AI Drafter 
TaxTMI 
TaxTMI 
2021 (4) TMI 1292
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....15.07.2019 issued by Authority for Advance Ruling, Andhra Pradesh. 1. Background of the Case: • The appellant is engaged in the business of processing and manufacturing of milk and milk products in the State of Andhra Pradesh, bearing GST registration No.37AABCT907M1ZU. • The appellant had filed an application before the Authority for Advance Ruling, Andhra Pradesh, seeking clarification for applicable rate and HSN code for Flavoured Milk on 12.04.2019. • The ruling was issued specifying the applicable HS Code for Flavoured Milk as 2202 9930 and GST rate as 12 % (6% CGST and 6% SGST) under entry no 50 of schedule II of notification No.1/2017 - Central Tax (Rate), vide order no. AAR No.28/AP/GST/2019, dated 15.07.2019. • Aggrieved by the Ruling, the appellant had filed a writ petition before the Honourable High Court of Andhra Pradesh in WP No. 19393 of 2019. The Honourable Court vide its order dated 19.01.2021 has directed the appellant to file an appeal before Appellate Authority for Advance Ruling(AAAR) within '3 weeks' time in order to exhaust the alternative remedy of appeal available under Sub Section 1 of Section 100 of A....
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....herefore, the inference drawn by the Hon'ble AAR that involvement of various departments and processes makes flavoured milk a preparation signifies non- application of judicial mind and hence not tenable. We reiterate that mere adding of sugar and flavour does not change the basic characteristic of milk and flavoured milk has the same nutritional value as normal milk. In this case the appellant relies on the judgement of Hon'ble High court of Allahabad in the case of Gujarat Milk Marketing Federation Ltd Vs State of U.P, 2017,(5),GSTL 351 (ALL), which held that "Flavoured Milk" is a form of milk, as it is neither a derivative of the milk nor a milk product. It is like hot or cold milk which remains milk even if sugar is added to it, it does not loose its basic characters of milk by heating or cooling or addition of sugar or any permitted colour, essence or flavour. The addition of permitted colour does not transform milk into any other thing. That in view of the above the appellant most respectfully submits that flavoured milk should be classified under Chapter 4 of the APGST Act and should be taxed at 5%. 2. That, we appreciate the inference drawn by the Ld' Authority ....
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....does not merit classification under beverage containing milk, under tariff heading 2202 9930, but merits classification as milk, under tariff heading 0402. 4. That, we draw your attention to the food safety and standards Act, 2006, as the applicant has relied upon the description of FSSAI on "Flavoured Milk". Though the said Act deals with food safety and standards, it contains, under schedule - II, the Milk and milk products order, 1992 in accordance to which, under section 2 (9 "milk of cow, buffalo, sheep, goat or a mixture thereof either raw or processed in any manner and includes pasteurized, sterilized, recombined flavoured, acidified, skimmed, toned, double toned, standardized or full cream milk. It could be seen from above that "Milk" includes pasteurized, sterilized and flavoured milk. Therefore, the product of the appellant is covered under "Milk". 5. The applicant states that Hon'ble Supreme Court in the case of Commissioner of Central Excise Vs. Amrit Foods 2015 (324) ELT 418 (SC) in a dispute concerning to classification of two products namely "milk shake mix" and "soft Serve mix" held as under "Main purpose of the stabilizer was to maintain the product consisten....
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.... hence the "flavored milk" does not merit classification under beverage containing milk, under tariff heading 2202 9930, but merits classification as milk, under tariff heading 0402. 13.11. Tariff heading 0402 covers "milk and cream, concentrated or containing added sugar or other sweetening matter". The instant product 'flavoured milk' is covered under 'milk' as discussed already. Therefore the instant product merits classification under tariff heading 0402 99 90. 13.12. We also take note of the fact that the Hon'ble High Court at Allahabad in the matter of Gujarat Coop. Milk Marketing Federation Ltd. Vs State of UP vide 2017 (5) GSTL 351 (All) dated 31.05.2017, has decided that flavoured Milk is a form of Milk. The Court has also specifically observed that flavoured milk is a form of milk as it is neither a derivative of milk nor a milk product. 14. In view of the foregoing, we pass the following ruling. 1. The commodity "flavoured Milk" is classified under the Tariff heading 0402 99 90. Therefore, the appellant most respectfully submits that its product flavoured milk deserves to be classified under Chapter-4". 4. Discussion and Findings: We ....
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....racteristics of foods to which they are added. It is applicable to the instant case as well, that the addition of flavouring agent would change basic characteristic of the milk. It leaves no further doubt regarding the fact that 'adding flavours does constitute a preparation', changing the basic nature and properties of the food, improving the organoleptic experience leading to better appreciation of the food. Now, we look into the objection of the appellant that the AAR, while passing its ruling, has jumped into an extraneous document pertaining to the year 2018 i.e. the matters recorded in the agenda of the GST council held on 22.12.2018, ignoring the developments during the period 2015-2018. In order to address this issue, we discuss the chronology of the events, how the flavoured milk has been classified over the years under different heads and entries. The flavoured milk was initially classified under entry 0401.11 under the 6 digit code system, which prevailed till 27.02.2005 as under: Heading No. Subheading No. Description of goods Rate of duty (1) (2) (3) (4) 04.01 0401.11 Flavoured milk, whether sweetened or not, put up in unit container....
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....s in dispute. Now we look into the issue that, in continuation to the Central Excise regime, whether the same interpretation had been applied to the GST regime or otherwise. The product under dispute i.e., 'flavoured milk' as such is not mentioned as a specific entry in any of the schedules as per the Notification No.1/2017 Central Tax (Rate) dt: 28.6.2017. We examine the competing entries under Schedule I with Tax Rate of 5% (CGST 2.5% +SGST 2.5%) and under Schedule II with Tax Rate of 12% (CGST 6% +SGST 6%) as under Schedule I - 2.5% S.No Chapter/Heading/Sub-Heading/Tariff item Description of Goods 8 0402 Milk and cream, concentrated or containing added sugar or other sweetening matter, including skimmed milk powder, milk food for babies[other than condensed milk] Schedule II - 6% S.No Chapter/Heading/Sub-Heading/Tariff item Description of Goods 50 2202 90 30 Beverages containing milk As there is ambiguity in the classification of the instant product, 'flavoured milk' i.e., whether it is to be considered under either 0402 or 2202 90 30 as mentioned above, the issue has been discussed and recorded in the Agenda for 31st GST Council M....
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....ontends that the pre-dominant constituent of the product is milk and hence the "flavoured milk" does not merit classification under beverage containing milk, under tariff heading 2202 9930, but merits classification as milk, under tariff heading 0402. In this context we proceed to examine whether the flavoured milk can be covered under chapter 4 or in its competing entry under chapter 22. Chapter 4 deals with "Goods of Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere specified or included". The qualifier here that it is "not elsewhere specified or included" carries enormous importance. Now we look into the issue whether the product in question is mentioned elsewhere or not. Chapter 22 dealing with goods /items of "Beverages, spirits and vinegar" carries the following entry as under. CHAPTER 22 Beverages, spirits and vinegar Tariff Item Description of goods Unit Rate of duty (1) (2) (3) (4) 2202 99 30 Beverages containing milk 1 12% Now we proceed to examine whether 'flavoured milk' can be considered a beverage containing milk. In common parlance, a beverage is "(chiefly in commercial use) a....