28% GST on “Fizzy Apple” and “Fizzy Malt”─ Whether AAR, Rajasthan’s ruling is correct

AAR, Rajasthan has pronounced judgment on 15.12.2021, in the case of Suresh Kumar Mourya (2022) 37 J.K.Jain’s GST & VR 108, that;

“The supply of Ready to Serve Fruit Beverage named as “Fizzy Apple” and “Fizzy Malt” made by the applicant is classifiable as ‘Carbonated Beverages with Fruit Juice’ under entry No.12B of HSN Code 2202 under Sch.IV, per notfn No.01/2017-CT(R) dated 28.6.2017 as amended vide notfn No.8/2021-CT(R) dated 30.9.2021 and is liable to GST @28% & 12% Compensation Cess per notfn No.1/2021-CC(R) dated 30.9.2021”.

1. Background ─ The issue is related to the classification and applicable rate of fruit beverages namely ‘Fizzy Apple’ and ‘Fizzy Malt’ under the GST Act.

The applicant is planning to start a business of a manufacturing concern to engage in manufacture and sale of Ready to Serve Fruit Beverage Namely “Fizzy Apple” and “Fizzy Malt”.

The applicant under their submission stated that raw material ingredients for preparation of the products ‘Fizzy Apple’ and ‘Fizzy Malt’ are Water, Sugar Apple Juice Concentrate (1.9%) [Equivalent to 12.7% Apple Juice Reconstituted], Carbon Dioxide, Acidity Regulators, Preservatives, Antioxidant, Natural Color, Added Flavor. Further, in the process of manufacturing of aforesaid product, after the thermal processing, Carbon Dioxide Co₂ is purged in the Fruit beverage for preservation. The applicant also stated that the 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 i.e., ‘Fizzy Apple’ and ‘Fizzy Malt’ 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 in notfn No.01/2017-CT(R)  with rate of 12%.

2. Findings by AAR ─ The relevant provisions of the statute are as under–

The Chapter 22 “Beverages, spirits and heading which is vinegar” and the Chapter relevant to the product of the applicant is Chapter Heading 2202 of the First Schedule to Customs Tariff is as under:

The relevant entries for GST rates in Tariff notfn No.01/2017-CT(R) dated 28.6.2017 for products falling u/HSN 2202 were as under:

Further there was an Entry in notfn No.1/2017-CC(R) dated 28.6.2017, which is as under;

With effect from 1.10.2021, a new entry has been added in the Goods Tariff notfn under Schedule IV having rate of tax as 28% vide notfn No.8/2021-CT(R)  dated 30.9.2021 which read as under.

Vide entry 4B of Notfn No.1/2021-CC(R) dated 30.9.2021 Compensation Cess @ 12% has also been levied. Details are as under:

3. Analysis by ARA ─ As per meaning collected from various dictionaries the meaning of word “fizzy” is carbonated or gassy and Co₂ added product. Fizzy drinks are drinks that contain small bubbles of carbon dioxide. Further, as per wikipedia Carbonation is a chemical reaction of carbon dioxide to give carbonates, bicarbonates, and carbonic acid. As per British dictionary carbonation is absorption of or reaction with carbon dioxide. Carbonation is addition of carbon dioxide gas to a beverage, imparting sparkle and a tangy taste and preventing spoilage.

The case laws cited by the applicant are not applicable in this case as the facts are different from the present case.

4. Conclusion by AAR ─ In view of above provisions, interpretation and facts, we are of the view that products namely ‘Fizzy Apple’ and ‘Fizzy Malt’ are fruit beverage which containing fruits juice in a determined quantity. In the process of manufacturing of these products, the addition of carbon dioxide gas (Co₂) is an essential element. The word “fizzy” goes for carbonated or gassy and Co₂ added product which contain small bubbles of carbon dioxide. As far as carbonation is concerned, carbon dioxide (Co₂) plays it role in the process. Carbonation is addition of carbon dioxide gas to a beverage, imparting sparkle and a tangy taste and preventing spoilage. Thus, we find that ‘Fizzy Apple’ and ‘Fizzy Malt’ are Carbonated Beverages with Fruit Juice and will classify under entry No.12B bearing HSN Code 2202 of the notfn No.01/2017-CT(R) dated 28.6.2017 as amended vide notfn No.8/2021-CT(R) dated 30.9.2021 and attract tax rate @28% (14% CGST+14% SGST) and also attract Compensation Cess under entry 4B of notfn No.1/2017-CC(R) dated 28.6.2017 as amended vide notfn No.1/2021-CC(R) dated 30.9.2021 with rate @12%.

5. Ruling by AAR ─ In view of the extensive deliberations as herein above, the AAR ruled as under:

For reasons as discussed in the body of the order, the questions are answered thus:

Question:–What should be the classification and applicable tax rate on the supply of Ready to Serve Fruit Beverage named as “Fizzy Apple” and “Fizzy Malt” made by the applicant under notfn No.1/2017-CT(R) dated 28.6.2017 as amended up to date?

Answer:–The above said product will be classified under entry No. 12B bearing HSN Code 2202 of notfn No.01/2017-CT(R) dated 28.6.2017 as amended vide notfn No.8/2021-CT(R) dated 30.9.2021 and attract tax rate @28% (14% CGST+14% SGST) and also attract Compensation Cess under entry 4B of notfn No.1/2017-CC(R) dated 28.6.2017 as amended vide notfn No.1/2021-CC(R) dated 30.9.2021 with rate @12%.

Our Analysis ─ It is respectfully submitted that the product ‘Appy Fizz’ is a Thermally Processed Fruit Beverage/Ready to Serve Fruit Beverage with declared classification has already decided by Supreme court wherein it has been ingredients, complying with category 2.3.10 as per FSSAI Regulations, 2011 despite having carbon dioxide (0.6%) as an ingredient which is used for preventing spoilage only. It is classifiable as a fruit drink with more than 10% of juice content, under HSN code No.2202.90.20.[1] The Rajasthan High court has also granted stay on 24.8.2021[2], which is still continuing.

Since the product of applicant does not qualify to be a carbonated beverage/drink, it falls outside the entry 12A of Schedule IV. As such, “Fizzy Apple” and “Fizzy Malt are “Fruit based Juice” classifiable under HSN code 2202.90.20 under entry No.48 of Schedule II, based on Supreme Court case. Accordingly, it is liable to GST@12% without any Compensation Cess.

For further details, incorporating FSSAI Regulations, 2011 etc. on carbonated beverage/drink, refer my analysis given in the magazine (2022) 37 J.K.Jain’s GST & VR 108.

CA Om Prakash Jain s/o J.K.Jain, Jaipur

Tel:9414300730

[1].(2017) 28 J.K.Jain’s GST & VR 1 Parle Agro (P) Ltd. v. Commissioner of Commercial Taxes                             SC

[2].(2021) 36 J.K.Jain’s GST & VR 223 Epicu Agro Products Pvt. Ltd. v. Dy. Commissioner (State Tax) (Raj)