GOVERNMENT OF PAKISTAN
COLLECTORATE OF CUSTOMS APPRAISEMENT (EAST)
CUSTOMS HOUSE, KARACHI
C. No.71/KAPE/DC/PCT/2021/(PT-II) Dated: 15.03.2022
PUBLIC NOTICE NO.05/2022-CCA(E)
Sub: CORRECT CLASSIFICATION OF THE GOODS DECLARED AS “TEA WHITENER”
The Inland Revenue Service (IRS), made a representation before Member Customs (Operation) challenging the earlier classification ruling of Tea Whiteners of Brand name, Tea Max, classified under PCT heading 1901.9090 by the Classification Committee vide public notice dated 05.05.2011. The IRS authorities contended that according to Test Report dated 25.05.2017 conducted by the Deputy Chemical Examiner (DCE), Customs Dry Port Mughalpura, Lahore the Tea Whiteners are not a product of Chapter 1901 and should be classified under PCT heading 2106.9090. The issue was raised by IRS in the backdrop of admissibility of zero rating & exemption under 5th & 6th Schedule of Sales Tax, 1990 Act on Tea Whiteners of various brands, being manufactured locally in Pakistan. Subsequent proceedings initiated by the IRS on the basis of said Test Report were challenged by the manufacturers on the basis that the Classification Committee has already issued Classification Ruling dated 05.05.2011 for the Tea Whiteners. The Board vide letter No.3(6) Tar-/2020 dated 13.11.2020 referred the representation to the Classification Committee for its views/comments.
2. The Classification Committee held meetings on 26.03.2021, 12.11.2021, and 19.112021. The meeting was attended by the officers of IRS and representatives of manufacturers of Tea Whiteners including M/s. Nestle Pakistan, M/s. Fauji Food Limited, M/s. Millac Foods, M/s. Sapphire Dairies, M/s. Engro Foods, M/s. Shakarganj Foods and M/s. Haleeb Foods. The representative from IRS argued that the tea whiteners manufactured in Pakistan are neither Milk preparations nor dairy products so as to be classified under PCT heading 2106.9090 as food preparations. They also argued that internationally these products are classified under HS Code 2106.9090 e.g. Nestle International classifies world’s most famous tea whitener “Coffee Mate” as non-dairy creamer on the basis of its ingredients and usage. In support of their claim, they submitted laboratory reports of various brands of Tea Whiteners conducted from Pakistan Council of Scientific and Industrial Research-PCSIR on the instructions of Classification Committee.
3. All tea whiteners manufacturers submitted their written responses to the arguments put forth by the IRS representatives and findings of lab test reports which were shared with them during meeting of Classification Committee held on 12.11.2021. All manufacturers argued that their product is milk preparation and correctly classifiable under HS Code 1901.9090. They claimed that these products are manufactured from natural milk (in case of liquid tea whiteners) and Milk Solids (in case of powdered tea whiteners) and that in final product only animal fat has been replaced with vegetable fat. Under the Custom Tariff, milk preparations obtained by replacing one or more constituents of milk by another substance are classified under heading 19.01. They further argued that the fat filled milk is produced by extracting milk fat from the milk and replacing it with vegetable fat. When milk fat is removed and 6.5% vegetable fat is added, the total solid in the milk comes to around 15% (i.e. 6.5% + 8.5% = 15%) which are much higher than the standards for milk/milk preparations. Therefore, certain amount of water is added so that the total milk solids remain at the overall milk standard i.e. around 12%. Addition of water in the fat filled milk/tea whitener is only for the purpose of bringing the solids in the preparations to the standard of around 12%. They further argued that mere addition of water for standardization and consistency of the product will not exclude it from 19.01.
