Flavoured milk to attract GST of 5% not 12%: Madras HC

Madras High Court ruled out that flavoured milk will be subject to a lower rate of goods and services tax of 5%.

5% GST on Flavoured Milk

Priyanka Kumari | Nov 21, 2023 |

Flavoured milk to attract GST of 5% not 12%: Madras HC

Flavoured milk to attract GST of 5% not 12%: Madras HC

After ruling that flavoured milk will be subject to a lower rate of Goods and Services Tax (GST) of 5%, the Madras High Court limited the GST Council’s powers in determining the classification of products and stated that the GST Council’s act is purely recommendatory.

The latest ruling, which came in response to a writ petition filed by Parle Agro arguing against the classification of flavoured milk, relied on the ruling of the Supreme Court in Mohit Mineral Private Limited, in which the apex court ruled that the GST Council‘s recommendations are not binding on the Union and states.

It found that the concept of noscitur a sociis must be applicable to the term ‘Beverage containing milk’ and determined that it only applies to plant or seed-based milk and not to milk that is dairy-based. Dairy products, including milk, are included in Chapter 4 of the GST tariff classification.

The Madras High Court‘s single bench of Justice C. Saravanan held that flavoured milk was categorised under the GST tariff heading 0404, but that it was up to the government to publish a new notification to amend the tax rate.

In doing so, the High Court acknowledged the long-established legal concept that, when it comes to taxation, the authorities might be given latitude in determining the rate of tax.

The GST Council earlier approved in December 2018 to tax flavoured milk at 12% under Tariff Chapter 2202.

According to experts, the Madras High Court’s ruling would almost certainly be appealed to the Supreme Court.

“This is an essential judgment that would come to the taxpayer‘s aid when revenue officials sought to demand tax relying on the discussion in the GST Council meetings with regard to classification of products,” according to a note issued by PwC India.

However, it is important to remember that the power to implement such GST Council decisions by amending the appropriate provisions of the law remains a tool in the government’s hands that could be used, it added.

According to Raghavan Ramabadran, Executive Partner at Lakshmikumaran and Sridharan Attorneys, the Court has ruled that only plant-based milk products, not dairy-based milk products, are covered under Tariff Chapter 2202.

“More particularly, it has reaffirmed the legal position that GST council recommendations under Article 279A of the Constitution are, by definition, only recommendatory. It has also stated that the GST council does not have sufficient power to resolve classification issues,” he added, adding that it is a positive ruling for the dairy industry.

Before taking tax positions, the industry will need to thoroughly examine the implementation of this ruling, he added.

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