’ is classifiable under tariff item 2202 9930 of the First Schedule to the Customs Tariff Act, 1975 as a “beverage containing milk” under HS code 2202. The rate of tax applicable for the said tariff item is 12% GST (6% CGST + 6% SGST) under entry no. 50 of Schedule II of Notification No.1/2017 – Central (Rate) dated 28.06.2017 as amended.
Aggrieved by the Ruling passed by the AAR, A.P vide CCST Ruling No.27/AP/GST/2019, Dated 15.07.2019, the appellant preferred the present Appeal before the Appellate Authority for Advance Ruling, in ARA-02, with the following contention.
The Appellant prays that the Appellate Authority for Advance Ruling to set-aside the order of the Advance Ruling and declare the GST rate on flavoured milk as 5% as per HSN 0402 9990 under Notification No.1/2017 – Central (Rate) dated 28.06.2017 .
2. Grounds of appeal:
2.1. The appellant (M/s Sri Chakra Milk Products LLP.,) prays that the AAR has erred in holding that Flavoured Milk manufactured is classifiable under HSN Code 2202 and not under HSN Code 0402. The said Ruling is illegal and contrary to law and the HSN Codes.
2.2. The appellants states that, for classifying the commodity under the relevant schedule to the Goods and Services Tax Act, attracting different rates of taxes, one has to look to the HSN Codes, prescribed under the Customs Tariff Act, 1975. The Rules for interpretation of First Schedule to the Customs Tariff Act, including the Section, Chapter notes and general explanatory notes of the first schedule, shall so far as may be applied to the interpretation of Notification No.1/2017 – Central (Rate) dated 28.06.2017 .
2.3. The appellant opines that AAR has unnecessarily placed heavy reliance upon the Minutes of the 31st GST Council Meeting in coming to conclusion of the Ruling. While discussing the rate of tax on flavoured milk in Annexure-3 to the Minutes, at Serial No.18, the conclusion is as under:
1. The Explanatory Notes to HSN describe the goods classifiable under the heading 0402 as under:
This heading covers milk (as defined in Note 1 to this Chapter) and cream, whether or not pasteurised, sterilised or otherwise preserved, homogenised or peptonised; but it excludes milk and cream which have been concentrated or which contain added sugar or other sweetening matter (heading 04.02) and curdled, fermented or acidified milk and cream (heading 04.03).
The products of this heading may be frozen and may contain the additives referred to in the General Explanatory Note to this Chapter. The heading also covers reconstituted milk and cream having the same qualitative and quantitative composition as the natural products.
2. Flavoured milk is classifiable under HS code 2202.
3. Fitment Committee does not recommend issuance of such clarification.
However, the Explanatory note to HSN Code 0402 actually reads as under:
“MILK AND CREAM, CONCENTRATED OR CONTAINING ADDED SUGAR OR OTHER SWEETENING MATTER”.
2.4. The appellant contends that explanatory note, as extracted against Serial No.18 for flavoured milk in the Minutes is not factually correct and the appellant is categorical about the same. After due verification, the appellant is certain that the above extract as appearing in the Minutes as well as the impugned Ruling is erroneous and not truly contained in the Explanatory Note to HSN 0402. Therefore, no credibility can be acceded to the Minutes or the reliance placed on the same in the impugned Ruling.
2.5. The appellant also states that, undoubtedly, flavoured milk will squarely fall within the scope of HSN 0402. It is more specific entry rather than HSN 2202 which deals with beverages, spirits and vinegar. 0402 reads as follows:
