Flavoured milk is classifiable under the Tariff heading 0402 99 90 and taxable @ 5%: AAR

Synopsis: The Hon’ble AAR, Karnataka in the matter of M/s Karnataka Co-operative Milk Producers Federation Ltd. in Advance Ruling No. KAR ADRG 88/ 2019 decided on September 26, 2019  held that Flavoured milk is classifiable under the Tariff heading 0402 99 90 which covers “milk and cream, concentrated or containing added sugar or other sweetening matter”

Facts:

M/s Karnataka Co-operative Milk Producers Federation Ltd. (“the Applicant”) is engaged in the business of processing of milk and milk products. They are manufacturing and marketing Flavoured Milk and classified the same under Chapter 4 with HSN 0402 99 90 taxable at 5%.

The FSSAI describes “Flavoured Milk” as under:

“Flavoured Milk” means the product prepared from milk and other products derived from milk, or both, and edible flavourings with or without addition of sugar, nutritive sweeteners, other non-diary ingredients including, stabilisers and food colours. Flavoured milk shall be subjected to heat treatment as provided in sub-regulation 2.1.1′.”

The composition of the instant product and the percentage of the said constituents are as under:

Issues involved:

Whether the Flavoured Milk is to be classified under HSN 0402 99 90 or under 2202 99 30 or under any other Chapter of the Customs Tariff Act, 1975 (“Custom Tariff Act”)?

Held:

The Hon’ble AAR, Karnataka in Advance Ruling No. KAR ADRG 88/ 2019 decided on September 26, 2019 held as under:

• The court observed that the “flavoured milk” is not a water-based drink whereas the tariff heading 2202 deals with water-based beverages and other non-alcoholic beverages. Therefore, it could be inferred that the pre-dominant part of the beverages covered under the heading 2202 is water. In the instant case the pre­dominant constituent is milk and hence the “Flavored Milk” does not merit classification under beverage containing milk, under tariff heading 2202 9930, but merits classification as milk, under tariff heading 0402.
• Tariff heading 0402 covers “milk and cream, concentrated or containing added sugar or other sweetening matter”. The instant product ‘flavoured milk’ is covered under ‘milk’ as discussed supra. Therefore, the instant product merits classification under tariff heading 0402 99 90.
• Further, this AAR has also relied on the Hon’ble High Court of Allahabad in the matter of Gujarat Coop. Milk Marketing Federation Ltd. Vs State of UP vide 2017(5)0STL 351(All), has held that flavoured Milk is a form of Milk. The Court has also specifically observed that flavoured milk is a form of milk as it is neither a derivative of milk nor a milk product.

Relevant provisions:

Heading 0402 under Custom Tariff Act:

Heading 2202 under Custom Tariff Act: