GST Council Cannot Determine Classification Of Goods – Flavoured Milk Made From Dairy Milk Is Not ‘Beverage Containing Milk’ Under Heading 2202 – Sales Taxes: VAT, GST – DairyScoop

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

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