In re Vadilal Industries Ltd (GST AAAR Gujarat)
What would be the classification of ‘Flavoured Milk’ sold under trade name of Power Sip?
The main issue here is to decide the classification of the product viz. flavored milk Milk’ sold under trade name of Power Sip, produced from 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 flavors and finally bottling.
In the present case, as per the product labels submitted by appellant, the Milk constituent is ‘Double Toned Milk’ which are not ‘Full Cream Milk’ or ‘Skimmed Milk’ and therefore are undoubtedly excluded from the purview of Tariff Heading 0402. Therefore, irrespective of the contentions that the product remains ‘Milk’ even with added flavours, it is clearly established that the ‘Milk’ referred to in this Tariff heading and the products of the appellant are not the same and on this ground alone the products in hand are not covered under Tariff Heading 0402. (Referred definition of cream milk, skimmed milk, standardized milk and toned milk as per Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 and explanatory note of Customs Tariff Heading 0402)
Furthermore, the relevant explanatory notes of CTH 0402 of the HSN clearly state that beverages consisting of milk flavoured with cocoa or other substances is specifically excluded from this chapter heading.
A perusal of the tariff entries, and explanatory notes of the HSN indicates that beverages with a basis of milk and cocoa which are ready for consumption is covered under tariff item 2209 99 30 as beverage containing milk. Furthermore, on conjoint reading of Chapter heading 0402 and 2202 and relevant explanatory notes, it is clear that milk flavoured with cocoa or other substances are specifically excluded from Chapter heading 0402 and included under Chapter heading 2202.
GAAR find that the National Dairy Development Board as seen on their web page https://www.nddb.coop/services/ppd/dairyproducts/beverages holds ‘Flavoured Milk’ as a Dairy based Beverage.
NDDB is a nodal agency in the Dairy products and the ‘Flavoured Milk’ is categorized as Beverage as can be seen above. Further, Beverage as per the Oxford dictionary definition is ‘any type of drink except water’. Thus, it becomes evident that the product in hand is a Beverage containing milk, classifiable under tariff item 2202 99 30.
We find that in similar facts of case the Appellate Authority for Advance Ruling, Tamil Nadu, vide its Order in Appeal No. AAAR/16/2021 (AR) dated 30.06.2021 in the case of M/s. Britannia Industries Ltd., held that flavoured milk is not classifiable under Tariff Heading 0402/0404 but classifiable under CTH 2202 99 30.
In view of the foregoing, we reject the appeal filed by appellant M/s Vadilal Industries Ltd and uphold the Advance Ruling No. GUR/GAAR/R/05/2021 dated 20.01.2021 of the Gujarat Authority for Advance Ruling.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, GUJARAT
At the outset we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 (hereinafter referred to as the `CGST Act, 2017′ and the `GGST Act, 2017′) are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the GGST Act, 2017.
2. The present appeal has been filed under Section 100 of the CGST Act, 2017 and the GGST Act, 2017 by M/s Vadilal Industries Ltd (hereinafter referred to as the Appellant) against the Advance Ruling No. GUJ/GAAR/R/05/2021 dated 20.01.2021.
3. The appellant has sought Advance Ruling on the following question
“What would be the classification of ‘Flavoured Milk’ sold under trade name of Power Sip?”
4. The appellant has submitted that they are engaged in manufacture of goods like Ice Cream, ready to eat food and various milk products. Among other product, they are producing flavored milk under the trade name of “Power Sip”. As per the appellant such flavoured milk merits classification under Heading 04029990 of the GST Tariff. The appellant submitted that the process of production of flavored milk is standardization of fresh milk according to the fat contents and heating at certain temperature followed by filtration, pasteurization and homogenization and then mixing of sugar and various flavors and finally bottling.
