The Single Bench of the Madras High Court has held that the function of the GST Council is not to determine the classification of goods under the provisions of the Customs Tariff Act, 1975. The High Court also held that flavoured milk made from diary milk is classifiable under Heading 0402 of the Customs Tariff Act, 1975 and not under Heading 2202 ibid.
Flavoured milk – Classification
‘Flavoured Milk’ was held as classifiable under Heading 0402 of the Customs Tariff Act, 1975 covering ‘Milk and cream, concentrated or containing added sugar or other sweetening matter, including skimmed milk powder, milk food for babies, other than condensed milk’. It was held that such product would therefore be liable to Central GST at 2.5% in terms of Entry 8 to First Schedule to Notification No.1/2017-CT(Rate) dated 28 June 2017.
The Revenue Department had contended that the goods (flavoured milk) should be rather classifiable under Tariff Item 2202 90 30 covering ‘Beverage containing milk’ and hence be liable to Central GST @ 6% under Entry 50 to Second Schedule to the said notification.
Rejecting the Department’s contention, the High Court in Parle Agro Pvt. Ltd. v. Union of India observed that the expression ‘Beverage containing milk’ in sub-heading 2202 90 to Customs Tariff Act, 1975 can be identified only as specie of ‘Other Non-Alcoholic Beverage’ in the said sub-heading. Relying on Chapter Note 3 to Chapter 22 of the Customs Tariff, according to which the term ‘non-alcoholic beverages’ means beverages of an alcoholic strength by volume not exceeding 0.5% vol., the High Court opined that ‘beverages containing milk’ has to necessarily contain alcohol of the specified strength in Chapter Note 3. According to the Court, therefore, ‘flavoured milk’ made from dairy milk from milch cattle/diary animals cannot come within the purview of Chapter 22 of the Customs Tariff Act, 1975.
Further, the High Court observed that the expression ‘Beverage containing milk’ appears along with ‘soya milk drink’, ‘fruit pulp or fruit juice based drinks’ in sub-heading 2202 90. It applied the principle of ‘Nosciter – a sociss’ and held that the expression ‘Beverage containing milk’ in sub-heading 2202 90 30 can include only such beverage containing plant/seed based milk. According to the Court, expression ‘milk’ in sub-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.
Reliance in this regard was also placed on the provisions of the Food Safety and Standards Act, 2006 and the definition of ‘milk’ in Food Safety & Standards (Food Products Standards & Food Additives) Regulations, 2011. The Court observed that the abovementioned provisions indicate that all dairy products are to be grouped and classified together. According to the Court, thus, in the Indian Context all dairy products are to be grouped together.
Notifications under Central Excise erroneous and not applicable under GST
It may be noted that the High Court was also of the view that the notifications issued under Sections 4A, 5A and 11C of the Central Excise Act, 1944, which classified ‘Flavoured Milk’ / ‘Flavoured Milk of Animal Origin’ as ‘Beverage Containing Milk’, were erroneous. The Court opined that since these notifications were never contested by assessees, as they benefited them, it cannot mean ‘Flavoured Milk’ infact did fall under Heading 2202.
The High Court was also of the view that classifications adopted in the notifications issued under the older Central Excise regime are not relevant for determining the correct classification under the new GST regime.
GST Council cannot determine classification
Finding that the GST Council gave a wrong recommendation in respect of classification of flavoured milk, the High Court also held that the GST Council cannot determine the classification. The Court in this regard observed that determination of classification does not fall within the preserve of the GST Council, and that it ought to have been independently determined by the Assessing Officer.
The High Court stated that as long as the Customs Tariff Act, 1975 is adopted for the purpose of interpretation of Notification No.1/2017-CT(Rate), classification has to be strictly in accordance with the classification under Customs Tariff Act, 1975. It also noted that the power of the GST Council is merely recommendatory