2019(07)LCX0146(AAR)

AAR-ANDHRA PRADESH

M/s Tirumala Milk Products Private Limited.

decided on 15/07/2019

AUTHORITY FOR ADVANCE RULING . ANDHRA PRADESH
Goods and Service Tax
D. No. 5-56, Block-B, R.K' Spring Valley Apartments,
Edupugallu, Vijayawada-521 151

Present:
sri.D. Ramesh, Additional commissioner...Member (state Tax)
Sri.S. Narasimha Reddy, Additional Commissioner ...Member (Central tax)

AAR No. 28/AP/GST/2019 dated:15.07.2019

ORDER

(Under sub-section (a) of section 98 of Central Goods and ServiceTax Act, 2017 and under sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)

1. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017, (hereinafter referred to CGST Act and APGST Act respectively) by M/s. Tirumala Milk Products Private Limited., D.No. 12-8-8, Prakash Nagar, Narasarao pet – 522601 (hereinafter referred to as applicant), registered under the Goods & Services Tax.

2. The provisions of the CGST Act and APGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the APGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or AP GST Act would be mentioned as being under the GST Act.

3. Brief Facts of the case:

The applicant is registered under GST vide GSTIN - 37AABCT7907M1ZU. The applicant engaged in manufacturing of milk and milk products including flavoured milk. The applicant seeks clarification regarding the HSN code, and rate of duty on their outward supply of “flavoured milk”.

4. Activities of the applicant:

The applicant informed that;

(i) Flavoured milk is a sweetened dairy drink made with milk, sugar, permissible colourings and artificial or natural flavourings;

(ii) The brief manufacturing process of the flavoured milk is standardisation of fresh milk according to the fat contents and then heating at certain temperature followed by filtration, pasteurisation, and homogenisation and then mixing of sugar and flavours and finally bottling. The applicant provided process flow chart of flavoured milk.

5. Questions raised before the authority:

The applicant had filed an application in Form GST ARA-01, dated 12.04.2019 by paying required amount of fee for seeking Advance Ruling on the following issue:

(a) What is the rate of GST applicable on outward supply of “Flavoured Milk”?

On Verification of basic information of the applicant, it is observed that the applicant falls under centre jurisdiction, Narasaraopet CGST Range, Guntur CGST Division.

Accordingly, the application has been forwarded to the jurisdictional officers with a copy marked to the State Tax authorities, Assistant Commissioner (State Tax), Narasarao peta Circle, to offer their remarks as per Section 98 (1) of CGST/APGST Act 2017. The jurisdictional officers concerned responded that there are no proceedings passed or pending relating to issue on which Advance Ruling is sought by the applicant.

6. Applicant's Interpretation of Law And Facts:

The applicant is of the view that mere adding of sugar and different flavours to milk does not change essential character of milk; flavoured milk or milk shake is consumed as a substitute for milk; and it is a simple preparation of milk; no manufacturing process is involved nor does milk changes its composition in any way and classification of flavoured milk falls under Chapter 4 of the Customs Tariff Act, 1975 and sought clarification on the applicable HSN code under the said Chapter by providing extract of the same.

7. Record of Personal Hearing:

Sri. Phani Raja Kumar Boggaram, authorized representative of the Applicant appeared for personal hearing on 16.04.2019 and they reiterated the submission already made in the application.

8. Discussion and Findings:

8.1 We have examined the issue raised by the applicant regarding the HSN code and rate of duty on their outward supply of “flavoured milk”. The relevant legal provisions are discussed hereunder.

The Section 9(1) of CGST Act, 2017 is as follows:

LEVY & COLLECTION

9(1) Subject to the provisions of sub-section (2), there shall be levied a tax called central goods and service tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and such rates, not exceeding twenty percent, as the case may be notified by the Government on the recommendations of the Council and collected in such a manner as may be prescribed and shall be paid by the taxable person.

Under Section 9(1) of CGST Act, 2017, on the recommendations of the Council, the Central Government notified specifying schedule wise GST rates on goods vide Notification No.1/2017-CT (Rate) dated 28.06.2017 (hereinafter referred to as the “said notification” for brevity) as detailed below:

(i) 2.5 per cent. in respect of goods specified in Schedule I,

(ii) 6 per cent. in respect of goods specified in Schedule II,

(iii) 9 per cent. in respect of goods specified in Schedule III,

(iv) 14 per cent. in respect of goods specified in Schedule IV,

(v) 1.5 per cent. in respect of goods specified in Schedule V, and

(vi) 0.125 per cent. in respect of goods specified in Schedule VI

Under Schedule III, at entry number 453, it is mentioned that goods which are not specified in Schedule I, II, IV, V, VI of the said Notification attract Central Tax rate of 9%.

The Explanation to the said notification is as follows;

(i) …

(ii)(a) …

(ii)(b) …

(iii) “Tariff item”, “sub-heading” “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

(iv) The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.

