The Andhra Pradesh High Court recently ruled that badam ‘flavoured milk’ is not a beverage but is classifiable under a specific entry as ‘milk.’ The matter highlights a yet another classification issue under the goods and services tax (GST) regime, that reached the courts and baffled both the dairy industry and the taxpayers.
Simply put, Badam ‘flavoured milk’ will attract GST at the rate of 5% and not 12%, as per the court ruling. Earlier, the Madras High Court’s had ruled in the Parle Agro case last November, where it held that ‘flavoured milk’ must be classified under Tariff Heading 0402 of the Customs Tariff Act, 1974. This classification makes it liable to Central Tax at 2.5% (5% after adding SGST at 2.5%) under Entry 8 of the First Schedule of Notification No. 1/2017-CT(Rate) dated June 28, 2017.
On December 10, the Andhra Pradesh High Court reiterated the same view, relying on the Madras High Court ruling that badam ‘flavoured milk’ is not a beverage but is classifiable under the specific entry for ‘milk.’
The concern was whether flavoured milk should be placed under Tariff Heading No. 0402 99 90 (commonly referred to as 0402) or 2202 99 30 (commonly referred to as 2202). The classification would determine if it attracts GST at 5% or 12%.
The applicant, Vijaya Visakha Milk Producers, filed a return under category 0402. However, the tax department rejected this classification as incorrect and demanded a penalty.
While disposing of the petition, a division bench of Justices R. Raghunandan Rao and Maheswara Rao Kunche re-examined whether only milk falls under 0402. This entry encompasses milk, cream, skimmed milk powder, milk food for babies, and even plain or concentrated milk containing sugar or other sweetening matter.
The bench observed: “The finding of the first respondent (tax department) that ‘flavoured milk’ goes out of this entry by the addition of badam flavour also cannot be accepted. Though the entry speaks only of milk containing added sugar or other sweetening matter, flavoured milk cannot be taken out of Tariff Heading 0402 merely because of the addition of 0.5% Badam flavour.”
The court further noted that sweetened milk, when packaged and bottled for sale, would fall under the classification of milk containing added sugar or other sweetening matter under 0402.
While the drink could also be considered a beverage containing milk under 2202, the bench clarified: “The entry under 0402 is the special entry, and the entry under 2202 is the general entry, which would have to give way to entry 0402. The same principle would apply to flavoured milk,” similar to the judgment of the Madras High Court.
Sandeep Sehgal, Partner-Tax at AKM Global, a tax and consulting firm, stated: “The Hon’ble Andhra Pradesh High Court’s ruling that flavoured milk falls under the GST classification of ‘milk and cream’ (Entry 0402 9990) with a 5% GST rate, rather than ‘beverages containing milk’ (Entry 2202 9930) with a 12% GST rate, sets a significant precedent for the food and beverage industry. The ruling is in line with another ruling of the Madras High Court in the matter of Parle Agro and acknowledges the essential characteristics of the product. This decision fortifies the clarity on such products’ classification.”
Thus, by relying on the precedent set in the Parle Agro case, the Andhra Pradesh High Court’s decision provides much-needed clarity on product classification, ensuring lower tax liabilities for businesses selling flavoured milk.
