Dismissed

AAAR/AP/04(GST)/2019 of M/s Sri Chakra Milk Products LLP

GST AAAR9 Dec 2019AAAR/AP/04(GST)/2019

Case brief

AI extract

What is this about?

The Appellate Authority for Advance Ruling examined an appeal regarding the GST classification of flavored milk. The appellant argued for classification under HSN 0402 attracting 5% tax, while the lower authority classified it under HSN 2202 attracting 12% tax. The Appellate Authority upheld the lower ruling.

What did the court decide?

The appeal was dismissed, confirming the 12% GST rate on flavored milk under HSN 2202 9930.

AAAR/AP/04(GST)/2019 of M/s Sri Chakra Milk Products LLP — GST and Indirect Tax | GST AAAR (2019)

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qrecrqe ffi"rA

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BEFORE THE APPELLATE AUTHORITY FOR ADVANCE RULING for the State of Andhra Pradesh (Goods and Service Tax)

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(Office at O/o Chief Commissioner of State Tax, Govt. of A.P., D NO 5-56, Block-8, R.K.Spring Valley Apartment, Bunder Road, Edupugallu, Vijayawada,

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Andhra Pradesh - 521151)

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Present:

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Sri PEEYUSH KUMAR (Member) (State Tax)

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Sri NARESH PENUMAKA (Member) (Central Tax)

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The 9th day of December, 2OL9

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order /AAAR/AP/ 04(GST) / 20t9 In Application No. AAAR/10(GST)/2019

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1	Nameandaddressofthe applicant	M/s Sri Chakra Milk ProductsLLP., D.No.23B,Bendapudivari Street RamachandraRaopet,Eluru-534002 West GodavariDistrict,A.P.
2	GSTIN	37ACOFS4636G2ZO
3	DateoffilingofFormGST ARA-02	L2.O9.2019
4	DateofPersonal Hearing	19.11.20L9
5	AuthorizedRepresentative	SriS.Dwarakanath,Advocate Hyderabad
6	JurisdictionalAuthority State	Assistant Commissioner(ST),Eluru Circle, Eluru Division.

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ORDER

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M/s Sri Chakra Milk Products LLP., Door No: 238-2-298, Bendapudivari Street, Ramachandra Rao Pet, Eluru - 534002, West Godavari District, Andhra Pradesh (hereinafter referred to as appellant) registered under the Goods & Services Tax. The appellant engaged in manufacturing of milk and milk products including flavored milk. The appellant seeks clarification regarding the HSN code, and rate of duty on their outward supply of "flavoured milk".

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The appellant had filed an application before the Appellate Authority for Advance Ruling in ARA-02 dated L2.09.2019, contending the Ruling passed by the Authority for Advance Ruling, A.P vide Ruling AAR NO. 27/AP/GST/20L9, Dated t5.O7.20L9.

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1. Brief History of the Case:

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1, The appellant is engaged in the business of processing and sale of milk and milk products including flavoured milk, The appellant submits that flavoured Milk is obtained by adding sugar and different flavours to milk which does not change the essential character of milk. He states that it is a substitute for milk and a

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simple modification of milk which involves no manufacturing process. The appellant submits the process of obtaining flavoured milk as follows:

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"The process of the flavoured milk is standardization of fresh milk according to the fat contents and then heating at certain temperature folowed by filtration, pasteurization, and homogenization and then mixing of sugar and various flavours and finatly bottting. As per the flow chart, it involves various operations by RMRD team, weighing team, processing team, packing team and warehousing / dispatch teams and thereby it is a preparation and no more it is fresh milk after adding flavours. The appettant obtains flavoured mitk of badam,,.

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The appellant in his plea to the AAR, A.P had raised following question. (a) what is the rate of GST applicable on outward supply of ..Flavoured Milk,,?

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The Authority for Advance Ruling, A.p, had ruled that .flavoured milk, is classifiable under tariff item 2202 9930 of the First schedule to the customs Tariff Act, 1975 as a "beverage containing milk" under HS code 2202. The rate of tax applicable for the said tariff item is 12olo GST (60lo cGST + 60/o 5GST) under entry no' 50 of schedule II of Notification No.l/20r7 - central (Rate) dated 2g.06.zo;7 as amended.

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Aggrieved by the Ruling passed by the AAR, A.p vide ccsT Ruling No'27/AP/GST/20L9, Dated L5.07.20L9, the appellant preferred the present Appeal before the Appellate Authority for Advance Ruling, in ARA-02, with the following contention.

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The Appellant prays that the Appellate Authority for Advance Ruling to setaside the order of the Advance Ruling and declare the GST rate on flavoured milk as 5olo dS per HSN o4o2 9990 under Notification No. Llzol7 - Central Tax (Rate),

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2. Grounds of appeal:

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2'L' The appellant (M/s Sri chakra Milk Products LLp.,) prays that the AAR has erred in holding that Flavored Milk manufactured is classifiable under HSN code 2202 and not under HSN code 04a2. The said Ruling is illegal and contrary to law and the HSN Codes.

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2'2' The appellants states that, for classifying the commodity under the relevant schedule to the Goods and services Tax Act, attracting different rates of taxes, one has to look to the HSN Codes, prescribed under the Customs Tariff Act, L975' The Rules for interpretation of First Schedule to the Customs Tariff Act, including the section, chapter notes and general explanatory notes of the first schedule, shall so far as may be applied to the interpretation of Notification L/2077 Central Tax (Rate), dated 2g.6.20L7.

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2'3' The appellant opines that AAR has unnecessarily placed heavy reliance upon the Minutes of the 31st GST council Meeting in coming to conclusion of the Ruling. While discussing the rate of tax on flavoured milk in Annexure-3 to the Minutes, at Serial No.1g, the conclusion is as under:

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1' The Explanatory Notes to HSN describe the goods classifiable under the heading 0402 as under:

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This heading covers mitk (as defined in Note 7 to this chapter) and cream, whether or not pasteurised, sterilised or otherwise preserved, homogenised or peptonised; but it excludes mitk and cream which have been concentrated or which contain added sugar or other sweetening matter (heading 04.02) and curdled, fermented or acidified mitk and cream (heading 04.03). The products of this heading may be frozen and may contain the additives referred to in the General Explanatory Note to this chapter. The heading also covers reconstituted milk and cream having the same qualitative and quantitative composition as the naturar products.

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Flavoured mirk is crassifiabre under HS code 2202.

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3' Fitment committee does not recommend issuance of such clarification. However, the Explanatory note to HSN code o4o2 actually reads

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as under:

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,,MILK AND CREAM, CONCENTRATED OR CONTAINING ADDED IUGAR oR OTH ER SWEETENING MATTER-.

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2'4' The appellant contends that explanatory note, as extracted against Serial No'18 for flavoured milk in the Minutes is not factually correct and the appellant is categorical about the same. After due verification, the appellant is certain that the above extract as appearing in the Minutes as well as the impugned Ruling is erroneous and not truly contained in the Explanatory Note to HSN 0402. Therefore, no credibility can be acceded to the Minutes or the reliance placed on the same in the impugned Ruling.

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2'5. The appellant also states that, undoubtedly, flavoured milk will squarely fall within the scope of HSN 0402. It is more specific entry rather than HSN 2202 which deals with beverages, spirits and vineg ar. O4O2 reads as follows: O4O2 "MILK AND CREAM, CONCENTRATED OR CONTAINING ADDED SUGAR OR OTHER SWEETENING MATTER'

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0402 10 In powder, granules or other sotid forms, of a fat content, by weight not exceeding 1.5o/o:

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0402 10 10 --- Skimmed Mitk

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0402 10 20 --- Milk food for babies

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0402 10 90 --- Other

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In powder, granules or other sotid forms, of a fat content, by weight exceeding 7.5o/o:

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0402 21 00 -- Not containing added sugar or other sweetening matter

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0402 29 -- Other:

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0402 29 10 --- Whote mitk

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0402 29 20 --- Milk for babies

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0402 29 90 --- Other

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Other:

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0402 91 -- Not containing added sugar or other sweetening matter:

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0402 91 10 --- Condensed mitk

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0402 91 90 --- Other

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0402 99 -- Other:

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0402 99 10 --- Whote mitk

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0402 99 20 --- Condensed milk

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0402 99 90 --- Other

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2'6' The appellant takes the reference of Hon'ble Supreme Court in the case of CCE Vs' Amrit Food decided on 3.9.2015 (324 ELT 418) has observed in paras 5, 6 & 7 as under:

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5' Chapter Heading 04.04 deals with other dairy produce; edibte products of animal origin not elsewhere specified or included, Thus, att the dairy produce other than those which are specified elsewhere (for example, ice cream is covered by chapter Heading 21) are covered by Chapter Heading 04.04. We would also like to mention here that Heading 04.01 which is the main heading gives the description of goods as:__

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04.01	Milk andcream,concentrated or containingadded sugar or othersweeteningmatter
	- Inorin relationto themanufacture of which anyprocess isordinarily carriedonwiththeaidofpower:
0401.11	Flavouredmilk, whethersweetenedor not, putupon Nilunitcontainers andordinarily intendedforsare
0401.72	Skimmed milk powder,specially preparedforfeeding infants
0401.13	Milk powder,otherthanpowder specially preparedfor feeding infants, put up inunitcontainersand ordinarilyintendedforsale.
0401.t4	concentrated(condensed)milk,whethersweetened or not, putup in unitcontainers andordinarilyintended forsale
0401.90	Other
0401.90	Other"

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6' It is clear from the aforesaid that att the products of mitk and cream would be covered by this Chapter Heading and the addition of sugar or other sweetener would not make any difference.

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7' since the products in question are the mix of mitk as well as mitk powdert as far as milk, viz., flavoured mitk is concerned, it is covered by sub-Heading 0401.77 and, skimmed mitk powder and mitk powder are covered by 0401.12 and 040 1. 73 respectively.

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The appellant states that the observations of supreme court are clear to the effect that the products of milk would be covered by this chapter and addition of

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sugar or other sweetener would not make a difference. Flavoured Milk is obtained by adding sugar and different flavors to the milk, which does not change the essential character of milk. It is a substitute for milk and a simple modification of the milk, with no manufacturing process involved.

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2.7.Ihe Appellant submits the following process of the flavoured milk. Flavoured milk is a result of standardization of fresh milk according to the fat contents and then heating at certain temperature followed by filtration, pasteurization, and homogenization and then mixing of sugar and various flavours and finally bottling. As per the flow chart (attached), it involves various operations by RMRD team, weighing team, processing team, packing team and warehousing / dispatch teams. The appellant renders flavoured milk of badam.

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2.8. The appellant contends that AAR has misplaced reliance upon the following decisions:

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(1) Decision of Madras High Court in State of Tamilnadu Vs. Tvl, Ganesh Corporation, dated 3.4.2012wherein it was observed as under:

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"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".

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The appellant opines that the above judgment did not arise under the Customs Tariff Act but under the Sales Tax Act. Since, the interpretation of Tariff Act was not involved, the judgment cannot be said to be a binding or a useful precedent. Chapter Heading 2202 specifically includes water under the category of beverages, spirit and vinegar, whereas the observation of the High Court is that the beverage would not include water. Hence, this decision, which arose under the sales tax provisions could not have been applied in ascertaining the rate of tax on flavoured milk.

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(2) Decision of Kerala High Court in Ernakulam Reg. Co-op Milk Products Union Limited Vs. CCE, Kochi (236 ELT 329):

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The appellant states that AAR had erred in relying upon this decision since it is only an interim order of the Court but not a final decision. The observation of the Hon'ble Court that Flavoured Milk would prima facie fall under Chapter 22 but not under Chapter 4 was one of the prima facie indicators, while granting stay on payment of Rs.1.00 lakh. The AAR could not have relied on the interim order of the Court since it is not a binding precedent.

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(3) Decision of Gujarat in Kiara Dist. Co-op Milk Producers Union Ltd. Vs. Union of India (320 ELT 408):

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The appellant states that the decision cited also does not lay down the proposition that Flavoured Milk will fall under Chapter22 but not under

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Chapter4. The Hon'ble Court recorded the submission of either sides and observed as under:

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As regards pendency of the proceedings arising from the show-cause notice, it will be open to the petitioners to make a request before the Commissioner of Central Excise to adjourn the hearing suitabty so as to await the decision of the Central Government on the representation. We are sure that such a request will be considered by the Commissioner in the proper perspective when the matter comes up for hearing before the Commissioner on 16-8-2007.

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The petition stands disposed of in the above terms.

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It is clear that there is no law laid down by the Gujarat High Court in the said decision. The matter was left to be decided by the Central Government on the representation to be filed by the assessee therein.

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2.9. The appellant further states that AAR had erred in ignoring the decision of the Supreme Court in CCE Vs. Amrit Food (324 ELT 418) on 3.9.2015 which is directly on the point as discussed above and amounts to a binding precedent under Article l4L of the Constitution of India.

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The appellant opines that AAR ought to have seen that the eight digit code introduced from 28.2.2005 will cover flavoured milk under Sub-Heading-04o2 9990.