5. The appellant submitted that adding flavors to milk does not change essential character of milk. The product namely flavoured milk is milk only and is sold and consumed as milk in trade and amongst consumers. Therefore their product is classifiable under HSN Code 04029990 as the milk. The appellant relied upon the judgment of Punjab and Haryana High Court in case of Food Specialties Ltd V/s UOI [1991 (51) ELT 310 (P & H) which is also affirmed by Supreme Court wherein it was held that Indian Standard specifications for milk powder issued by ISI as well as the standards under Prevention of Food Adulteration Rules, 1955 (PFA Rules) were relevant to decide even under the Central Excise law as to what was skimmed milk or partially/full skimmed milk; as per PFA Rules, product containing fat more than 1.5% and less than 26% is considered to be partially skimmed milk/powder and since fat content in product in question is 2.5% minimum and not greater than 26%, it is partially skimmed milk classifiable under HSN 0402. Appellant also relied upon decision of CESTAT in case of Mehsana District Co-Operative Milk Producers Unions Ltd [2004 (167) ELT 456] wherein the Tribunal held that Chapter 4 of the Tariff covered all types of milk/milk powder, whether it was whole, partly skimmed or skimmed. The appellant also submitted that National Dairy Research Institute, Banglore also confirmed that flavored milk falls under Dairy produce as per the FSSAI, 2006. The appellant also referred to Advance Ruling of Bangalore Authority in case of M/s Karnataka Cooperative Milk Producers Federation Ltd.
6. The Gujarat Authority for Advance Ruling (herein after referred to as ‘the GAAR’), vide Advance Ruling No. GUJ/GAAR/R/05/2021 dated 20.01.2021, inter-alia observed that as per explanatory notes of HSN 0402, the chapter does not cover beverages of milk flavored with cocoa or other substances; product in question merits classification under Chapter Heading 22029930 which was also confirmed in Agenda of 31st GST Council Meeting (Volume-2) dated 22.12.2018; case laws relied upon by appellant is not applicable to the facts of present case. The GAAR relied upon the judgement in case of M/s Ernakulam Reg.Co-op.Milk Products Union Ltd V/s CCE, Kochi [2009 (236) ELT 329 (Tri-Bang)], M/s Kaira Dist. Coop. Milk Producers Union Ltd V/s UOI [2015 (320) ELT 408 (Guj.)] and on ruling of Tamilnadu Advance Authority in case of M/s Britannia Industries Ltd [2020 (36) GSTL 582 (AAR-GST-T.N.)], ruling of Andhra Pradesh Advance Authority in case of M/s Trumala Milk Products Pvt Ltd [ELT 2020 (32) GSTL 558 (AAR-GST-A.P.)] and ruling of Andhra Pradesh Advance Authority in case of M/s Shri Chakra Milk Products LLP [ELT 2020 (32) GSTL 206 (AAR-GST-A.P.).
6.1 In view of the foregoing, the GAAR ruled as follows:-
“Ques. What would be the classification of ‘Flavored Milk’ sold under trade name of Power Sip?
Ans: ‘Flavoured Milk’ is classifiable under Tariff Item 2202 99 30 of the First Schedule of the Customs Tariff Act, 1975 as a ‘beverage containing milk’.”
7. Aggrieved by the aforesaid advance ruling, the appellant has filed the present appeal.
7.1 The appellant in the ground of appeal has submitted that the GAAR erred in overlooking the fact that the product in question was milk itself, and not a beverage containing milk or a beverage based on milk. The term ‘milk’ is defined under Note 1 to Chapter 4 and according to statutory definition of milk, flavored milk is milk and correctly classifiable under Chapter 4 of tariff. Flavored milk is even otherwise dairy produce which is most appropriately classifiable under chapter 4 which covers ‘dairy produce’ and therefore, classification of flavored milk under Chapter 22 is not correct which covers beverages other than milk as milk is specifically covered under Chapter 4. Further, Chapter Heading 22029030 covers ‘beverages containing milk’ means only those beverages that contains milk and not milk as such.
7.2 The appellant submitted that the GAAR overlooked the difference between flavored milk (which is almost 100% milk) and products like milkis, swerve etc contain a small percentage of milk and hence they were in the nature of beverages containing milk. The appellant referred to case laws of M/s Food Specialties Ltd [1991 (51) ELT 310], M/s Dalmia Industries Ltd [1992 (61) ELT 295 (Tri)] and UOI V/s M/s Food Specialties Ltd [1998 (97) ELT (SC)] wherein it was held that milk or milk powder confirming to PFA standards is covered under Chapter 4 of the tariff. The scheme, scope and coverage of Chapter 4 still remains the same and definition of ‘milk’ has also been retained even under the GST Tariff and therefore flavored milk which admittedly standardized milk (i.e. partly skimmed milk) is classifiable under Chapter 4 only.
