In re Gujarat Co-Operative Milk Marketing Federation Ltd (GST AAR Gujarat)
Question: What would be the classification of Flavoured Milk?
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: Flavoured Milk’ classifiable under Tariff Item 22029930: AAAR Gujarat
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
BRIEF FACTS
M/s. Gujarat Co-operative Milk Marketing Federation Ltd., GCMMF Ltd., Opp. Old Pilot Dairy, Nr. Football Ground, Kankaria, Ahmedabad -380022 is a Cooperative Society registered under the provisions of Gujarat Cooperative Society Act, 1961 and having a GSTIN: 24AAAAG5588Q1Z2, 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. Gujarat Co-operative Milk Marketing Federation Ltd., GCMMF Ltd. is an Apex body for marketing of milk and milk products produced by various District Co-operative Milk Producer Unions; which are also Cooperative Societies constituted by farmers and agriculturist of various Districts. All such District Cooperative Unions run and manage various dairies for production of milk and milk produces like milk, milk powder, cheese, butter, ghee etc. and also for developing the co-operative sector for such products produced by the District Cooperative Unions, the applicant has been advising and assisting such dairies.
3. The applicant submitted that they are also running and managing a dairy called “Amul Fed”, which is located at village Bhat in Gandhinagar District. Various milk products, as aforesaid, are produced by the applicant also in this dairy, namely, Amul fed Dairy. By the very nature of the applicant as a Federation, the applicant is helping and assisting the constituent dairies in policy matters like price fixation, product development, marketing of the products and the like. The applicant at Amul Fed Dairy has been producing flavoured milk under the trade name of Amul Kool/Amul Kool Cafe. The applicant submitted that such flavoured milk is a product meriting classification under Heading 0402, Sub Heading 04029990 of the GST Tariff.
4. The applicant submitted that 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 submitted. Further submitted that the process involves various operations, but it comes out from the process that (i) adding flavours 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. Since the commodity milk and milk products are enumerated in Chapter 4, the applicant understands that tariff item/ HSN code 04029990 is applicable to flavoured milk.
4.1 The applicant submitted that as per Harmonised System of Nomenclature, Chapter 4 covers the following Dairy 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 constituent, nor elsewhere specified or included, and
vi Cheese and curd.
As per the GST Tariff, Chapter 4 specifically covers “Dairy produce; birds’ 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 submitted that they understand 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.
4.2 The applicant submitted the composition of the Flavoured Milk along with this application as Annexure-B. A perusal of the details about composition shows that common name of the product is “Sterilized/UHT Treated flavoured Milk”.
Added Sugar in this product has been 7% to 8%, whereas flavours as required are used. Fat content of Amul Kool has been minimum 3%, whereas that of Amul Kool Cafe has been minimum 4.5%. 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 the product also.
4.3 The applicant submitted that flavoured milk is made of milk added with sugar and permitted flavours. The reason for adding sugar and flavours 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 sugar and permitted flavours which do not alter its essential character of milk. If the natural constituents of the milk are replaced with any 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.
4.4 The applicant further submitted that 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 partially 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 Standard as well as PF Rules may be applied to consider classification of Amul Kool/Amul Kool Cafe under the GST tariff which is an adoption of the Customs tariff.
4.5 The applicant submitted that 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 ARE: 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 3%/4.5% 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 HSN 04021010 and 04022910 respectively, partly skimmed milk would fall under the category of ‘Other’ under HSN 040299, and the most appropriate thereof would be HSN 04029990 i.e. other milk and cream. In this regard, a decision of the CESTAT in case of Mehsana District Co-operative Milk Producers Unions 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.
4.6 The applicant further submitted that for classifying the product one has to identify the heading in the chapter where the product could fall and then subheading and finally tariff item has to be identified. As there is no other specific Tariff heading in GST which coverers milk and milk products, classifying the same in Chapter 4 is prima facie correct. The applicant states that Chapter 4 provides more specific description, and classification of flavoured milk in Chapter 4 is more appropriate for the reason stated above.
5. The applicant submitted that 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.
6. The applicant submitted that the National Dairy Research Institute, Bangalore has also confirmed that flavoured 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 flavouring with or without addition of sugar, nutritive sweeteners, other non-diary ingredients, including stabilizers and food colours”. flavoured milk shall be subjected to heat 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 an addition of prescribed amount of water also gives a product conforming to the requirements of flavoured milk.
7. The applicant submitted 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., Bangaluru, which has been decided by the Adjudicating 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 Cooperative 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 04029992.
8. Accordingly, the applicant sought the Advance Ruling on the following question:
What would be the classification of “Flavoured Milk”?
Personal Hearing
9. Personal hearing in the matter was held on 23.12.2020. Authorised representative of the applicant appeared on behalf of the applicant and re-iterated the submission made in the Application.
DISCUSSION & FINDINGS
10. 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 at the time of Personal hearing. 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.
12. We observe that the applicant is running and managing a dairy called “AmulFed” and various flavoured milk products i.e. “Amul Beverages” viz. Badam, Elaichi, Kesar, Rose, Cold Coffee of different flavours viz. Cinamon, Classic, Hazelnut, Milkshakes of different flavours viz. Badam, Mango, Strawberry, Double Chocolate and Vanilla, Sports Drinks and Smoothies of different flavours viz. Chocolate, Mango and Vanilla are produced by the applicant.
13. The facts of the case is that the process of the flavoured 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 flavours and finally bottling. The reason for adding sugar and flavours is to improve the shelf life and increase the taste. The essential constituents of the milk have not changed even after adding sugar and permitted flavours 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 flavours 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. Heading Nos. 0401 and 0402 would therefore, cover milk, that is to say, full cream milk or partially or completely skimmed milk. Since the commodity milk and milk products are enumerated in Chapter 4, the applicant is of the view that tariff item/ HSN code 04029990 is applicable to flavoured milk.
14. 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.
14.1 The relevant chapter notes of CTH 0402 and 0404 and the Explanatory Notes are examined as under:
CTH 0402 :