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3. Personal Hearing

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The Personal Hearing was called on 19th November 2019, for which the authorized representative Sri S. Dwarakanath, Advocate attended and reiterated the written submission. In addition, the appellant made further submissions citing the following judgments and orders at the time of Personal Hearing and the physical copies of the same are submitted on 25.11.2019 to this authority as under:

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(1) The decision of Hon'ble Supreme Court in the case of CCE Vs. Amrit Food (324 ELr 418) (SC).

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(2) The decision of the Advance Ruling Authority, Karnataka in Advance Ruling No. KAR ADRG BB/20L9, dated 26.09.20L9 in the matter of Karnataka Cooperative Milk Producers Federation Limited, Bengaluru.

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(3)The decision of the Kerala High Court in Ernakulam Reg Cooperative Milk Products Union Limited Vs. CCE, Kochi (236 ELT 329). (An Interim Order but not a final decision);

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4. Discussion & Findings:

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We have gone through the entire submission made by the appellant along with the Ruling pronounced by the Authority for Advance Ruling. On perusal of the appeal and submission made by the appellant at the time of Personal Hearing, it is observed that the main issue of contention is whether

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'flavoured milk' is classifiable under tariff item 2202 9930 of the First Schedule to the Customs Tariff Act, 1975 as a "beverage containing milk" with the rate of tax as 120lo GST (60lo GGST + 60/o SGST), as per the ruling of AAR or it is classifiable under HSN 0402 9990 with the rate of tax as 5% under Notification No.L/20L7 - central Tax (Rate) as per the contention of the appellant.

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When we look into the chronology of the events, the flavoured milk was classified under entry 0401.11 under the 6 digit code system prevailing till 27.02.2005 as under:

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Heading No.	Sub- heading No,	Descriptionof goods	Rate of duty
(1)	(2)	(s)	(4)
04.01	0401.11	Flavouredmilk, whethersweetened	Nit.
		ornot,putupin unitcontainersand ordinarilyintended forsale.

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Later on, even under the 8 digit code introduced from 28.02.2OO5 flavoured milk was categorically placed under chapter IV Heading No.0402 9990 as under

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CHAPTER 4

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DAIRY PRODUCE; BIRD'S EGGS; NATURAL HONEY; EDIBLE PRODUCTS OF ANIMAL oR/G/N, NOT ELSEWHERE SPECIFIED OR INCLIJDED

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lVotes.'-

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The expression 'milk' means full cream milk or partialty or completely skimmed milk.

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Tariffltem	Descriptionofgoods	Unit	Rate of duty
(1)	(2)	(3)	(4)
0401	Milk andcream,not concentratednorcontaining addedsugar or other sweetening matter.
0402	Milkand cream,concentrated orcontaining added sugar or othersweetening matter.
040291	Notcontaining addedsugar or othersweetening matter.
040299	Other
04029910	Wholemilk	kg,	Nil
0402 99 20	Condensedmilk	kg.	160/o
04029990	Other	kg.	Nil

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Further, the classification of the products in question had been changed, vide the basic Notification No. 3/2OO5-C.E., which is a general exemption notification prescribing effective rate for various excisable goods, and it is under this general exemption notification that Sr. No, 11A has been inserted from 15-62007 thereby specifying nil rate of duty for flavoured milk of animal origin as under

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Sr. No.	Notifica No,and	tion date			Amendments
(1)	(2)
1.	3/2005-Central dated the Februar	Excise 24th	thereto, the	following S.	No.andentriesshallbeins	erted,namely:_
	y, IG.S.R.^95(E),	2005 dated	(1)	(2)	(3)	(4)
	the24thFe 2OOsl	bruary,	"11A.	220290 30	Flavouredmilkof animalorigin	Nil'

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Thus, when we look into the turn of events over a period of time during the Central Excise regime, the goods under dispute had been finally placed under Chapter 22 with a specific entry mentioned as "flavoured milk of animal origin,, with classification particulars as falling under 2202 g0 30 by way of Notification No. 3/2005-c.E as mentioned above, which makes it evident that it needs no further interpretation in the matters of classification of the goods in dispute.

