Synopsis: The Gujarat Advance Ruling Authority vide Advance Ruling No. GUJ/GAAR/R/07/2019 has held that the product ‘Fanta Fruity Orange’ manufactured and supplied by M/s. Hindustan Coca-Cola Beverages Private Limited is classifiable under Tariff Item 2202 99 90 and Goods and Service Tax rate of 18% (CGST 9% + GGST 9%) is applicable to the said product as per Sl. No. 24A of Schedule III of Notification No. 1/2017-Central Tax (Rate) dated June 28, 2017, as amended, issued under the CGST Act, 2017 and Notification No. 1/2017-State Tax (Rate) dated June 30, 2017, as amended, issued under the GGST Act, 2017.
Facts:
M/s Hindustan Coca-Cola Beverages Private Limited (“the Applicant”) is engaged in the manufacture of aerated drinks and fruit pulp or fruit juice based drinks under different brand names, classifying the same under Chapter 22 of the First Schedule to the Central Excise Tariff Act, 1985 (“the CETA”).
The Applicant has started manufacturing FANTA FRUITY ORANGES (“the product”) which contains 10.5% fruit juice content, Carbonated Water, Sugar, Acidity Regulators, Preservatives, Stabilizers, Sweeteners, and Synthetic Food Colour.
Issue involved:
The Applicant is before the Authority for Advance Rulings (“AAR”) with a question that, whether the product is classifiable under chapter heading:
- 22029920 at S. No. 48 under Schedule-II as “Fruit pulp or fruit juice-based drinks” and taxable @12%, or
- 22029990 at Sl. No. 24A under Schedule-III as “Other non-alcoholic beverages” and taxable @ 18%, or
- 220210 at Sl. No. 12 under Schedule IV as “All goods including aerated waters, containing added sugar or other sweetening matter or flavoured and taxable @ 28%”
of Notification No. 1/2017-Central Tax (Rate) dated June 28, 2017 as amended from time to time (“the rate notification”).
Applicant’s contention
The Applicant submitted that under the erstwhile Central Excise Tariff regime, Chapter 2202 of the CETA was similarly structured with some slight variations. With effect from 1st July, 2017, the products manufactured by the Applicant are covered under the new GST Regime and the goods manufactured and supplied by the Applicants are now covered under the rate notification which has been issued under Section 9(1) of the Central Goods and Services Tax, 2017 (“CGST Act”) and the Gujarat Goods and Services Tax Act, 2017 (“the GGST Act”) respectively. The classification and the applicable rate of GST on products supplied are determined under the rate notification read with Notification No. 1/2017- State Tax (Rate) dated June 30, 2017(as amended).
The applicant has further submitted that the organisation and scheme of Customs tariff heading 2202 demonstrates that tariff sub-heading 2202 10 covers drinks which are predominantly made up of water, including mineral water and aerated water and are either sweetened or flavoured or both. Tariff sub-heading 2202 99 covers other non-alcoholic beverages. The drinks covered under this sub-heading would be imparted their essential character by another substance.
It is further submitted that a mere perusal of the nomenclature of the tariff items 2202 99 10 to 2202 99 30 clearly shows that these drinks would be known by the dominant ingredient present therein, like soya milk, fruit pulp, fruit juice, milk, etc. These drinks would be characterised by the strong presence of such ingredients, rather than only as a flavouring agent, as in the case of the drinks falling under tariff sub-heading 2202 10.
In view of the foregoing, the applicant submitted that goods falling under tariff item 2202 10 90 would cover within its ambit those drinks which are made up of water and contain orange-flavour added thereto. It is further submitted that 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 (with or without additional flavours and sweeteners), where fruit pulp/ fruit juice gives the overall/ essential character to the drink. The applicant referred to the dictionary meaning of the term “base”.
The base component of the product is orange juice which is added to the syrupy liquid consisting of water, sugar and other constituents. The percentage of orange juice is 10.5% of the total beverage. It is the active ingredient of the product in question, and imparts the basic attribute to the drink, including its taste and characteristics. Therefore, the product in question will be an “orange juice-based drink”, qualifying as “fruit juice-based drink” under the tariff item 2202 99 20.
It is also further submitted that as per the common parlance test also, the product in question would be classifiable under Tariff item 2202 99 20.
Observation and findings:
The Hon’ble AAR, Gujarat vide it’s ruling no. GUJ/GAAR/07/2019 dated March 30, 2019 observed that:
- It is the submission of the applicant that the product is classifiable as “Fruit pulp or fruit juice based drinks” falling under Tariff Item 2202 99 20 of the Customs Tariff. As per the label of the product, Orange Juice Concentrate is 1.6% of the product. As submitted by the applicant, the Orange Juice is reconstituted out of this Orange Juice Concentrate.
- Under the circumstances, a question arises whether the product can be termed as “Fruit pulp or fruit juice based drinks”. It is pertinent to note that the terms used in the said tariff item is “Fruit pulp” or “fruit juice” based drinks and the said entry do not refer to the term “Fruit juice concentrate” based drinks.
Therefore, the said entry would cover the “Fruit pulp based drinks” or “Fruit juice based drinks” only. The “Fruit juice concentrate based drink” are not covered under the said entry. It is not the case of the applicant that the product “Fanta Fruity Orange” is manufactured from “Fruit pulp” or “Fruit juice” as the said product is undisputedly manufactured from “Orange Juice Concentrate”. Under the circumstances, the said product do not fall under the Tariff Item 2202 99 20.
- Even if the “common parlance test” is applied, the industry refers the “fruit pulp or fruit juice-based drinks” differently than the “fruit juice concentrate based drinks”. Therefore, even by applying the “common parlance test”, the product “Fanta Fruity Orange” would not fall under Tariff Item 2202 99 20.
- The applicant has referred and relied on the judgement of Hon’ble Supreme Court in the case of Parle Agro (P) Ltd. Vs. Commissioner of Commercial Taxes, Trivandrum [2017 (352) E.L.T. 113 (S.C.)]. However, it is observed that the issue involved in that case was related to the classification under Kerala Value Added Tax Act, 2003 and not under the Customs Tariff Act, 1975. Therefore, the said judgement is not squarely applicable in the facts of the present case.
Basis the supra observations it is held that, the product is classifiable under Tariff Item 2202 99 90 leviable @18% (CGST 9% + GGST 9%) as per Sl. No. 24A of Schedule III of the rate notification.
Citation: [2019] 108 taxmann.com 512 (AAR – GUJARAT)