2025 (3) TMI 549 - HC - GST

Beverages with over 10% fruit juice classified as fruit-based drinks under Tariff Item 2202 99 20, not flavoured waters

X'SS BEVERAGE CO. Versus THE STATE OF ASSAM, THE COMMISSIONER OF STATE TAXES, ASSAM, THE JOINT COMMISSIONER OF STATE TAX, GUWAHATI

HC upheld petitioner's classification of beverages under Tariff Item 2202 99 20 as fruit pulp/juice-based drinks rather than Revenue's classification ... Classification of products manufactured by the petitioner - to be classified under Tariff Item 2202 99 20 as 'fruit pulp or fruit juice-based drinks' or under Tariff Sub-Heading 2202 10 90 as 'waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured? - invocation of provisions under Section 74 of the CGST Act - fraud or wilful suppression of facts or not - Revenue contends that the classification of the finished products under Assam GST Act must be done as per the HSN Code and not by borrowing any other standard like from FSSAI which is codified for a different purpose - onus to prove - Levy of penalty - levy of interest. HELD THAT:- A beverage could be a fruit juice – based drink (e.g. SI. 1 & 2 above) or it could be flavoured water (e.g. Sl No. 3 & 4 above). The classification is seen to be determined by the nature of the beverage, particularly by the presence of the fruit juice to an extent that it attributes the essential character to the beverage, not merely as a flavouring agent. It is the dominant nature of the product which determines the classification. From these Technical Literatures, what is seen is that a substance or an ingredient of a food item can be called its base it’s when such substance or ingredient forms the main or fundamental ingredient and imparts the essential attribute to the food item. The most significant feature of a food beverage is not it’s food content but the function for which it is designed and marketed. The fruit is often a dominant ingredient providing its overall character to the subject product which cannot be achieved in any other way. This view is also found in the US Customs Ruling No. N122815 in the matter of Ms. Michele Peplinski Parker's Organic Fruit Juice. The said authority had classified the beverages by the presence of the fruit juice to the extent it attributes the essential character to the beverage. In CCE, Bhopal Vs. Parle Agro Pvt. Ltd. [2008 (3) TMI 67 - CESTAT NEW DELHI], the classification sought to be made by the Revenue was rejected. This classification was sought to be made by the Revenue placing reliance on the HSN explanatory notes of chapter 22. The issue involved before the Tribunal in respect of classification of the product in question “Appy Fizz”. The classification sought to be made by the Revenue under item head 2202 10 10 on the ground that it was aerated whereas the assessee had classified the item under Tariff Subheading 2202 90 20 as it is a juice based drink and also because the product contained 2203% apple juice. The assessee therein relied upon the Prevention of Food Adulteration Rules, 1955 to submit that fruit beverage or fruit drink must contain soluble solids not less than 10%, whereas their product contains 13.7% soluble solids. Rejecting the contention of the Department, the Hon'ble Tribunal held that the product was classifiable under tariff item 2202 90 20. The Hon'ble Supreme court in the case of Parle Agro (P) Ltd. v. Commissioner of Commercial Taxes, Trivandrum, [2017 (5) TMI 592 - SUPREME COURT] also held that 'Appy Fizz' containing more than 10% fruit juice (viz. 12.7%) was a fruit juice-based drink in terms of the provisions of Kerala VAT Act, 2003. A plain reading of the schedule under Chapter 22 reveals that the Tariff item 2202 is to be applied in respect of “Waters including mineral waters and aerated waters containing added sugar and other sweetening matter or flavoured, and other non- alcoholic beverages not including food or vegetable juices under heading 2009” - Coming to the facts of the present case, the chapter 22 does not specifically define the items manufactured and sold by the petitioner. Therefore, under the Rules of interpretation provided under the 1st schedule to the Customs Tariff Act, 1975, these items will have to be classified under the heading appropriate to the goods to which they are most akin. The tests conducted under the Food Safety Act quite clearly reveal that they are within the permissible limits prescribed under the Food Safety Act and except lime based products where the fruit concentrate is required to be 5% in all the other products it is seen to be more than 10%. This is not disputed by the Revenue. From the laboratory test reports and the manufacturing flow charts placed before the Court, it is clear that it cannot be classified under 2202 10 rather it is more akin to 2202 99 20 namely fruit pulp or fruit juice based drinks as has been classified by the petitioner - The only ground on which the Revenue has classified the subject product under sub-heading 2202 10 is that it contains carbonated water. However, a quick reference to the Tariff schedule makes it clear that Sub-heading 2202 10 is primarily ‘WATER’ and it also includes mineral waters/ aerated waters /water containing added sugar or sweetening matter or flavour whereas sub-heading 2202 99 includes ‘OTHERS’ which are further described under the said sub- heading. The Tariff heading 2202 99 20 is seen to be for fruit pulp or fruit juice based drinks. The sole basis for rejecting the assessee’s classification under Sub-head 2202 99 is that these subject products contained carbonated water. However, such conclusions by the Revenue that merely because it contains carbonated water, the subject products are to be treated under classification ‘water’ or ‘aerated water’ is completely fallacious - Even if the classification of the subject items are to be based on the Doctrine of common perlance then also the classifications sought to be made by the Revenue cannot be sustained. These subject products have been sold in the market as Fruit Based Drinks or Drinks containing Fruit Pulp or Fruit Concentrate. When a consumer seeks to purchase water, there is no possibility that these subject products can be sold and/or purchased by such a consumer who seeks to purchase water. These products cannot be identified as water by a consumer. Taking into consideration the Rules of interpretation as prescribed under the 1st schedule to the Central Excise Tariff, the subject products classification under Tariff Heading 2202 99 20 as have been done by the assessee will have to be accepted over the claim of the Revenue that it is classifiable under the heading 2202 10 90. The contention of the Revenue therefore cannot be upheld and the same is rejected. The burden is on the department to prove the classification of the subject items. Although, the results of the State Food Laboratory have been discarded by the Revenue, no alternative test reports or methods for appropriate classification of the subject products have been placed before the Court. Where an established laboratory for food testing under the FSSAI has in it’s test reports indicated presence of food content and soluble solids in the report, and these reports not having been contradicted by the Revenue by referring or relying on other reliable test reports, the contention of the Revenue that these reports cannot be reliable, therefore cannot be accepted as the same are not supported by any sufficient reason. In Hindustan Ferodo Ltd. v. CCE, Bombay, [1996 (12) TMI 49 - SUPREME COURT], the Apex Court held that the onus of establishing that the said rings fell within Item 22-F lay upon the Revenue. The Revenue led no evidence. The onus was not discharged. Assuming therefore, that the CEGAT was right in rejecting the evidence that was produced on behalf of the appellants, the appeal should, nonetheless, have been allowed. Onus to prove - HELD THAT:- The burden is on the Revenue to establish with cogent materials that the classification of the subject items have been wrongly classified under the sub Heads by the assessee rather it has to be classified under the sub Heads as projected by the Revenue. Levy of penalty - penalty sought to be imposed by the Revenue on the petitioner under Section 74 of the CGST Act is by reason for recovery of tax not paid by the assessee by reasons of fraud or collusion or wilful mis- statement or suppression of facts and contravention of any of the provisions of the Act or the Rules with the intent to evade to payment of tax - HELD THAT:- Under Section 74 Explanation 2, the term “suppression” has been explained as non declaration of facts or information in the returns. In this context, it is necessary to examine whether there was any suppression or non-declaration of materials by the assessee while payment of taxes by classifying the subject items under Tariff Head 2202 99 20. In the case of CCE V. Chemphar Drugs & Liniments, [1989 (2) TMI 116 - SUPREME COURT], it has been observed that the term 'willful' and ‘suppression’ signifies conscious withholding of information with mala fide Intention and not an unintentional failure due to inadvertence. Thus, in order to invoke the extended period of limitation, it is necessary to prove an act or omission on the part of the petitioner equivalent to collusion or wilful misrepresentation or suppression of facts. Again in Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut, [2005 (9) TMI 331 - SUPREME COURT], the Apex Court held that suppression of facts' can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. But when facts were known to both parties, the omission by one to do what he might have done, not that he must have done, would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act of the assessee to bring it within the ambit of wilful suppression. From the Judgments above, it is seen that for arriving at the conclusion that there was a suppression of facts, it must be evident that the correct information was deliberately not disclosed by the petitioner or that there was a conscious withholding of information with malafide intention by the petitioner/assessee. Mere failure due to inadvertence will not amount to suppression for invoking the powers under Section 74. For imposition of penalty under Section 122 (2) (b), there should be an intention to evade payment of tax or there should be suppression or concealment or wilful mis- statement of the facts - It is apparent that the ingredients for imposition of penalty under Section 122(2)(b) are identical to the ingredients for invocation of the provisions of Section 74 of the CGST Act. If the proposed demand is unsustainable in law, no penalty is imposable on the petitioner. Under such circumstances, it is held that where the demand has been found to be unsustainable on the ground that there was no wilful and deliberate suppression or mis-statement or evasion or payment of tax, the question of imposition of penalty must also failed. Accordingly, the imposition of penalty by the Revenue is therefore interfered with and set aside. Levy of interest - HELD THAT:- The imposition of interest under Section 50 is also not recoverable in the present proceedings. The reason being that where the primary demand has been held to be unsustainable there is no basis for levy of any interest. Therefore, the levy of interest under Section 50 of the CGST Act is also interfered with and set aside. Applicability of N/N. 8/2021-Central Tax (Rate) dated 30.09.2021 and N/N. 1/2021- Compenation Cess (Rate) dated 30.09.2021 - HELD THAT:- The said Notification No. 8/2021-Central Tax (Rate) dated 30.09.2021 whereby a new entry was inserted as Serial No. 12A in Schedule – IV making Carbonated Beverages of Fruit Drink or Carbonated Beverages with Fruit Juice to be taxable @ 14% and Notification 1/2021-Compensation Cess (Rate) dated 30.09.2021 whereby in the Schedule of the Goods and Services Tax (Compensation to States) Act, 2017 a new entry namely 4B was inserted levying 12% Cess on Carbonated Beverages of Fruit Drink or Carbonated Beverages with Fruit Juice and the same was made effective from 01.10.2021. The tax @ 14% and Cess @ 12% cannot be imposed on the said items for the periods prior to 01.10.2021. These Notification have been made effective only from the date it is notified. The periods involved in the present writ petitions are prior to the issuance of the said Notifications re-classifying the items. These Notifications therefore can only have effect from the date it is made effective and prospectively. There is no justification by the Revenue to make these notifications applicable retrospectively. Conclusion - i) The products manufactured by the petitioner are correctly classified under Tariff Item 2202 99 20 as 'fruit pulp or fruit juice-based drinks.' ii) Invocation of Section 74 of the CGST Act was deemed inappropriate due to the absence of evidence of fraud or willful suppression. iii) Penalties under Section 122 of the Assam GST Act were invalidated due to the lack of evidence supporting the allegations of fraud or willful misstatement. iv) GST notifications cannot be applied retrospectively unless explicitly stated. The impugned show cause notices and orders set aside - appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core issues considered in this judgment include:Whether the products manufactured by the petitioner are correctly classified under Tariff Item 2202 99 20 as 'fruit pulp or fruit juice-based drinks' or should be reclassified under Tariff Sub-Heading 2202 10 90 as 'waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured'.Whether the invocation of Section 74 of the CGST Act for imposing penalties and interest on the petitioner was justified.Whether the reliance on Food Safety and Standards (Food Products Standards and Food Additive) Regulations, 2011, for classification purposes was appropriate.The applicability and impact of Notifications No. 8/2021-Central Tax (Rate) and No. 1/2021-Compensation Cess (Rate) on the classification and tax rate of the products.2. ISSUE-WISE DETAILED ANALYSISClassification of Products:Relevant Legal Framework and Precedents: The classification of goods under the Customs Tariff Act, 1975, adopted for GST purposes, was central to this issue. The petitioner argued for classification under Tariff Item 2202 99 20, citing previous judgments like CCE, Bhopal vs. Parle Agro Pvt. Ltd., which classified similar products as fruit juice-based drinks.Court's Interpretation and Reasoning: The court analyzed the structure and scheme of Tariff Heading 2202, distinguishing between products predominantly made up of water and those based on fruit pulp or juice. The court emphasized the dominant ingredient's role in determining classification.Key Evidence and Findings: The court considered laboratory reports indicating the presence of more than 10% fruit juice content in the products, supporting the petitioner's classification.Application of Law to Facts: The court concluded that the products were more akin to fruit juice-based drinks than aerated waters, based on their composition and market perception.Treatment of Competing Arguments: The court rejected the Revenue's argument that the presence of carbonated water necessitated classification under Tariff Sub-Heading 2202 10 90, emphasizing the primary ingredient's role.Conclusions: The court upheld the petitioner's classification under Tariff Item 2202 99 20.Invocation of Section 74 of the CGST Act:Relevant Legal Framework and Precedents: Section 74 of the CGST Act pertains to recovery of tax not paid due to fraud or willful misstatement. The court referenced judgments like CCE V. Chemphar Drugs & Liniments, emphasizing the need for deliberate suppression to invoke this section.Court's Interpretation and Reasoning: The court found no evidence of willful suppression or fraud by the petitioner, as the classification was based on disclosed facts and established tests.Key Evidence and Findings: The court noted the regular filing of returns by the petitioner and the absence of objections from the Revenue until the investigation.Application of Law to Facts: The court determined that the invocation of Section 74 was unwarranted, given the lack of evidence for deliberate misstatement or suppression.Conclusions: The court set aside the penalties and interest imposed under Section 74.Reliance on Food Safety and Standards Regulations:Relevant Legal Framework and Precedents: The petitioner relied on the Food Safety and Standards (Food Products Standards and Food Additive) Regulations, 2011, to support their classification.Court's Interpretation and Reasoning: The court found no prohibition against using FSSAI standards for classification purposes and noted the absence of contrary evidence from the Revenue.Key Evidence and Findings: The court considered laboratory tests confirming compliance with FSSAI standards.Application of Law to Facts: The court accepted the petitioner's reliance on FSSAI standards as supporting evidence for their classification.Conclusions: The court upheld the use of FSSAI standards in determining the appropriate classification.Impact of Notifications No. 8/2021 and No. 1/2021:Relevant Legal Framework and Precedents: These notifications introduced new tax rates for carbonated beverages of fruit drinks, effective from 01.10.2021.Court's Interpretation and Reasoning: The court held that these notifications could not be applied retrospectively to periods before their effective date.Key Evidence and Findings: The court noted the absence of justification for retrospective application by the Revenue.Application of Law to Facts: The court ruled that the notifications did not affect the classification and tax rate for periods prior to 01.10.2021.Conclusions: The court rejected the Revenue's attempt to apply the notifications retrospectively.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'The classification sought to be made by the Revenue that merely because it contains carbonated water, the subject products are to be treated under classification 'water' or 'aerated water' is completely fallacious.'Core Principles Established: The classification of products should be based on the dominant ingredient and overall character, not merely on the presence of carbonated water. Reliance on FSSAI standards is permissible for classification purposes.Final Determinations on Each Issue: The court upheld the petitioner's classification under Tariff Item 2202 99 20, set aside penalties and interest imposed under Section 74, and rejected the retrospective application of Notifications No. 8/2021 and No. 1/2021.