In re Mohammed Hasanbhai Kabala (GST AAR Gujarat)
What should be the classification and applicable tax rate on the supply of Ready to Serve Fruit Beverage named as ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy’ made by the applicant under Notification No. 1/2017 – CT (Rate) dated 28.06.2017 as amended up to date?
AAR held that Apple Cola Fizzy and Malt Cola Fizzy are Carbonated Beverages with fruit juice, classifiable at HSN 22021090 and GST is leviable at 28% on Apple Cola Fizzy and Malt Cola Fizzy. Further GST Compensation Cess leviable at 12% on Apple Cola Fizzy and Malt Cola Fizzy.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
Mr. Mohammed Hasanbhai Kabalai (hereinafter referred to as the applicant) submits that it intends to supply Thermally Processed Ready to Serve Fruit Beverage. The applicant cites entry 2.3.10 of the Food Safety and Standards (Food Products Standards and Food Additives) Regulation, 2011 for classification of goods. It shall be a ready to serve fruit beverage with different flavours. Presently, the applicant is not registered under GST.
2. The applicant initially intend to supply apple juice based drinks in the name of ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy ‘. Both the drinks will be apple juice based drinks having same ingredients and manufacturing process, the second one having an added flavour of malt.
3. The applicant has submitted the details of ingredient to be used in their product and manufacturing process of Apple Cola Fizzy and Malt Cola Fizzy.
Ingredients
– Water
– Sugar
– Apple Juice Concentrate (1.9%) [Equivalent to 12.7% Apple Juice Reconstituted]
– Carbon Dioxide (INS290)
– Acidity Regulators [INS296, INS 331 9iii), INS 330]
– Preservatives (INS211, INS224, INS202)
– Antioxidant (INS300)
– Natural Color (150d)
– Added Flavour
Manufacturing Process
a) Drawing of water from bore well or any other source & then collecting it in food graded Storage tank.
b) Then processes shall be undertaken for water treatment wherein water will be passed through pressure sand filter, activated carbon, micron cartridge filter (5 Micron), Reverse Osmosis system, chemical dozer System, organisation system & Ultra Violet sterilization system. Then the treated water will be collected in Stainless Steel storage tanks.
c) The treated water will be transferred to blending tank for further processing.
d) Double-refined sugar will be melted in the said tank with treated water. Melted sugar will be transferred through Stainless Steel pump for further processing.
e) Melted sugar shall be passed through sugar filter press, where the suspended impurities (if any) will be removed. The filtered sugar syrup will be then passed through Plate type Heat Exchanger (PHE), where the hot syrup shall be brought down to ambient temperature. Further it will be transferred through transfer pump for processing.
f) The final sugar syrup will be transferred to blending tank for further processing. Natural fruit juice concentrate, different flavours, colours & preservatives of food grade quality are mixed in requisite ratios.
g) The mixture shall be then transferred to blending tank for further processing and in the said mixture fruit juice, sugar syrup & different flavours/preservatives as mentioned above are mixed with agitator to make the final syrup.
h) The final syrup is then transferred through transfer pump for further processing. The same is then transferred to beverage processor, where it is mixed with treated water.
i) This ready beverage is transferred for thermal processing to pasteurizer where it is heated at a temperature of 940C ± 20C. The process is also known as pasteurization.
j) Then the product is cooled at 320C and further cooling is completed at 20C.
k) Then Food grade Co2 is added in this thermally processed beverage.
l) The chilled beverage is then filled in Pet Bottles, automatically on an automatic filling-capping machine. Then the brand labels are pasted on the bottles.
m) The bottles are printed with batch number, date of mfg., etc. These bottles are packed in either carton boxes or P.V.C. shrink film packs and are then stored for dispatch.
4. The applicant submits that it will commercially market the products as Apple Juice based drinks or Fruit Juice based drinks and labels affixed on the product will expressly indicate the same.
5. The applicant has stated that different rate of tax have been charged across the Industry for similar types of drinks with similar ingredients. It submits the names of few leading market makers with name of their drinks and rate of tax charged by them are as follows (illustrative list only, based on information available in public domain)
a. Fresca HazamJeera Soda – 12%
b. Appy Fizz- 12%
c. BisleriSpyci Masala Maar Ke Soft Drink – 40% (with cess)
d. XotikJeeruJeera Beverage- 40% (with cess)
6. The applicant submitted that the difference in rate of tax charged by various other manufactures is quite huge. Charging of 40% rate of tax when competitors are charging 12% makes the product unsellable and whole margin get eaten up subsequently. That in the above background, the applicant is confused and wishes to seeks the classification of the goods which it proposes to manufacture.
