GST Council cannot determine classification of goods

 This tax alert summarizes a recent judgement of Madras High Court (HC) regarding classification of “Flavoured Milk” and whether Goods and Services Tax Council (GST Council) is empowered to determine classification of goods.

GST Council, in its 31st meeting held on 22 December 2018, classified “Flavoured milk” under HSN 2202.

HC observed that:

• The recommendation of GST Council is not binding on the Government.
• As long as Customs Tariff Act is adopted for the purpose of interpretation of Notification no. 1/2017-CT(R), classification has to be strictly in accordance with classification under Customs Tariff Act.
• Determination of classification does not fall within the preserve of GST Council.
• Classification ought to be independently determined by Assessing officer.
• The entry “Beverages containing milk” under tariff heading 2202 only includes “beverage” containing plant/seed-based milk.
  It cannot include milk secreted from mammary glands of milch animal, dairy animals such as cow, goats, buffalo, etc.
• Having adopted classification of ‘Goods’ under Customs Tariff Act, GST Council cannot impose a wrong classification of “Flavoured Milk” as a “Beverage Containing Milk” under heading 2202. 
  
  Accordingly, HC held that “Flavoured milk” is classifiable under HSN 0402.

Comments

• The ruling emphasizes on the important principle that classification of goods under GST needs to be done in accordance with the classification under Customs tariff Act and GST Council is not empowered to determine the same. It can only recommend the rate of tax on the goods.
• The businesses may need to assess the validity of clarifications made by GST Council and CBIC on classification of goods.
• In light of the decision, the taxpayers may also need to evaluate whether GST Council along with CBIC can, through Circulars, classify an activity as goods or services (e.g., sale of ice-cream as supply of goods and not restaurant service).