Cream is classifiable under HSN 1517 90 90, attracting GST @5%

The Uttar Pradesh AAAR, in the case of S.S. Traders, In re [Appeal Order No. 03/AAAR/2024 dated August 27, 2024] ruled that manufacturing of 'cream' which will contain vegetable fat to extent of 23% is nothing but a preparation of vegetable oil, classifiable under Heading No. 1517 90 90 and attract GST @ 5%.

Facts:

M/s S.S. Traders ("the Appellant") is a proprietorship firm engaged in trading of packaged food items and is proposing to set up a unit to manufacture a new product 'Cream' to be used in kitchen as an ingredient in food preparations or cakes etc. It will not contain any dairy fat and will contain vegetable fat to the extent of 23%. The ingredients, as per the lab test report, are Edible Vegetable Fat, Milk Solids, Sugar and Iodized Salt with constituents being Protein (2.26%), Fat (22.94%) and Sodium (0.06985 %) besides Water 67.3%), Sugar (1%) and premix of emulsifiers, stabilizers, acidity regulators etc (5.5%).

The Appellant filed an AAR for determining it is classification. The application was disposed by Advance Ruling No. UP ADRG 01/2024 dated April 15, 2024 ["the Impugned Order"] held that the appropriate heading is 2106 and is taxable @18%.

The Appellant filed an appeal against the Advance Ruling before Appellate Authority for Advance Ruling.

Issue:

Whether manufacturing of cream from vegetable oil is classifiable under chapter heading 1517 90 90?

Held:

The Uttar Pradesh AAAR, in the case of Appeal Order No. 03/AAAR/2024 held as under:

• Observed that, the notes covered under chapter 4 describe the expression milk as full cream milk or partially or completely skimmed milk. On going through the ingredients/composition of the proposed product 'Cream' as claimed by the Appellant, it is seen that edible vegetable fat is 23% and milk solids content is only 3.2%. Thus, findings in the AAR Order does not fall under Chapter Heading 0402.
• Noted that, Chapter 15 of the Tariff Act covers chapter headings related to Animal, Vegetable or Microbial Fats and Oils and their cleavage products, prepared edible fats, animal or vegetable waxes. Chapter 15 does not cover the edible preparations containing by weight more than 15% of the products of heading 0405 (generally Chapter 21).
• Noted that, the description of the product, that the percentage of edible vegetable fat is 23% and water is 67.3 % whereas, the milk solids (without animal fat) is 3.2%. The other ingredients are sugar (1%) and premix (emulsifiers, stabilizers, acidity regulators and preservatives) being 5.5%. All these ingredients are emulsified in water to make an edible preparation based on vegetable fat. It is clear that the main constituent of the final product i.e. 'Cream' is vegetable fat/oil without which the proposed product will not get its character of fat emulsion. Thus, different ingredients are mixed together to manufacture 'Cream' and out of all ingredients, content of vegetable oil (comprising of 23%) is the highest and also essential for manufacture of 'Cream', therefore, the said product becomes a preparation of vegetable oil. Further, Chapter subheading 1517 covers 'Margarine; edible mixture or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this Chapter, other than edible fats or oils or their fractions of heading 1516'. Chapter sub-heading 1517 10 covers 'Margarine, excluding liquid margarine'. As per the HSN explanatory notes, margarine (other than liquid margarine) is a plastic mass, generally yellowish, obtained from fats or oils of animal or vegetable origin or from a mixture of these fats or oil. It is an emulsion of the water-in-oil type, generally made to resemble butter in appearance, consistency, colour etc. Lastly, as per the General standards for Milk and Milk Products as provided in the 'Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011. the food product is either Table Margarine or Bakery & Industrial Margarine, if the fat content is not be less than 80 per cent mass/mass. The impugned product is indicated to have fat content of 22.94%. Thus, as per 'Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011, the impugned product 'Cream' cannot be classified as Margarine under chapter heading 1517 10. the other ingredients, i.e. sugar and premix (emulsifiers, stabilizers, acidity regulators and preservatives) are not been found mentioned in the HSN explanatory notes in respect of preparations of vegetable oil in the nature of an emulsion of water-in-oil, though it may resemble like a regular cream and it can't be understood to be Included in the proposed product to fall under chapter heading 1517. In this regard we find that the appellant has submitted that sugar contains only 1% and premix (emulsifiers, stabilizers, acidity regulators and preservatives) comprises 5.5% if the impugned product.
• Held that, since the proposed product is preparation of vegetable oil and does not contain animal fat, therefore GST rate applicable on the proposed product shall be 5% in terms of S. No. 89 of Schedule I to Notification No. 1/2017- IGST(Rate) dated June 28, 2017. The appropriate chapter heading for the product proposed to be manufactured is 1517 90 90 and appropriate rate of GST applicable is @5%.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED