In re Vadilal Industries Ltd. (GST AAR Gujarat)
Question: What would be the classification of ‘Flavored Milk’ sold under trade name of Power Sip?
Answer: ‘Flavoured milk’ is classifiable under Tariff Item 2202 99 30 of the First Schedule to the Customs Tariff Act, 1975 as a ‘beverage containing milk’.
Also Read AAAR Order: ‘Power Sip’ Flavoured milk classifiable under CTH 22029930
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, (State Name)
M/s. Vadilal Industries Ltd. is a Limited Company and having a GSTIN: 24AAACV4887F1Z6, has filed an application for Advance Ruling under Section 97 of CGST Act, 2017 and Section 97 of the GGST Act, 2017 in FORM GST ARA-01 discharging the fee of Rs. 5,000/- each under the CGST Act and the GGST Act.
2. M/s. Vadilal Industries Ltd. (hereinafter referred to as “the applicant”) is a Company inter-alia engaged in the manufacture of goods like Ice Cream, ready to eat food and various other Milk products. Among other products, the applicant is producing flavoured milk, which is sold under the trade name of “Power Sip”. It is the applicant’s understanding, and also the applicant’s case in the present application that such flavoured milk is a product meriting classification under Heading 0402, Sub Heading 04029990 of the GST Tariff.
3. The applicant submitted the following with regard to the case about flavoured milk:-
> 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. The flow chart of the manufacturing process is enclosed and marked as Annexure-“A”.
> As aforesaid, the process involves various operations, but it comes out from the process that (i) adding flavours to milk does not change essential character of milk; (ii) flavoured milk is a substitute for milk; (iii) it is a simple preparation of milk; (iv)no manufacturing process is involved nor does milk change its composition in any way. Since the commodity milk and milk products are enumerated in Chapter 4, the applicant understands that tariff item/ HSN code 0402 9990 is applicable to flavoured milk.
> As per Harmonised System of Nomenclature, Chapter 4 covers the following Diary products.
i. Milk (i.e. Full Cream Milk, and partially or completely skimmed milk),
ii. Cream,
iii. Butter milk, Curdled milk and cream, yogurt, kephir and other fermented acidified milk and cream,
iv. Whey,
v. Products consisting of natural milk constituents, not elsewhere specified or included, and
vi. Cheese and curd.
> As per the GST Tariff, Chapter 4 specifically covers “Diary products, bird’s eggs, natural honey, edible products of animal origin, not elsewhere specified or included’. Further sub-heading 0402 covers “Milk and Cream, concentrated or containing added sugar or other sweetening matter including skimmed milk powder….”. The applicant understands that the product in question is goods classifiable under SH No. 04029990, as other milk (and cream).
> The product in question is, as a matter of fact, partly skimmed milk which is a product falling under Heading No. 04029990, and the product in question not being whole milk or condensed milk, it falls under the category of ‘Other’ under 8 digit classification code 04029990.
> The composition of the Flavoured Milk is enclosed herewith and marked as Annexure-“B” hereto. A perusal of the details about composition would show that common name of the product is “Flavoured Milk”. Added sugar in this product has been 8%, whereas flavours as required are used but do not exceed 0.150%. Fat content of the product has been on an average 2.50%. In view of these specifications and ingredients, classification of the product under Chapter 4 of the Tariff appears to be appropriate. The details of composition and other relevant information are shown on labels of this product also. Such labels are enclosed as Annexure-“C” hereto
> Flavoured milk is made of milk added with sugar and permitted flavours. The reason for adding sugar and flavour is to improve the shelf life and increase the taste. The essential constituent of the milk have not changed even after adding sugar and permitted flavours, and still retains its essential character of milk. The product flavoured milk is made from milk added with sugar and permitted flavours, which do not alter its essential character of milk. If the natural constituents of the milk are replaced with any other substance, then flavoured milk would not fall under Chapter 4, but that is not the case here.
