Flavoured dairy milk GST classification under HSN 2202 vs tariff rules; council clarification rejected, reassessment ordered.

The dominant issue was whether the GST Council had authority to clarify that flavoured dairy milk falls under HSN 2202 ("beverage containing milk") attracting 6% CGST, and whether such clarification could bind classification under the Customs Tariff-based GST rate notification. The HC held that classification must be determined by applying the interpretative rules, section/chapter notes and HSN under the Customs Tariff framework, and cannot be conclusively fixed by the GST Council's "recommendation"; "beverage containing milk" in Entry 50 of Schedule II was construed as covering plant/seed-based milk beverages, not flavoured dairy milk. Consequently, the impugned clarification was quashed, and the assessing authority was directed to classify independently; the writ was allowed.

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Issues Involved:
1. Classification of "flavoured milk" under HS Code 2202 vs. HS Code 0402.
2. Validity of the GST Council's recommendation.
3. Applicability of past judicial decisions and statutes on the current classification dispute.

Summary:

Issue 1: Classification of "flavoured milk" under HS Code 2202 vs. HS Code 0402:
The petitioner challenged the classification of "flavoured milk" under HS Code 2202 by the GST Council, arguing it should be classified under HS Code 0402 as per the Supreme Court decision in Commissioner vs. Amrit Food, 2015 (324) ELT 418. The petitioner contended that "flavoured milk" is a dairy product and should be taxed at 2.5% under HS Code 0402 instead of 6% under HS Code 2202.

Issue 2: Validity of the GST Council's recommendation:
The GST Council classified "flavoured milk" under HS Code 2202 based on the Fitment Committee's recommendation. The court noted that the GST Council's recommendations are not binding and are only persuasive, as per Article 279-A(4) of the Constitution of India and the Supreme Court's decision in Union of India vs. Mohit Mineral Private Limited (2022) 10 SCC 700. The court emphasized that the GST Council cannot determine the classification of goods, which is the prerogative of the assessing officer.

Issue 3: Applicability of past judicial decisions and statutes on the current classification dispute:
The court reviewed various past decisions and statutes, including the Central Excise Act, 1944, Central Excise Tariff Act, 1985, and the Customs Tariff Act, 1975. It concluded that the classification of "flavoured milk" under HS Code 0402 is justified based on the definition of "milk" in the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011, and the Customs Tariff Act, 1975. The court held that "flavoured milk" made from dairy milk should be classified under HS Code 0402, not HS Code 2202, and taxed at 2.5%.

Conclusion:
The court allowed the writ petitions, ruling that "flavoured milk" should be classified under HS Code 0402 and taxed at 2.5%. The GST Council's recommendation to classify "flavoured milk" under HS Code 2202 was deemed incorrect. The court left it open for the government to issue a fresh notification to amend the tax rates if necessary.

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