2023 (11) TMI 601 - MADRAS HIGH COURT

Power of GST Council to issue clarification regarding classification of goods under GST - Prayer for Certiorarified Mandamus calling for the records of the decision of the 3rd respondent GST Council’s Minutes of Meeting taken on 22nd December, 2018 - classification of flavoured milk - to be classified under HS Code No. 2202 instead of HS Code 0402 - contrary to the decision of the Hon’ble Supreme Court in COMMISSIONER OF CENTRAL EXCISE VERSUS M/S AMRIT FOOD (A. DIVISION OF AMRIT CORPORATION LTD) [2015 (9) TMI 1269 - SUPREME COURT], Articles 279 A (4), 14, 19(1) (g) and Article 265 of the Constitution of India.

Whether the petitioner is justified and questioning the wisdom of the GST Council whose decision has been accepted by the Authoritty for Advanced Ruling IN RE: M/S. BRITANNIA INDUSTRIES LIMITED [2021 (8) TMI 193 - APPELLATE AUTHORITY ADVANCE RULING, TAMILNADU]?

HELD THAT:- Second Schedule to Notification No.1/2017-Central Tax (Rate) dated 28.06.2017 prescribes 6% CGST on goods specified therein. Sl.No.50 to Second Schedule to Notification No.1/2017-Central Tax (Rate) dated 28.06.2017 prescribes 6% CGST on “Beverage Containing Milk”. Sl.No.50 to Second Schedule to Notification No.1/2017-Central Tax (Rate) dated 28.06.2017 relates to goods under Chapter Heading 2202 90 30 - The impugned recommendation of the GST in its meeting held on 22.12.2018 has concluded that flavoured milk is classifiable under HSN Code 2202 and thereby has suggested that flavoured milk will be liable to tax at 6% CGST. Consequently, flavoured milk will be classifiable under Heading 2202 of HSN. The function of the GST is not to determine the classification under the provisions of the Customs Tariff Act, 1975.

The rule of interpretation of 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 - Since, no standalone enactment has been contemplated under the present regime, for rates and for classification of the “goods” and “service”, the Parliament and State Legislatures have left it to the wisdom of respective Governments to fix rate of tax under Section 9(1) of respective GST enactments on the recommendations of GST Council.

Entry 50 to the Second Schedule to the Notification No.1/2017- Central Tax (Rate) dated 28.6.2017 has not seen any major changes. Entry 8 to the First Schedule to the Second Schedule to the Notification No.1/2017-Central Tax (Rate) dated 28.6.2017 benefit of which is claimed by the petitioner for “flavoured milk” has also not seen any major changes since its inception - As per Sl.No.50 to the Second Schedule to Notification No. 1/2017-Central Tax (Rate) dated 28.6.2017, rate of tax is 6%. According to the petitioner, “flavoured milk” is classifiable under Sl.No.8 to the First Schedule to Notification No. 1/2017-Central Tax (Rate) dated 28.6.2017 and therefore liable to tax at 2.5%.

The Hon’ble Supreme Court in AMRIT FOODS VERSUS COMMISSIONER OF CENTRAL EXCISE, UP. [2005 (10) TMI 96 - SUPREME COURT] had earlier set aside the order of the Tribunal in AMRIT FOODS CO. LTD. VERSUS COMMISSIONER OF C. EX., MEERUT-I [2002 (11) TMI 170 - CEGAT, COURT NO. IV, NEW DELHI]. Pursuant to a remand order of the Hon’ble Supreme Court in Amrit Food Vs. Commissioner of Central Excise, [2005 (10) TMI 96 - SUPREME COURT], the Tribunal had rendered its decision in Amrit Food Vs. Commissioner of Central Excise, [2006 (3) TMI 523 - CESTAT, NEW DELHI], which was appealed before the Hon’ble Supreme Court. It is in this background, the Hon’ble Supreme Court rendered its decision in COMMISSIONER OF CENTRAL EXCISE VERSUS M/S AMRIT FOOD (A. DIVISION OF AMRIT CORPORATION LTD) [2015 (9) TMI 1269 - SUPREME COURT].

“Flavoured Milk of Animal Origin” was however brought within the purview of valuation with reference to its retail price under Section 4A of the Central Excise Act, 1944 by Notification No.49/2008- CE (NT) dated 24.12.2008 as amended by Notification No.11/2011- CE(NT) dated 24.03.2011. Classification of “Flavoured Milk” continued to be under sub-heading 2202 9030. IN Notification No.49/2008-CE (NT) dated 24.12.2008 as amended by Notification No.11/2011-CE(NT) dated 24.03.2011 the description of “Flavoured Milk” was again “Flavoured Milk of Animal Origin” against tariff sub heading 2202 90 30 and was liable to tax at 1% with reference to its Maximum Retail Price(MRP) - By Notification No.17/2008-C.E. (N.T.) dated 27.03.2008, special exemption was given to “Flavoured Milk of Animal Origin” under Section 11C of the Central Excise Act, 1944. It was issued in view of the prevailing trade practice and confusion that prevailed for period between 28.02.2005 and 14.06.2007.

The Tribunal in NESTLE INDIA LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI [2017 (3) TMI 1409 - CESTAT NEW DELHI] had held that HSN notes also make it clear that the products would fall under Chapter 1901 only when natural milk constituents are added with other items such as cereal, groats, yeast, etc., or the milk constituent is replaced by another substance such as oleic acid. The Tribunal concluded that addition of small quantity of artificial flavouring substance does not change the essential nature of the product from what is covered under 0404 of the tariff.

The test that whether an artificial flavouring substance will not jettison the product from chapter 4 to Chapter 19 is not a relevant test under the GST regime.

The rival entries in the Customs Tariff Act, 1975 namely heading 0402 and heading 2202 of the First Schedule to the Customs Tariff Act, 1975 have been reproduced in paragraph No.51 of this order. The 3rd respondent GST Council has wrongly clarified that “Flavoured Milk” is classifiable under heading 2202 of Harmonious System of Nomenclature (HSN) based on Chapter Note 1 to Heading 0402 - Specifically it is stated that the flavoured milk will come within the purview of heading 0402 99 90.

The expression “milk” therefore in heading 2202 90 of the First Schedule to Customs Tariff Act, 1975, can include only “milk” from other vegetables products such as coconut milk, almond milk, peanut milk, lupin milk, hazelnut milk, pistachio milk, walnut milk or seed based milk such as sesame milk, flax milk, hemp milk, sunflower milk, or pseudo cereal based milk such as quinoa milk, teff milk, amaranth milk, etc. - It has to be therefore construed that “Beverage Containing Milk” will not include flavoured milk made out of dairy milk. “Beverage Containing Milk”, “Non-Alcoholic Beverages” can include only plant / seed based “Milk”.

The impugned recommendation of the 3rd respondent GST Council cannot be upheld. Classification ought to have been independently determined by the Assessing Officer.

Petition allowed.