Flavoured milk for tea preparation classified as pasteurized milk under heading 0401 20 00, not beverage

AAR Jharkhand ruled that flavoured milk for tea preparation is not a beverage but pasteurized milk under heading 0401 20 00. The product cannot be consumed instantly and lacks additives like sugar for direct consumption. It serves as raw material for tea preparation rather than a ready-to-drink beverage. The final tea product qualifies as a beverage, not the milk preparation itself. The product is eligible for GST exemption benefits under Notification No. 2/2017-Central Tax (Rate) as it is pasteurized milk without concentration, added sugar, or sweetening materials.

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Issues Involved:
1. Classification of Flavoured Milk for Tea Preparation.
2. Rate of GST applicable on the said product.

Issue-wise Detailed Analysis:

1. Classification of Flavoured Milk for Tea Preparation:

The applicant, engaged in processing milk and milk products under the brand name "OSAM," sought an advance ruling on the classification of "Flavoured Milk for Tea Preparation." The product, "Osam Samridhi," consists of 99.85% milk, 0.1% stabilizer, and 0.05% ginger flavor, with no added sugar or sweeteners. It is sold in 1-liter polypacks with a shelf life of one day. The applicant argued that the product retains the essential characteristics of milk despite the addition of stabilizers and flavors, and thus should be classified under Chapter 4, Tariff item 0401:20:00.

The applicant cited judicial pronouncements, including the Hon'ble Allahabad High Court's ruling in Gujrat Co-op Milk Marketing Federation Ltd. Vs State of U.P. 2017 (5) GSTL 351 (All), which held that flavored milk remains milk and does not transform into another product by the addition of permitted flavors. Similarly, the Hon'ble Supreme Court in Commissioner of Central Excise Vs Amrit Foods 2015 (324) ELT 418 (SC) held that the addition of stabilizers does not change the basic character of the product.

The Advance Ruling Authority examined whether "flavoured milk for Tea preparation" could be considered a beverage containing milk. It concluded that the product is not a ready-to-consume beverage but a preparation intended for tea making. Therefore, the product retains its classification as milk under Chapter 04, heading 0401 20 00, rather than being classified as a beverage under Chapter 22.

2. Rate of GST applicable on the said product:

The applicable GST rate was determined based on Notification 2/2017-Central Tax (Rate) dated 28-06-2017. According to serial number 25 of this notification, fresh milk and pasteurized milk, including separated milk, milk and cream, not concentrated nor containing added sugar or other sweetening matter, excluding Ultra High Temperature (UHT) milk, are exempt from GST.

Since the applicant's product is pasteurized milk without added sugar or sweeteners and is not UHT milk, it qualifies for the GST exemption under the specified notification.

Order:

Question: What would be the classification of 'Flavoured Milk for Tea Preparation'Rs.

Answer: The product 'Flavoured Milk for Tea Preparation' is classified under Chapter 04, heading 0401 20 00.

Question: What would be the rate of GST applicable on the said productRs.

Answer: The product is exempt from GST as per serial number 25 of Notification No. 2/2017-Central Tax (Rate) dated 28-06-2017.

This ruling is valid subject to the provisions under Section 103(2) until declared void under Section 104(1) of the GST Act.

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