> Chapter 4 of the Tariff inter-alia covers milk and cream. The word “milk” is statutorily defined under Note 1 to Chapter 4, and according to Note 1, the expression “milk” means full cream milk or partially or completely skimmed milk. Heading Nos. 0401 and 0402 would therefore, cover milk, that is to say, full cream milk or partially or completely skimmed milk.
> A reference may be made to the judgement of the Hon’ble Punjab & Haryana High Court in case of Food Specialities Ltd. V/s UOI at this stage, because the Hon’ble High Court has, in the said judgment reported in 1991 (51) ELT 310 (P&H), held that the Indian Standard specifications for milk powder issued by the ISI as well as the Standards under the Prevention of Food Adulteration Rules, 1955 were relevant to decide even under the Central Excise law as to what was skimmed milk or partly skimmed milk or full skimmed milk. The view of the Hon’ble Punjab & Haryana High Court, as expressed in the above judgment, is also affirmed by the Hon’ble Supreme Court, and therefore, the Indian Standards as well as PF Rules may be applied to consider classification of the product in question under the GST Tariff which is an adoption of the Customs Tariff.
> A product containing fat more than 1.5 and less than 26.0% is considered to be partially skimmed milk/powder under the PF Rules. Same parameters for partly skimmed milk/powder i.e. fat percent by mass being above 1.6 and below 26.0% is prescribed under IS: 1165 – 1975 also. These Standards are applied by the Punjab & Haryana High Court as could be seen from paras 7 to 10 of the above judgment.
> Since fat content is minimum 2.5% in the product in question, and it is not more than 26.0%, the product in question is partially skimmed milk in accordance with the above referred Standards. This partly skimmed milk contains added sugar and therefore, it would fall for classification under Heading No.0402 of the Tariff which covers “milk and cream, concentrated or containing added sugar or other sweetening matter”. Since skimmed milk and whole milk are specifically covered under Tl Nos. 04021010 and 04022910 respectively, partly skimmed milk would fall under the category of ‘Other’ under Tl 040299, and the most appropriate classification thereof would be Tl 04029990 i.e. other milk and cream. In this regard, a decision of the CESTAT in case of Mehsana District Co-Operative Milk Producers Union Ltd. reported in 2004 (167) ELT 456 may also be considered wherein the Appellate Tribunal has held that Chapter 4 of the Tariff covered all types of milk/milk powder, whether it was whole, partly skimmed or skimmed.
> Thus, the product in question being partially or partly skimmed milk and since it contains added sugar also, such partly skimmed milk containing added sugar is most appropriately classifiable under SH No. 0402/04029990 of the Tariff.
> Further, for classifying the product, one has to identify the heading in the chapter where the product could fall and then sub-heading and finally tariff item has to be identified. As there is no other specific heading in the GST Tariff which covers milk and milk products, classifying the same in Chapter 4 is prima facie correct; that Chapter 4 provides more specific description, and classification of flavoured milk in Chapter 4 is more appropriate for the reasons stated above.
> The PFA Standards are also relevant for classifying milk under Chapter 4 of the Tariff. It is required to be appreciated that “flavoured milk” is also milk containing flavour, and flavoured milk is specifically covered under Para A.11.01.05 of the Prevention of Food Adulteration Rules under the category of milk. It is judicially held [1991 (55) ELT 310 – Judgment of Punjab & Haryana High Court] and [1998 (97) ELT 402 -Judgment of the Hon’ble Supreme Court] that PFA Standards were relevant for classifying milk under Chapter 4 of the Tariff
> The National Diary Research Institute, Bangalore has also confirmed that flavored milk falls, under Dairy produce as per the FSSAI, 2006. Under FSSAI regulations 2011, section 2.1.3 defines flavoured milk as a “product prepared from milk or other products derived from milk, or both, and edible flavorings with or without addition of sugar, nutritive sweeteners, other non-diary ingredients, including stabilizers and food colors”. Flavoured milk shall be subjected to heat treatment as provided in sub-regulation 2.1.1 (general standards for milk and milk products). Where flavoured milk is dried or concentrated, the dried or concentrated product on addition of prescribed amount of water also gives a product conforming to the requirements of flavoured milk.