7. The applicant has submitted that to determine the classification of ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy, referred Chapter 22 “Beverages, spirits and vinegar” of the Customs Tariff and the Chapter heading which is relevant to the product is CTH 2202, reproduced as follows:
2202 WATERS, INCLUDING MINERAL WATERS AND AERATED WATERS, CONTAINING ADDED SUGAR OR OTHER SWEETENING MATTER OR FLAVOURED, AND OTHER NON-ALCOHOLIC BEVERAGES, NOT INCLUDING FRUIT OR VEGETABLE JUICES OF HEADING 2009
2202 10 – Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured :
2202 10 10— Aerated waters
2202 10 20 — Lemonade
2202 10 90 — Other
– Other :
2202 91 00 — Non alcoholic beer
2202 99 — Other:
2202 99 10 — Soya milk drinks, whether or not sweetened or flavoured
2202 99 20 — Fruit pulp or fruit juice based drink
2202 99 30 — Beverages containing milk
2202 90 — Other
8. The applicant submits that Chapter Heading 2202 has been divided into two sub-headings, viz. (i)Sub-heading 2202 10 which covers “Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured” and
(ii) Sub-heading 2202 99 which covers “other non-alcoholic beverages”. 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’. Chapter Sub-heading No. 2202 10 covers drinks which are predominantly made up of water, including mineral water and aerated water and are either sweetened or flavoured or both. The applicant submits that drink supplied by them is a “Beverage” but not “Water” and hence cannot be classified under 2202 10 which is for Waters.
9. The applicant has submitted that it intends to sell Ready to Serve Fruit Beverage and it will be clearly highlighted and pointed out on the labels affixed on the packing of the beverages ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy’. These are Ready to Serve Drink and is a Apple Juice based drink i.e. Fruit Juice based drink. Thus it is submitted that intent of the applicant in labelling the product in this manner depicts the fact that the product will be marketed as Ready to Serve a ‘fruit juice based beverages’ only. The products in question will be purchased by consumers considering it as a fruit juice-based drink which shall be in ready to serve state.
10. The applicant has submitted that The Food Safety and Standards (Licensing and Registration of Food Businesses) Regulations, 2011 (hereinafter referred to as the ‘Food Regulations’) have been framed under Section 92 read with Section 31 of the Food Safety and Standards Act, 2006 deals in Chapter II with Food Products Standards. Regulation 2.3 deals with ‘Fruit & Vegetable Products’ and in particular Regulation 2.3.10 deals with ‘Thermally Processed Fruit Beverages/Fruit Drinks/Ready to Serve Fruit Beverages’ while Regulation 2.3.30 deals with ‘Carbonated Fruit Beverages or Fruit Drinks’.
11. The relevant Regulations of FSSAI and the Food category under Appendix A are reproduced as follows:
12. The applicant has submitted that from the above Food Regulations it is apparent that drink or beverage can either be said to be ‘Thermally Processed Fruit Beverages/Fruit Drinks/Ready to Serve Fruit Beverages’ or on the other hand they can be said to be ‘Carbonated Fruit Beverages or Fruit Drinks’.
13. The applicant submits that drinks prepared from juice concentrates and other ingredients including water, sugar, flavours etc. and processed by heat are classifiable under the category of ‘Thermally Processed Fruit Beverages/Fruit Drinks/Ready to Serve Fruit Beverages’. On the other hand, carbonated fruit beverages or fruit drinks may be prepared from carbonated water or by the process of carbonation, however thermal processing or processing by heat is not a trait of carbonated beverages.
14. The beverages of the applicant have the following characteristics:
i It is made from apple juice concentrate.
ii The fruit juice content and solids content percentage is more than 10%
iii It is thermally processed beverage.
iv After the thermal processing, Carbon Dioxide is purged in the ready Fruit beverage for preservation to create an environment which will help to prevent spoilage during its shelf life.
iv It will be mentioned on the label that it contains Apple Juice Concentrate.