4. Arguing on the legal aspect, the representation of manufacturers argued that the Customs Classification Committee in its previous ruling dated 05.05.2011 (in case of Tea Max of Haleeb Foods) and dated 11.12.2019 (in case of Tarang of Engro Foods and Dostea of Fauji Foods) has settled the classification issue of tea whiteners by classifying these products of being HS Code 1901.9090. These rulings are still in field and have not been reversed by any competent authority. The present PCT Committee, though constituted by the FBR, has not been granted any powers to overrule its earlier classification ruling. Legal Adviser of the Friesland Campina Engro Pakistan Limited also questioned the cognizance by this Committee as nothing new is on record to call for review of earlier rulings in terms of CGO 12/2002.
5. The committee after considering the arguments/written replies of the manufacturers, fresh lab test reports and view point of IRS, came to the following findings:
i. It is an undisputed position that Tea Whiteners are not the products of Chapter 04 of First Schedule to the Customs Act, 1969. This aspect is accepted by the manufacturers as well. The manufacturers argued that tea whiteners are milk preparations falling under HS Code 1901.9090. On the other hand, the IRS representatives argued that tea whiteners are neither natural milk nor milk preparations of HS Code 1901.9090. Instead, tea whiteners are food preparations of Chapter 21 falling under HS Code 2106.9090.
ii. For a product to fall within the scope of sub heading of 1901.9090, the product must fulfill following requirements in terms of explanatory Notes to sub heading 19.01, especially (III)2:
a) Product should be obtained from milk so as to contain ‘natural milk constituents’
b) It is permissible to replace one or more natural milk constituents.
c) No additives or additions other than sweeteners (not to give it character of sugar confectionery (heading 17.04) and Cocoa (not more than 5%) are permissible to be added in final product.
d) Final product of 1901.9090, despite replacement of one or more natural milk constituents, should have a character of Milk Preparation.
e) The words and expression ‘milk preparation’ in heading note signifies that product of this subheading should contain non-replaced natural milk constituents in more or less same preparation as in natural milk so as to give it essential character of milk preparation.
iii. Accordingly, it has to be seen if the products i.e. tea whiteners, under question, meet above criteria to qualify to be the products of HS Code 1901.9090. All manufacturers of tea whiteners (liquid as well as powered) claim that only Milk Fat/Animal Fat has been replaced with Vegetable Fat (Palm Oil or Oleic Acid). In case of powered tea whiteners (like Millac Foods), it has been argued that these are based on Milk Solids. Millac’s representative used the word Milk Solids, instead of Powered Milk. The manufacturers also argued that they have not replaced any other critical natural milk constituents like water (in case of liquid tea whiteners), lactose, proteins etc. which means these constituents should be there in the final product in almost same proportions. But test report conducted by PCSIR of the tea whiteners samples do not conform to the level of other natural milk constituents especially milk proteins & Lactose. Test reports show very significant variations in other natural milk constituents (other than milk fat which has been replaced by almost same ratio with vegetable fat) in tea whiteners vis-à-vis natural milk. All Tea whiteners (Liquid and powdered) contains very low lactose percentage and low percentage of milk proteins. Whereas, powered tea whiteners contain very high percentage of carbohydrates, indicating addition of the same by the manufacturers which is not permissible for the goods to be classified under PCT heading 1901.9090.
iv. M/s. Haleeb Foods and M/s. Fauji Foods, in their written replies, have accepted that after replacement of animal fats with vegetable fats, water has been added in the product to maintain balance of water and milk solids. For these tea whiteners to be classified in 1901.9090, they must contain all other natural milk constituents (other than vegetable fat) in almost same ratio as in natural milk. This very fact of low lactose and low milk proteins (critical natural milk constituents) and additions of carbohydrates without corresponding replacement is sufficient proof to hold that these tea whiteners are not milk preparations to be classified under HS Code 19.01. The US Custom ruling (NY E86141) has also classified the similar coffee whiteners under HS Code 2106.90. The coffee whiteners consisted of Lactose, Hydrogenated Vegetable fat, Glucose syrup etc. The product had been classified as food preparation of PCT heading 21.06. The representative of manufacturers of tea whiteners have failed to justify the lower content of essential milk constituents (like lactose and protein) and higher content of carbohydrates in their products.
