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April 29, 2022

Apple & Malt Cola Fizzy to attract 28% GST & 12% Compensation Cess

by CA Shivam Jaiswal in GST

Apple & Malt Cola Fizzy to attract 28% GST & 12% Compensation Cess

Facts and Issue of the case

Mr. Mohammed Hasanbhai Kabalai (hereinafter referred to as the applicant) submits that it intends to supply Thermally Processed Ready to Serve Fruit Beverage. The applicant cites entry 2.3.10 of the Food Safety and Standards (Food Products Standards and Food Additives) Regulation, 2011 for classification of goods. It shall be a ready to serve fruit beverage with different flavours. Presently, the applicant is not registered under GST.

The applicant initially intend to supply apple juice based drinks in the name of ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy ‘. Both the drinks will be apple juice based drinks having same ingredients and manufacturing process, the second one having an added flavour of malt.

The applicant submits that it will commercially market the products as Apple Juice based drinks or Fruit Juice based drinks and labels affixed on the product will expressly indicate the same.

The applicant has stated that different rate of tax have been charged across the Industry for similar types of drinks with similar ingredients. It submits the names of few leading market makers with name of their drinks and rate of tax charged by them.

The applicant submitted that the difference in rate of tax charged by various other manufactures is quite huge. Charging of 40% rate of tax when competitors are charging 12% makes the product unsellable and whole margin get eaten up subsequently. That in the above background, the applicant is confused and wishes to seeks the classification of the goods which it proposes to manufacture.

The applicant has submitted that to determine the classification of ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy, referred Chapter 22 “Beverages, spirits and vinegar” of the Customs Tariff and the Chapter heading which is relevant to the product is CTH 2202.

The applicant has submitted that it intends to sell Ready to Serve Fruit Beverage and it will be clearly highlighted and pointed out on the labels affixed on the packing of the beverages ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy’. These areReady to Serve Drink and is a Apple Juice based drink i.e. Fruit Juice based drink. Thus it is submitted that intent of the applicant in labelling the product in this manner depicts the fact that the product will be marketed as Ready to Serve a ‘fruit juice based beverages’ only. The products in question will be purchased by consumers considering it as a fruit juice-based drink which shall be in ready to serve state.

The applicant has submitted that The Food Safety and Standards (Licensing and Registration of Food Businesses) Regulations, 2011 (hereinafter referred to as the ‘Food Regulations’) have been framed under Section 92 read with Section 31 of the Food Safety and Standards Act, 2006 deals in Chapter II with Food Products Standards. Regulation 2.3 deals with ‘Fruit & Vegetable Products’ and in particular Regulation 2.3.10 deals with ‘Thermally Processed Fruit Beverages/Fruit Drinks/Ready to Serve Fruit Beverages’ while Regulation 2.3.30 deals with ‘Carbonated Fruit Beverages or Fruit Drinks’.

The applicant has submitted that from the Food Regulations it is apparent that drink or beverage can either be said to be ‘Thermally Processed Fruit Beverages/Fruit Drinks/Ready to Serve Fruit Beverages’ or on the other hand they can be said to be ‘Carbonated Fruit Beverages or Fruit Drinks’.

The applicant submits that drinks prepared from juice concentrates and other ingredients including water, sugar, flavours etc. and processed by heat are classifiable under the category of ‘Thermally Processed Fruit Beverages/Fruit Drinks/Ready to Serve Fruit Beverages’. On the other hand, carbonated fruit beverages or fruit drinks may be prepared from carbonated water or by the process of carbonation, however thermal processing or processing by heat is not a trait of carbonated beverages.

The applicant submits that their product is a thermally processed fruit beverages/ready toserve fruit beverage complying with category 2.3.10 as per FSSAI Regulations, 2011 having carbon dioxide as an ingredient which is used for preservation purpose only.

Food Safety and Standards (Food Products Standards and Food Additives) Regulation, 2011 was amended vide Notification dated 16th August, 2016.

The applicant submits that their said understanding is premised on the decision by Hon’ble Supreme Court in case of Commissioner of Central Excise, Bhopal v.Parle Agro Pvt. Ltd. reported in 2008 (226) E.L.T. 194 (Tri. – Del.). The issue that arose for consideration before the Tribunal and later upheld by Hon’ble Supreme Court was whether the product Appy Fizz could be classified under Tariff Item No. 2202 90 20 as a fruit juice based drink as contended by the assessee or as Aerated Water under Tariff Item No. 2202 10 10 as contended by the Revenue. The Tribunal held that the drinks based on fruit juice are specifically classifiable under Tariff Item No. 2202 90 20 and not under Tariff Item No. 2202 10.

The applicant submits that on perusal of various attached proofs it is evident that goods which merits classification under FSSAI Regulation No. 2.3.30 under point 1 or 3A i.e. Carbonated Fruit Beverage or Fruit Drink or Carbonated Beverage with fruit juice have been duly classified under entry 12B of the Notification No. 8/2021-Central Tax (Rate) dated the 30th September, 2021 with rate of tax at 28% and also under entry 4B of notification under Compensation Cess with rate at 12%.

The applicant submits that the H’ble Supreme Court has clearly classified the similar product (i.e. product similar in manufacturing process of the applicant) as fruit juice based drink in relevant entry of Central Excise Tariff. Thus the rationale for classification of the product under the Indirect Tax tariff is settled by the Court as far the entries with S.No. 48 in Schedule II and S.No. 12 in Schedule V of GST Tariff mentioned above are concerned.

Further, applicant submits that the Hon’ble Apex Court has already clearly laid with regard to a similar product that the product is not carbonated, it is thermally processed with CO2 for which help in preserving the Apple Juice concentrate. In case of applicant also, its product shall be a Ready to Serve Fruit Beverage and will be classified under FSSAI regulation no 2.3.10 instead of 2.3.30. Thus when its products are not ‘Carbonated Beverages of Fruit drink’ as per FSSAI but rather is a Ready to Serve Fruit Beverage which is thermally processed and being manufactured with CO2 being used only for preservation purposes, it cannot be classified under FSSAI Regulation 2.3.30

The applicant submits that ‘carbonated beverage with fruit juice’ are also carbonated fruit beverage/drink just with an exception regarding the quantity of fruit juice which can be below 10% but not less than 5% as defined in the FSSAI regulations. Since, the product of applicant does not qualify to be a carbonated beverage/drink primarily as per its other characteristics, hence applicant is of the view that it cannot be classified as ‘carbonated beverage with fruit juice’.

The applicant has submitted that on the contrary as ‘Fruit Juice Based Drinks’ classified under HSN 2202 99 20 have not been defined in the Tariff Schedule so they have to be understood in the sense in which the people conversant with the product and the people who deal in the product understand and buy and sell the product. Resort can also be taken to the provisions of the Regulations which governs its production, quality and consumption to understand whether the products are fruit based drinks. That whereas, the expression ‘fruit pulp or fruit juice based drinks’ falling under 2202 99 20 essentially means a drink based on fruit pulp or fruit juice which gives the overall/essential character to the drink.

The applicant submits that it has been laid down quite clearly that common parlance understanding of a product is an extension of general principle of interpretation of statue. Since no definition of fruit juice based drink has been given in the Tariff Schedule hence its popular meaning and the perception amongst the customers shall be relevant criteria for determination. Hence the products Apple Cola Fizzy and Malt Cola Fizzy are ‘fruit juice based drinks’ classifiable under HSN 2202 99 20.

The applicant has submitted that with recent amendment brought in GST Rate Schedule wherein GST Rate has been brought at entry 12B of the Notification No. 8/2021-Central Tax (Rate) dated the 30th September, 2021 with rate of tax at 28% and also under entry 4B of notification under Compensation Cess with rate at 12% under GST.

The applicant further states that it clearly specifies that under HSN 2202 all beverages which are fruit juice based drinks or are Fruit Beverages are not covered under the given classification under GST Rate Schedule. Only those drinks which are Carbonated Beverages and are not classified as Carbonated Water are intended to be classified here.

Further, submitted it is evident that entry 12B of the Notification No. 8/2021- Central Tax (Rate) dated the 30th September, 2021 with rate of tax at 28% and also under entry 4B of notification under Compensation Cess with rate at 12% under GST has been aligned with FSSAI regulation No 2.3.30 (point 1 and 3A).

The applicant submits that it has already been explained in detail with support of judgement by Hon’ble Apex Court that product to be manufactured by them is not classifiable under FSSAI Regulation No 2.3.30 under point 1 or 3A. Rather the given product as already explained is technically and commercially known as “Ready to Serve Fruit Beverage”. It uses CO2 only for preservation purposes but does not includes the process of carbonation. Hence is classified under FASSAI Regulation No. 2.3.10 which includes Ready to Serve Fruit Beverage and does not include Carbonated Beverages.

The applicant has submitted that lastly it has already been held by the Hon’ble SC that beverages which merits classification under 2.3.10 under FSSAI regulations are classified under HSN Code 2202 99 20. Thus the product of the applicant which merits classification 2.3.10 and is not a carbonated beverage but rather is Fruit Juice based Drink and hence is taxable at Entry No 48 GST rates in Tariff Notification No. 01/2017- Central Tax (Rate) with rate of 12%.

 Question on which Advance Ruling sought

What should be the classification and applicable tax rate on the supply of Ready to Serve Fruit Beverage named as ‘Apple Cola Fizzy’ and ‘Malt Cola Fizzy’ made by the applicant under Notification No. 1/2017 – CT (Rate) dated 28.06.2017 as amended up to date?

Observation of the court

Part-1:

At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act.

The applicant cites Food Safety and Standard ( Food products standards and food additives) Regulations, 2011 and refers to the meaning of Thermally processed fruit juices and carbonated fruit beverages or fruit drinks as referred in said Food safety and standards regulations, 2011.

Prior to proceeding with our discussion on the Classification of said goods, we find it prudent to place on record the position of law and thereby our thought process in subject matter:

Court hold that Classification of goods under GST is based on Tariff aligned with the HSN. The General Interpretative Rules for GST Tariff Classification are to be sequentially followed as the way to classify the goods. We are to classify within the confines of law and procedure as laid down in GST scheme of law and procedure.

The Customs Tariff is based on HSN. The Section Notes and Chapter Notes of Custom Tariff Act ( based on HSN) are part and parcel of the Custom Tariff Act, 1975 which is to say, part and parcel of law enacted by the Parliament and therefore, we are obliged to follow the classification based on Section Notes and Chapter Notes as per law. As per Rule 1 of the General Rules for the Interpretation, for legal purposes, classification shall be determined according to the terms of the headings and any Section or Chapter Notes. We shall follow the same in arriving at our pronouncement for Ruling in subject matter.

In the present case, court finds that the applicant has cited classification of subject goods based on Food safety and standards regulations. Now, the Legislature has empowered competent authority vide Section 168 CGST Act, 2017 with the power to issue Instruction or directions as per the GST scheme of law. As per CGST Act and rules framed thereunder, we do not find FSSAI empowered under GST scheme of law to issue directions/ instructions for GST Classification. Court holds that the FSSAI has been created for laying down science based standards for articles of food and to regulate their manufacture, storage, distribution, sale and import to ensure availability of safe and wholesome food for human consumption (url: https://fssai.gov.in/cms/about-fssai.php#) ; and cannot be the factor for determination of the classification of goods under the GST scheme of law and procedure. The issue whether the regulation of other statute can be used for determination of the classification under the different statute, has been addressed by the H’ble Apex Court in the case of Commissioner of Central Excise, New Delhi v. Connaught Plaza Restaurant (P) Ltd. [2012 (286) E.L.T. 321 (S.C.) – para 43]. The H’ble Supreme Court has held that it is a settled principle in excise classification that the definition of one statute having a different object, purpose and scheme cannot be applied mechanically to another statute. The same view was held by Hon’ble High Court of Bombay in the case of Kaira Dist. Co. Op. Milk Producers’ Union Ltd. v. U.O.I. [1989 (41) E.L.T. 186 (Bom.) – Paras 7 and 8]

We note that the H’ble Delhi High Court in Greatship (India) Ltd. vs UOI- 2016(338) ELT 545 (del) has held that in Interpretation of statutes, for Conflict of views between two Central Government Ministries -In such case, view taken by Ministry that is primarily responsible for policy in question, should prevail. By applying the same ratio, we find it in compliance to judicial discipline and in consonance to the laid ratio decidendi as cited, that in matters of GST Classification, we comply with the General Rules of Interpretation for GST Classification and GST Scheme of Law. Further we note that the reference to HSN explanatory Notes has persuasive value. What we intend to express is that GST Scheme of law shall be complied with for GST Classification.

Part 2:

In a common parlance sense, court notes that the names of both the goods have the word ‘ fizzy’ which gives a reasonable impression in the market that these goods are carbonated with carbon dioxide, due to the very word ‘ fizzy’ appearing in their descriptions. Court notes that it is a fact that both the goods have been carbonated with carbon di oxide (INS 290). Further, both the goods have INS 211, INS 224, INS 202 as preservatives. We are of the opinion that carbon di oxide in subject beverages has given them the carbonated effect and the goods are thereby carbonated beverages.

We note that the Tariff Heading 2202 is divided into two sub-headings, viz. sub- heading 2202 10 which covers “waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured”, and sub-heading 2202 90 which covers “other

Court refers to the Explanatory Notes of Harmonised System of Nomenclature (HSN) for Tariff Heading 2202. 

In pursuance to para 51, we are of the opinion that the subject goods which consist of water, sugar, sweetener, apple juice concentrate, flavours, aerated with carbon dioxide gas and presented in airtight containers fulfil the criteria to merit consideration for classification at HSN 220210.

We hold that subject goods, as evidenced from the Table-I at para 51, are carbonated beverages with fruit juice. Further, we, also, do notice there is a Tariff item at 22029920 with the description ‘fruit pulp or fruit juice based drinks’. Now we do observe that the subject goods having apple juice concentrate 1.9 % [Equivalent to 12.7% Apple Juice Reconstituted] appear to satisfy this description also and prima facie this heading 22029920 cannot be brushed aside as not applicable for subject goods.

Court has considered the two competing Tariffs 220210 and 220299. We note that the issue of classification of Carbonated beverage with fruit juice and the applicable GST Rate has been dealt with by the Committee of Secretaries, Fitment Committee in the GST Regime. 

From reading of Annexure III to the recommendation of the Fitment Committee, We note that the Fitment Committee has cited classification of Carbonated beverages with fruit juice at HSN 220210. We, further note that GST Council has approved the recommendation of Fitment Committee. Thus, with this, we infer that competing entries of HSN 220210 and 220299 for subject goods, is answered by the GST Council decision to be 220210 for carbonated beverages with fruit juice. In conspectus of aforementioned discussions and findings, we pass the Ruling, based on the following:

The Explanatory Notes to HSN 220210

The GST Council has approved the recommendation of said Fitment Committee, wherein carbonated beverages with fruit juice had been classified at HSN 220210.

Court abides by the decision of the GST Council, for it is legal and proper so to do, as also cited in the said H’ble Delhi High Court’s Decision at paragraph 57 of this Ruling

Conclusion

Apple Cola Fizzyand Malt Cola Fizzyare Carbonated Beverages with fruit juice, classifiable at HSN 22021090

GST is leviable at 28% on said goods.

GST Compensation Cess leviable at 12% on said Goods.

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