Flavoured milk "Power Sip" classified as beverage under tariff 2202 99 30, not milk product under Chapter 0402

AAAR Gujarat dismissed the appeal regarding classification of flavoured milk sold as "Power Sip." The authority held that flavoured milk containing double toned milk cannot be classified under Chapter 0402 as it does not meet the definition of full cream or skimmed milk required for that heading. The product was classified as a beverage under tariff item 2202 99 30, following NDDB categorization and precedent from Britannia Industries case. The classification as beverage rather than milk product was upheld despite appellant's contention that the product remains milk with added flavours.

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Issues Involved:
1. Classification of "Flavoured Milk" under GST Tariff.
2. Applicability of previous judgments and standards for classification.
3. Interpretation of tariff headings and explanatory notes.
4. Relevance of FSSAI standards and common parlance understanding.

Detailed Analysis:

1. Classification of "Flavoured Milk" under GST Tariff:
The appellant sought an advance ruling on the classification of "Flavoured Milk" sold under the trade name "Power Sip." The appellant argued that flavoured milk should be classified under Heading 04029990 of the GST Tariff, asserting that adding flavors to milk does not change its essential character. They contended that flavoured milk is essentially milk and should be classified as such.

The Gujarat Authority for Advance Ruling (GAAR) ruled that flavoured milk is classifiable under Chapter Heading 22029930, as a "beverage containing milk." The GAAR relied on explanatory notes of HSN 0402, which exclude beverages of milk flavored with cocoa or other substances from Chapter 4, and include them under Chapter 22.

2. Applicability of Previous Judgments and Standards for Classification:
The appellant relied on previous judgments, such as the Punjab and Haryana High Court's decision in Food Specialties Ltd V/s UOI and the CESTAT's ruling in Mehsana District Co-Operative Milk Producers Unions Ltd, which classified skimmed milk and partially skimmed milk under Chapter 4. They argued that these rulings should apply to the classification of flavoured milk under the GST Tariff.

The GAAR dismissed these precedents, stating that the cases pertained to the classification of skimmed milk/partially skimmed milk under different acts and could not be applied to GST Tariff classification. The GAAR emphasized that the Customs Tariff and GST Tariff are aligned with the HSN, and the classification of goods under GST must follow the Customs Tariff Act, 1975.

3. Interpretation of Tariff Headings and Explanatory Notes:
The appellant contended that flavoured milk should be classified under Chapter 0402, which covers milk and cream, concentrated or containing added sugar or other sweetening matter. They argued that flavoured milk, being almost 100% milk, should not be classified as a beverage under Chapter 22.

The GAAR and the Appellate Authority for Advance Ruling (AAAR) held that flavoured milk is excluded from Chapter 4 and included under Chapter 22 based on the explanatory notes. The AAAR noted that the Customs Tariff Act, 1975, and the HSN exclude beverages consisting of milk flavoured with cocoa or other substances from Chapter 0402 and include them under Chapter 2202. The AAAR further explained that the classification scheme in the Tariff aligns natural state products in initial chapters and processed goods in later chapters, supporting the classification of flavoured milk as a processed beverage under Chapter 22.

4. Relevance of FSSAI Standards and Common Parlance Understanding:
The appellant argued that flavoured milk is classified as milk under the Prevention of Food Adulteration Rules and the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 (FSSAI). They also contended that in common parlance, flavoured milk is considered milk and not a beverage.

The AAAR acknowledged these standards but emphasized that the classification under GST Tariff must follow the Customs Tariff Act and HSN. The AAAR also referred to the National Dairy Development Board's categorization of flavoured milk as a dairy-based beverage, reinforcing the classification under Chapter 2202.

Conclusion:
The AAAR upheld the GAAR's ruling that flavoured milk is classifiable under Tariff Item 2202 99 30 as a "beverage containing milk." The appeal by the appellant was rejected, and the Advance Ruling No. GUJ/GAAR/R/05/2021 dated 20.01.2021 was upheld.

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