v. The Committee has examined the arguments of M/s. Nestle Pakistan that the variation in percentage of various milk ingredients in tea whiteners does not render the subject product out of the ambit of heading 19.01, keeping in view of the above Explanatory Notes. It is observed that for product to be classified under PCT 1901.9090 milk constituents not replaced (e.g. lactose and milk proteins) should be available in final product in almost same proportion which is not the case in all tea whiteners manufactured in Pakistan as per test reports from PCSIR. Therefore, PCT heading 21.06 comes in picture in terms of GRI 1, 3(c) and 6 of Frist Schedule to the Customs Act, 1969. The contention of M/s. Nestle Pakistan has not been found in conformity with the Explanatory Notes.
vi. The arguments of M/s. Haleeb foods & Fauji Foods that final milk product (liquid) should contain, in total, 12% Milk Solids (3.5% milk fats + 8.5% Milk Solid Non Fat) has also been examined. It is observed that the manufacturers have avoided to provide the components of Milk Solid Non Fat (MSNF) that is Milk Protein, Lactose & Ash. MSNF (8.5%) should be in the ratio of Lactose 4% plus Milk protein 3.5% plus 1% Ash. In all the products under consideration, this ratio is substantially missing which signifies that tea whiteners do not conform to natural milk constituents so as to be classified under 19.01. Besides, addition of water is not allowed under heading 19.01 except sweeteners and cocoa (less than 5%). It appears that, in all liquid tea whiteners, water is added over and above natural milk water. This was confirmed by the representative of FCEPL. This aspect of addition of water and carbohydrates and very low content of lactose and proteins excludes liquid tea whitener from the scope of HS Code 19.01 and makes them eligible to be classified under heading 21.06.
vii. Representative of M/s. Millac argued that both Power Tea Whiteners and Liquid Tea Whiteners are different in formulations and not to be seen as similar products. He further argued that Tea Millac, Tea Whiteners is based on dairy milk solids where MILK SNF is the base powder with added vegetable fats and sugar. Committee examined these claims in the light of test report of Millac Tea Whitener. The test report of the Millac Powdered Tea Whiteners also shows that the product does not meet these criteria as ratio of Lactose and Protein is still very low that is 8.2% (present) against 37% (required) and 17.14% (present) as against 23% (required) respectively. Besides, the sample contained substantial percentage of Carbohydrates which should not be there, if product is to qualify for HS Code 1901.9090. Same facts and arguments, as in the case of Millac Tea Whitener, apply in the case of Nestle Everyday Powdered Tea Whitener. In similar case, where ratio of milk constituents does not commensurate with natural milk ratio, it is classified by US Customer (NYa84220) as food preparation under 2106.90. Accordingly, Committee is of the opinion that powered tea whiteners namely Everyday Tea whiteners (Nestle Pakistan) and Millac Tea Whitener (Millac Foods) do not meet the requirments of Explanatory Note to 19.01 (III)2 and are, therefore, appropriately classifiable under PCT 2106.9090 in terms of GRI 1 and 6 of First Schedule to the Customs Act, 1969 read with Explanatory Notes (A) and (B) of heading 21.06.