15. The applicant on the basis of above submits that their product is a thermally processed fruit beverages/ready toserve fruit beverage complying with category 2.3.10 as per FSSAI Regulations, 2011 having carbon dioxide as an ingredient which is used for preservation purpose only.
16. Food Safety and Standards (Food Products Standards and Food Additives) Regulation, 2011 was amended vide Notification dated 16th August, 2016 wherein the term ‘carbonated beverage with fruit juice’ has been defined as follows:
17. The applicant submits that Carbonated Fruit Beverages or Fruit Drinks having characteristics as explained above, having quantity of fruit juice below 10% but not less than 5% shall be called carbonated beverage with fruit juice. The applicant stated that since their product does not qualify to be a carbonated beverage/drink originally as per its other characteristics also, hence it cannot be classified as carbonated beverage with fruit juice.
18. The applicant submits that their said understanding is premised on the decision by Hon’ble Supreme Court in case of Commissioner of Central Excise, Bhopal v. Parle Agro Pvt. Ltd. reported in 2008 (226) E.L.T. 194 (Tri. – Del.). The issue that arose for consideration before the Tribunal and later upheld by Hon’ble Supreme Court was whether the product Appy Fizz could be classified under Tariff Item No. 2202 90 20 as a fruit juice based drink as contended by the assessee or as Aerated Water under Tariff Item No. 2202 10 10 as contended by the Revenue. The Tribunal held that the drinks based on fruit juice are specifically classifiable under Tariff Item No. 2202 90 20 and not under Tariff Item No. 2202 10. The relevant paragraphs 4 and 6 of the judgment are reproduced below:
“4. The contention of the respondent is that as per the certificate given by Ministry of Food and Processing Industries, New Delhi the product in question contains 23% of apple juice. As the product in question is juice based drink, therefore, rightly classifiable under sub-heading No. 2202 90 20 of the Tariff. The respondent also relied upon the chemical examiner’s report to submit that there are 13.7% by weight are soluble solids in the product. The respondent also relied upon the text to Prevention of Food Adulteration Rules, 1955 to submit that fruit beverage or fruit drink must contain total soluble solids not less than 10%.
6. The Revenue relied upon HSN Explanatory Notes of Chapter 22. We find that our tariff is not fully aligned with the HSN Explanatory Notes. In the HSN Explanatory [Notes] there are two sub-headings under Heading No. 2202 one is “water including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured” and second is in respect of others.
Whereas Central Excise Tariff under sub-heading No. 2202 there are specific headings in respect of soya milk, drinks etc. As per the Central Excise Tariff, the waters; including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured are classifiable under subheading No. 2202.10. The drinks based on fruit juice are specifically classifiable under Item No. 2202 90 20 of the Tariff. In the present case, there is no dispute regarding the contents of the product. Revenue is not disputing the certificate given by the Ministry of Food and Processing Industries, New Delhi rather they are relying it in the ground of appeal, and as per the certificate, the product in question contains 23% of apple juice, therefore, we find no infirmity in the impugned order. The appeal is dismissed.”
19. That in the above case petitioner filed a certificate of the Institute of Chemical Technology regarding the product and the finding of the court is significant for the case, held as follows:
The above technical opinion clearly mentioned that carbon dioxide is used for preservation purpose only. Before the Committee of Commissioners the entire process of manufacture of the product was explained along with all relevant orders and certificates of Food Safety Authorities. It was stated that the Experts in their opinions and certifications have mentioned that product is commercially and technically distinct from products which have classified as ‘aerated branded soft drinks’. The certifications which were relied by the appellant indicate that in the case of ‘Appy Fizz’ the product does not undergo aeration or carbonation; the product is thermally processed with CO2 which help in preserving the Apple Juice concentrate which is otherwise perishable in nature.
We, thus, conclude that orders of Food Safety Authority and expert opinion regarding process of manufacture relied by the appellant were relevant materials and Clarification Authority and High Court erred in law in discarding these materials.
20. The said technical opinion relied upon by the assessee as referred in the judgment is as follows:
21. The applicant submits that having similar ingredients and manufacturing process, as per their understanding the products ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy’ are Thermally Processed Fruit Beverages/Fruit Drinks/Ready to Serve Beverages and not Carbonated Fruit Beverage/Drink and relevant entries for GST rates in Tariff Notification No. 01/2017- Central Tax (Rate) for products falling under HSN 2202 is as follows:
