2024 (12) TMI 784 - HC - GST

Flavoured milk classified under GST Tariff Heading 0402 not 2202, specific entries prevail over general ones

M/s. Sri Vijaya Visakha Milk Producers Company Ltd., Versus Asst. Commissioner Of Central Tax and Others

The AP HC ruled that flavoured milk should be classified under GST Tariff Heading 0402 rather than 2202. The court held that entry 0402 encompasses milk ... Maintainability of petiiton - avaiability of alternative remedy - Classification of goods - flavoured milk - to be classified under GST Tariff Heading 0402 or 2202? - Applicability of penalty under Section 122(2)(b) and Section 74 of the Central GST Act. Maintainability of petiiton - availability of alternative remedy - HELD THAT:- The existence of an alternative remedy does not bar judicial review, under Article 226 of the Constitution of India. The decision, whether such a review is to be taken up or not, is within the sole purview of this court. Accordingly, this objection is rejected. Classification of 'flavoured milk' under GST Tariff Heading 0402 or 2202 - whether only milk is to be treated under 0402? - HELD THAT:- The said entry not only enumerates milk per se but also cream, skimmed milk powder, milk food for babies etc. It includes even plain or concentrated milk containing sugar or other sweetening matter. This entry clearly incorporates milk and milk products. For example milk food for babies, by normal standards, is not milk. However, it is treated as falling in 0402. Thus, the test propounded by the 1st respondent that only plain milk is to be treated as falling under 0402 is not correct. The finding of the 1st respondent that ‘flavoured milk’ goes out of this entry by addition of Badam flavour also cannot be accepted. Though the entry speaks only of milk containing added sugar or other sweetening matter, flavoured milk cannot be taken out of tariff heading 0402 merely because of addition of 0.5% of Badam flavour. Whether “beverage” is any type of drink except water and as such any milk drink, would fall within 2202? - HELD THAT:- The entries, under this chapter heading, enumerate water, mineral water, aerated water and other beverages which can be made only by using water. Except entry 2202 90 90, “Tender coconut water”, water is an essential part of the beverages mentioned therein. Applying the principle of Nocitur a Sociis, the placement of Tariff Item 2202 90 30 in the same tariff heading would mean that entry 2202 99 30, would cover beverages which contain milk as well as water. Sweetened milk or not - HELD THAT:- In a case where sweetened milk is to be sold, after bottling the same, it would fall within the meaning of Milk containing added sugar or other sweetening matter, under 0402. This drink could also be called a beverage, containing milk, falling under 2202. The entry, in 0402, is the special entry and the entry, under 2202, is the general entry and would have to give way to entry 0402. The same principle would apply to flavoured milk - The Hon’ble High Court at Madras in the case of M/s Parle Agro Pvt. Limited Vs. Union of India [2023 (11) TMI 601 - MADRAS HIGH COURT], after reviewing the law and the changes in the tariff entries, had come to the conclusion, on similar lines, that flavoured milk would fall under 0402 and not under 2202. Applicability of penalty under Section 122(2)(b) and Section 74 of the Central GST Act - HELD THAT:- In view of the fact that this Court is of the view that flavoured milk cannot be treated to fall under the Tariff Heading 2202, the question of penalty under any of the aforesaid provisions would not arise. In any event, the question of whether a penalty can be levied, even if flavoured milk falls within 2202, merely on the ground that the dealer changed his classification of goods from one entry to another is left open. The impugned order is set aside - petition allowed. Issues Involved:1. Classification of 'flavoured milk' under GST Tariff Heading 0402 or 2202.2. Applicability of penalty under Section 122(2)(b) and Section 74 of the Central GST Act.3. Maintainability of the writ petition in the context of alternative remedies.Issue-wise Detailed Analysis:1. Classification of 'flavoured milk' under GST Tariff Heading 0402 or 2202:The primary issue was whether 'flavoured milk' should be classified under GST Tariff Heading 0402 or 2202. The petitioner, a registered dealer under the GST Act dealing with milk and milk products, initially classified 'flavoured milk' under 0402, which pertains to 'Milk and cream, concentrated or containing added sugar or other sweetening matter.' However, the 1st respondent reclassified it under 2202, which pertains to 'Beverages containing milk,' arguing that the addition of Badam flavour transformed it into a beverage rather than milk.The court examined the descriptions under both headings and found that the 1st respondent's interpretation was flawed. The court noted that Heading 0402 includes not only plain milk but also milk products like cream and milk food for babies, which are not merely milk. The court concluded that the addition of 0.5% Badam flavour does not remove 'flavoured milk' from the ambit of 0402. The court also applied the principle of 'Nocitur a Sociis,' determining that beverages under 2202 typically include water, which is not a component of 'flavoured milk.' Therefore, the court held that 'flavoured milk' should be classified under 0402, as it is a special entry compared to the general entry of 2202.2. Applicability of penalty under Section 122(2)(b) and Section 74 of the Central GST Act:The 1st respondent imposed a penalty on the petitioner, alleging deliberate tax evasion by reclassifying 'flavoured milk' under 0402. The court, however, found that since 'flavoured milk' is correctly classified under 0402, the basis for imposing a penalty was invalid. The court noted that the mere change in classification by the petitioner, without any change in the manufacturing process, does not constitute an attempt to evade tax. Consequently, the court set aside the penalty imposed under Section 122(2)(b) and Section 74 of the Central GST Act.3. Maintainability of the writ petition in the context of alternative remedies:The respondents raised a preliminary objection regarding the maintainability of the writ petition, arguing that classification issues should be addressed by tribunals established under taxation statutes. The court acknowledged this contention but decided to hear the petition since it had been pending for a year and the period for filing an appeal had lapsed. The court emphasized that the existence of an alternative remedy does not bar judicial review under Article 226 of the Constitution of India and chose to exercise its discretion to hear the case.Conclusion:The court allowed the writ petition, setting aside the impugned order that classified 'flavoured milk' under 2202 and imposed penalties. The court concluded that 'flavoured milk' should be classified under 0402 and that the penalties were unjustified. The court also dismissed the preliminary objection regarding the maintainability of the writ petition, allowing it to proceed under its jurisdiction. There was no order as to costs, and any pending miscellaneous petitions were closed.