viii. M/s. Friesland Campina Engro Pakistan Limited has argued that the terms of heading 19.01 or the relevant section or the chapter notes to do not prescribed any percentage with respect to the remaining constituents of milk or for that of the ingredient added to milk. Therefore, the aforesaid cannot be the basis for declaring rulings dated 05-05-2011 and 11-02-2019 invalid. The Committee is of the opinion the Explanatory Notes III(2) cover replacement of one or more milk constituents with other(s). As per literal construction of the note III(2) to heading 19.01, final product should be ‘milk preparation’ OBTAINED by replacing one or more constituents OF MILK. Milk here means full cream milk or partially or completely skimmed milk (Note 1 to Chapter 4). As claimed by all manufacturers of tea whiteners, whiteners, only Milk Fat has been REPLACED, then other important milk constituents (Lactose, Milk Protein etc.) should be present in final product (Milk Preparation) in almost same ratio. That is not the case in all tea whiteness under review as per test reports including Tarang manufactured by FEPL. Besides, admission by FEPL that water is also added (as per process Chart submitted by company) in final product also disqualifies it from classification under PCT Heading 1901.9090 by virtue of its Explanatory Note III (2). In view of above, the Committee is of the opinion that tea whitener Tarang is appropriately classifiable under PCT Heading 2106.9090 as being a food preparation in terms of GRI 1 and 6 of First Schedule to the Customs Act, 1969 read with Explanatory Notes (A) and (B) of heading 21.06.
6. The objections raised on the legality of the previous rulings have also been examined and it observed that the earlier rulings of Classification Committee were based on the lab test reports which did not explicitly provided test readings of all natural milk constituents expecially lactose, protein and ash. Those reports only provided general percentage/readings of Milk Fat and Milk Non Solid Fats (MSNF). However, the previous reports did not mention the composition and ratios of lactose, protein and Ash (which collectively are known as MSNF) to determine whether these products are milk preparations or otherwise. The aspect of addition of water did not come to surface while deciding the issue of classification. This new information is sufficient to reconsider the classification of tea whiteners as to whether tea whiteners are products of HS Code 1901.9090 (Milk Preparations) or products of HS Code 2106.9090 (Food Preparations). The fresh/new Test Reports of the Tea whiteners are the new information and facts which require re-examination of earlier Rulings dated 05.05.2011 and 11.02.2019 in terms of sub-clause (b) of clause (xi) of Chapter II of the Customs General Order No. 12 of 2002.
7. The Committee, after considering the classification guideline as provided in General Interpretation Rules, relevant chapter notes [(Note I & 4(b) of Chapter 4)], explanatory notes of heading 19.01 [(para III (2) and 21.06 (A&B)], documents / test reports, the written / verbal arguments of the manufacturers and on the basis of above mentioned findings has reviewed the earlier classification rulings dated 5.5.2011 and 11.2.2019 and concluded that following tea whiteners products are appropriately classifiable under HS Code/PCT Heading 2106.9090 being food preparations in terms of GRI 1 and 6 of First Schedule to the Customs Act, 1969 read with Explanatory Notes (A) and (B) of heading 21.06.
i. Everyday Liquid Tea Whitener (Nestle Pakistan)
ii. Everyday Powder Tea Whitener (Nestle Pakistan)
iii. Dostea Liquid Tea Whitener (Fauji Foods)
iv. Tea Millac Powder Tea Whitener (Millac Foods)
v. Karak Liquid Tea Whitener (Sapphire Dairies)
vi. Tarang Liquid Tea Whitener (Friesland Campina Engro Pakistan Limited)
vii. Qudart Liquid Tea Whitener (Shakarganj Foods)
viii. Chaika Liquid Tea Whitener (Shakarganj Foods)
ix. All Mix Liquid Tea Whitener (Haleeb Foods)
x. Tea Max Liquid Tea Whitener (Haleeb Foods)
xi. Diary Queen Liquid Tea Whitener (Haleeb Foods)
8. The Committee forwarded its above findings to the Board vide report C-72/KAPE/DC/PCT2017 (PT-II) dated 10.12.2021 for approval of the Board in exercise of powers contained in GRI 2 of Pakistan Rule of First Schedule to the Customs Act, 1969. The Board vide letter C.No.3(6) Tar-I/2020 dated 14.03.2022 has concurred with the findings/recommendations of the Committee. Accordingly, the “Tea Whiteners” are notified to be classifiable under PCT heading 2106.9090.
9. This public notice is issued under chapter II of CGO 12/2002.
(Signed by)
(Muhammad Daud Pirzada)
Additional Collector
Chairman Classification Committee
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