7.3 The appellant submitted that when GAAR in para 9 of ruling recorded that product in question consisted of standardized milk (i.e. partially skimmed milk) 92% without removal of fat with sugar, color and flavor being around 8%, they had no jurisdiction to still hold that flavored milk is beverage containing milk or beverage based on milk. Therefore, decision of GAAR is wholly illegal and liable to be set aside.
7.4 The appellant submitted that GAAR bypassed the judgement in cases of Mehsana District Co-operative Milk Producers Union Ltd and M/s Food Specialties Ltd on the basis that above judgments pertained to the classification of skimmed milk/partially skimmed milk/fully skimmed milk and the judgement were rendered under other act and could not be considered for deciding classification under GST Tariff which was clearly erroneous finding as both Central Excise Tariff and GST Tariff are based on HSN and comparison of Chapter 4 of both tariffs clearly shows that scope and coverage of the chapter is absolutely similar. The appellant also submitted that in above judgments, classification of milk is decided and if skimmed milk/partially skimmed milk/fully skimmed milk is classifiable under Chapter 4 even if they contains sugar or other sweetening matters as well as flavors, then the product in question is also classifiable under Chapter 4.
7.5 The appellant submitted that GAAR erred in holding that PFA Acts and Rules are not applicable to present case as the purpose of PFA was different as even Hon’ble Supreme Court considered that PFA standards for milk are relevant for classification of milk under Central Excise Tariff.
7.6 The appellant submitted that GAAR erred in holding that product is a ready for consumption drink i.e. beverage with a basis of milk even after agreeing w appellant’s contention that the product in hand was milk. The products like milk is swerve etc can be considered as beverages with a basis of milk or beverages containing milk.
7.7 The appellant submitted that milk is defined under Note 1 of Chapter 4 as full cream or partially or completely skimmed milk and the product in question is admittedly standardized milk which is classifiable under Heading 0402. Flavored milk is specifically covered under Para A.11.01.05 of the Prevention of Food Adulteration Rules which is relevant for classifying milk under Chapter 4 of tariff as held by Hon’ble Supreme Court. The appellant also submitted that Power Sip is known as milk in common parlance and the people selling, purchasing and consuming it identifies it as milk and not as beverages containing milk.
8. During the course of personal hearing held on 28.07.2022, the advocate for the appellant reiterated the submissions made in the appeal dated 07.04.2021. He further submitted that the Hon’ble Supreme Court of India in the case of Union of India Vs. Mohit Minerals Pvt. Ltd., vide its judgment dated 19.05.2022 had observed that the GST Council’s recommendations are not binding and those have only persuasive value. He added that they had relied upon the judgment of Hon’ble High Court at Allahabad in the case of Gujarat Co-op. Milk Marketing Federation Ltd., Vs. State of UP wherein flavoured milk has been upheld as Milk however GAAR has not given any findings on the same. He submitted that product sold by the appellant is milk and not a beverage.
FINDINGS :-
9. We have carefully gone through and considered the appeal and written submissions filed by the appellant, submissions made at the time of personal hearing, Advance Ruling given by the GAAR and other material available on record.
10. The main issue here is to decide the classification of the product viz. flavored milk produced from 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 flavors and finally bottling.
11. The appellant, have in their submission stated that their product i.e. flavored milk is milk itself (consisting of 92% of milk and 8% of sugar, flavor etc.) not beverages containing milk and is classifiable under Chapter 0402 instead under Chapter 2202 as held by GAAR.
12. We find that the classification of goods under GST regime has to be done in accordance with the Customs Tariff Act, 1975, which in turn is based on Harmonized System of Nomenclature, popularly known as `HSN’. The rules of interpretation, section notes and chapter notes as specified under the Customs Tariff Act, 1975 are also applicable for classification of Goods under GST regime. However, once an item is classified in accordance with the Customs Tariff Act, 1975, the rate of tax applicable would be arrived at on the basis of notifications issued under GST by the respective Governments.
13. The appellant have claimed that flavored milk is classifiable under Chapter Heading 0402 of Customs Tariff Act, 1975 which is elaborated below:
CHAPTER 04