From the above, it is evident that the applicable rate of GST is 18% (9% CGST and 9% SGST) on all goods except the goods specified in the Schedule I, II, IV, V, VI of the said Notification. Further, for interpretation of the said notification, the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as “FS to CTA, 1975”) are to be applied.

8.2 Before applying the said interpretation, we examine the detailed process chart furnished by the claimant in regard to the preparation of “flavoured milk”.

The applicant informed that the process of the flavoured milk is standardisation of fresh milk according to the fat contents and then heating at certain temperature followed by filtration, pasteurisation, and homogenisation and then mixing of sugar and various flavours and finally bottling. As per the flow chart, it involves various operations by RMRD team, weighing team, processing team, packing team and warehousing / despatch teams and thereby it is a preparation and no more it is fresh milk after adding flavours.

The applicant did not provide any details what are the flavours they are using in the preparations. As seen from their website [http://www.tirumalamilk.com/flavoured-milk.php] they are preparing flavoured milk of various flavours like strawberry, pista, mango, vanilla, badam, chocolate, rose, saffron, cardamom etc.,

8.3 The applicant stated that (i) adding flavours to milk does not change essential character of milk; (ii) flavoured milk is a substitute for milk (iii) it is a simple preparation of milk; (iv) no manufacturing process is involved nor does milk change its composition in any way and opined that the commodity milk and milk products are enumerated in Chapter 4 and they want clarification that under which tariff item / HSN code is applicable to the above said flavoured milk. Under the GST provisions the interpretation of the said Notification is to be under the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

8.4 The applicant opines that flavoured milk is covered in Chapter 4 of FS to CTA, 1974. We examine this aspect. The Section I of FS to CTA, 1975 deals with Live Animals; Animal Products. The Chapter 4, deals goods of “DAIRY PRODUCE; BIRDS' EGGS; NATURAL HONEY; EDIBLE PRODUCTS OF ANIMAL ORIGIN, NOT ELSEWHERE SPECIFIED OR INCLUDED. Therefore, any items/goods are specified or included elsewhere in the Schedule; those items/goods do not fall under Chapter 4. The applicant stated that flavoured milk is a preparation. Section IV deals with goods of “Prepared food stuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco substitutes” and the Chapter 22 deals with items/goods of “Beverages, Spirits and Vinegar”. The tariff item no. 2202 99 30 covers “Beverages containing milk”. Now, we discuss flavoured milk is classifiable under the said tariff item or otherwise.

8.5 The Hon'ble Madras High Court in the case of the State of Tamil Nadu vs Tvl. Ganesh Corporation, vide order dated 3 April, 2012, recorded that

“as per the Oxford Dictionary “beverage” means “a type of drink except water”. In Webster's 3rd International Dictionary, “beverage” has been described as “liquid for drinking especially such liquid other than water (as tea, milk, fruit juice, beer) usually prepared (as by flavouring, heating, admixing) before being consumed”.

8.6 In the case of M/s Ernakulam Reg. Co-Op. Milk Products Union Ltd., Vs. CCE, Kochi [ 2009-236-ELT-329-TRIB- BANG], it is recorded that;

“4. We have carefully considered the submissions, it is an undisputed fact that the appellants were adding flavours to the milk and the Commissioner (A) after seeing the ingredients has considered the item to be beverage containing milk falling under Chapter 22 as against classification under Chapter 4 - 'Milk and Milk Products'. The item cannot be used as milk per se in view of the addition of flavour added to it and it has to be considered as a beverage. This is our prima facie finding.”

The Hon'ble High Court of Gujarat, in the case of M/s. KAIRA DIST. CO-OP. MILK PRODUCERS' UNION LTD Vs. UOI [2015-320-ELT-408-(Guj)] dealt the issue of classification of flavoured milk, which is as follows:

Quote

[Order per : M.S. Shah, J. (Oral)]. - What is challenged in this petition under Article 226 of the Constitution of India is the constitutional validity of the Central Government Notification No. 28/2007-Central Excise, dated 15-6-2007, particularly Serial No. 1 in the table in so far as in column No. 2, code 2202 90 30 is given to “Flavoured milk of animal origin” while giving the said item exemption from duty.

The dispute is about the flavoured milk being produced by the petitioners under the brand name Amul Kool/Amul Kool Cafe.

2. Mr. Paresh M. Dave for the petitioners has submitted as under :-

2.1 Earlier under the six digit code system prevailing till 27-02-2005, the flavoured milk made by the petitioners was falling under Entry 0401.11 which read as under :-

CHAPTER 4

DAIRY PRODUCE; EDIBLE PRODUCTS OF ANIMAL ORIGIN, NOT ELSEWHERE SPECIFIED OR INCLUDED

Notes :-

1. The expression, ‘Milk’ means full cream milk or partially or completely skimmed milk.