> The applicants submits that a similar Advance Ruling Application seeking clarification regarding the HSN code and rate of duty for “flavoured milk” was made by M/s. Karnataka Co-operative Milk Producers’ Federation Ltd., Bengaluru reported at 2019 (30) G.S.T.L. 350, which has been decided by the Adjudicating Authority in Bangalore. It is held by the said Advance Ruling Authority that the commodity “flavoured milk” is classified under the Tariff heading 04029990. The said Advance Ruling Authority has also taken note of the judgment rendered by Hon’ble Allahabad High Court in Gujarat Co-operative Milk Marketing Federation Ltd. (2017(5) GSTL 351). The Hon’ble Allahabad High Court has specifically observed that “flavoured milk” is a form of milk, and it is neither a derivative of milk nor a milk product. The above referred Advance Ruling Authority has therefore held that the product “flavoured milk” was covered under “milk”, and would therefore merit classification under Tariff heading 04029990. A copy of this Advance Ruling order No. KAR ADRG 88/2019 dated 26.09.2019 (2019 (30) G.S.T.L 350) and judgement of Hon’ble Allahabad High Court reported in 2017(5) GSTL 351 (All.) are enclosed herewith marked as “Annexure-D.
> In the above premises, the applicant submits that an appropriate order on the present Advance Ruling Application classifying the product “flavoured milk” under Heading 0402, Sub Heading 04029990 may be made in the interest of justice.
Accordingly, the applicant sought the Advance Ruling on the following question :
What would be the classification of “Flavored Milk” sold under trade name of Power Sip.
Personal Hearing
4. Personal hearing in the matter was held on 23.12.2020 Authorised representative of the company appeared on behalf of the applicant and reiterated the submission made in the Application.
DISCUSSION & FINDINGS
5. We have considered the submissions made by the applicant in their application for advance ruling as well as the arguments/discussions made by their representative. We have also considered the issues involved on which Advance Ruling is sought by the applicant.
11. At the outset, we would like to state that the provisions of both the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the GGST Act.
6. We observe that the applicant is engaged in the manufacture of goods like Ice cream, ready to eat food and various other milk product. Among other products, the applicant is producing flavoured milk viz. Badam, Elaichi, Kesar and Rose flavour, which is sold under the trade name of “Power Sip”.
7. The facts of the case is that the process of the flavored milk is standardization of fresh milk according to the fat contents and then heating at certain temperature followed by filteration, pasturisation and homogenization and then mixing of sugar and various flavors and finally bottling. The essential constituents of the milk have not changed even after adding sugar and permitted flavors and still retain its essential character of milk. Further stated that the process involves various operations, but it comes out from the process that (i) adding flavors to milk does not change essential character of the milk; (ii) flavoured milk is a substitute for milk (iii) It is a simple preparation of milk (iv) no manufacturing process is involved nor does milk change its composition in any way. The word “milk” is statutorily defined under Note 1 to Chapter 4, and according to Note 1, the expression “milk” means full cream milk or partially or completely skimmed milk. Chapter 4 of GST tariff covers “dairy Product” and Sub-heading No. 0402 covers “Milk and cream, concentrated or containing added sugar or other sweetening matter including skimmed milk powder……. ”…. The goods viz. flavoured milk is a partly skimmed milk and not being whole milk or condensed milk therefore, the applicant is of the view that flavoured milk falls under the category of “Others” and classifiable under tariff item/ HSN code 04029990.
8. In terms of explanation (iii) and (iv) to Notification No. 1/2017-Central Tax (Rate), dated 28-6-2017, tariff heading, sub-heading, heading and chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 and the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall be applied for the interpretation and classification of goods.
8.1 The relevant chapter notes of CTH 0402 and 0404 and the Explanatory Notes are examined as under:
CTH 0402 :
