Badam flavoured milk classified under ‘milk,’ attracts 5% GST, rules Andhra Pradesh HC
Badam ‘flavoured milk’ is not a beverage but is classifiable under a specific entry as ‘milk,’ the Andhra Pradesh High Court has ruled. This means Badam ‘flavoured milk’ will attract GST at the rate of 5 per cent and not 12 per cent.
This is in line with a ruling by the Madras High Court in the matter of Parle Agro last November, when it said that ‘flavoured milk’ must still be classified under Tariff Heading 0402 of the Customs Tariff Act, 1974 and is, therefore, liable to Central Tax at 2.5 per cent (5 per cent after adding SGST at 2.5 per cent) in terms of Entry 8 to the First Schedule of Notification No. 1/2017-CT(Rate) dated June 28, 2017. The same was relied upon in the ruling by the Andhra Pradesh High Court on December 10.
The issue in question was whether flavoured milk should be placed under Tariff Heading No. 0402 99 90 (better known as 0402) or 2202 9930 (better known as 2202). While the former heading attracts GST of 5 per cent, the latter requires a payment of 12 per cent. The applicant, Vijaya Visakha Milk Producers, filed a return under category 0402. However, this was rejected by the tax department due to incorrect classification. Additionally, a penalty was demanded.
Disposing of the petition, a division bench of Justices R Raghunandan Rao and Maheswara Rao Kunche examined whether only milk is to be treated under 0402. The said entry not only enumerates milk per se but also cream, skimmed milk powder, milk food for babies, etc. It includes even plain or concentrated milk containing sugar or other sweetening matter. This entry clearly incorporates milk and milk products. For example, milk food for babies, by normal standards, is not milk. However, it is treated as falling under 0402. Thus, the test propounded by the tax department that only plain milk is to be treated as falling under 0402 is incorrect.
“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 per cent Badam flavour,” the bench said.
Further, in a case where sweetened milk is to be sold, after bottling the same, it would fall within the meaning of milk containing added sugar or other sweetening matter under 0402. This drink could also be called a beverage containing milk, falling under 2202. “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,” the bench said, fortified by the judgment of the Madras High Court.
Calling it a positive ruling by the High Court, Harpreet Singh, Partner (Indirect Tax) at Deloitte, said the court rightly held that tariff entry 0402 also covers cream, skimmed milk powder, milk food, etc. It cannot be concluded that the said entry is only for plain milk. Also, “mere addition of 0.5 per cent of Badam flavour would not turn flavoured milk, which is more appropriately covered under entry 0402, out of the same and make it a beverage liable to higher tax,” said Singh.