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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.€., 'flavoured milk' as such is not mentioned as a specific entry in any of the schedules as per the Notification No.L/20L7 central Tax (Rate) dt: 2g.6.20L7. we examine the competing entries under Schedule I with Tax Rate of 5o/o (CGST 2.5o/o +SGST 2.5o/o) and under Schedule II with Tax Rate of L2o/o (CGST 60lo +SGSf 60/o) as under

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Schedule I - 2.5o/o

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S.No	Chapter/Heading/ Sub- Heading/Tariff item	DescriptionofGoods
B	0402	Milkandcream,concentratedorcontainlhg addedsugarorothersweeteningmatter, including skimmedmilkpowder,milkfoodfor babies[other thancondensedmilk]
	Chapter/Heading/	ScheduleII-60/o
S.No	Sub- Heading/Tariff item	DescriptionofGoods
50	2202 9030	Beveragescontainingmilk

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As there is ambiguity in the classification of the instant product, 'flavoured milk' i.e., whether it is to be considered under either O4o2 or 2202 90 30 as mentioned above, the issue has been discussed and recorded in the Agenda for 31't GST council Meeting Volume-II dt: 22.L2.zotg as under, clarifying the classification issue.

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s. No	Descrip tion	HSN	Prese nt GST Rate (o/o)	Reque sted GST Rate (o/o)	Comments
r8	Flavoured Milk	2202	l2	Clarifica tionon thatitis classific able under Chapter 4	1.TheExplanatory Notesto HSNdescribe thegoods classifiable undertheheading 0402asunder: Thisheading coversmilk(asdefinedin NoteIto this Chapter)and cream, whether ornotpasteurised,sterilisedorotherwise preserved,homogenisedor peptonised;but itexcludesmilkandcreamwhichhave beenconcentratedorwhichcontainadded sugarorothersweeteningmatter(heading 04.02) andcurdled,fermentedoracidified milkand cream (heading04.03). Theproductsofthisheading maybefrozen andmaycontaintheadditivesreferred toin theGeneralExplanatoryNotetothis Chapter.Theheadingalsocovers reconstitutedmilkandcreamhavingthe samequalitativeandquantitative compositionas thenaturalproducts. 2.Flavouredmilkisclassifiableunder HScode 2202. 3.Fitment Committeedoesnotrecommend issuanceofsuchclarification.

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In this regard this authority opines that the contention of the appellant that too much of reliance being placed on the Agenda of the 31't GST Council Meeting volume-Il dated: 22.12.2018 clarifying the HSN code and rate of tax of flavoured Milk by the AAR is presumptuous of nature. Moreover the appellant's argument that the extract of the clarification given in the minutes of the GST Council Meeting is not contained in the explanatory note to HSN 0402 and therefore no credibility can be acceded to the minutes is erroneous. The very purpose of mentioning the specific entry of 'Flavoured Milk' in the minutes of GST Council Meeting is meant to give clarification.

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The appellant has referred to the decision of the Advance Ruling Authority, Karnataka in Advance Ruling No. KAR ADRG 88/2OL9, dated 26.09.2019 in the matter of Karnataka Cooperative Milk Producers Federation Limited, Bengaluru. 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.

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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

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mentioned elsewhere or not. Chapter 22 dealing with goods /items of

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"Beverages, spirits and vinegar" carries the following entry as under.

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CHAPTER 22

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Beverages, spiritsandvinegar
Description ofgoods
Beveragescontaiffi milk

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Now we proceed to examine whether 'flavoured milk' can be considered a beverage containing mirk. In common parrance, a beverage is ,,(chiefry in commercial use) a drink other than water. It is a liquid for drinking especialty such liquid other than water (as tea, milk, fruit iuice, beer) usualy prepared (as by flavouring, heating, admixing) before being consumed,,. The instant product, the flavoured milk is undoubtedly a beverage containing milk. It is moreover, a 'preparation' made as per the description given by the appellant in the flow chart submitted by him.

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It could be inferred from the above discussion that even though the product in question is a dairy produce and also an edible product of animal origin, the qualifier that it is "not elsewhere specified or included,, makes it ineligible to be classified under the chapter 4. The product in dispute as it is already specified and included under chapter 22 dealing with goods /items of "Beverages, spirits and vinegar" makes it ineligible to be classified under chapter 4. Thus, the commodity 'flavoured milk' merits classification under beverage containing milk under tariff heading 2202 g0 30. The rate of tax applicable for the said tariff item is 12olo GST (60lo GGST + 60/o SGST) under entry no. 50 of Schedule II of Notification No.1/2017 - central (Rate) dated 2g.06.2017 as amended.

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In view of the aforesaid, we are of the opinion that the Ruling of the AAR is in tune with legal position and it needs np interference and the appeal is accordingly dismissed.

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ORDER

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we confirm and uphord the decision of the rower Authority.

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Sd/- Peeyush Kumar Sd/- Naresh^penumaka Chief Commissioner (State Tax) Chief Commissioner (Central Tax) Member Member

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//t.c.f .b.o//

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Assistant Comm ner (ST)

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