• Notification Date: 23-11-2023
• Notification No: N/A

GST Rate lowered for Flavoured Milk- Madras HC relies on SC Ruling

While ruling that flavoured milk will attract a lower rate of goods and services tax (GST) of 5%, the Madras High Court has limited the powers of the GST Council in determining the classification of a product and held that the role of the GST Council is only recommendatory.   

The recent ruling, which comes in a writ petition filed by Parle Agro challenging the classification of flavoured milk, relied on the Supreme Court ruling in Mohit Mineral Private Limited, where the apex court held that the recommendations of the GST Council are not binding on the Union and states.     

It held that the principle of noscitur a sociis must be applied to the meaning of ‘Beverage containing milk’ and concluded that it pertains only to plant or seed-based milk and not to dairy milk. Chapter 4 of the GST tariff classification includes dairy products including milk.  

The single bench of bench of Justice C. Saravanan of the Madras High Court held that flavoured milk was classifiable under the GST tariff heading 0404 but said it was for the government to issue a fresh notification to amend the rate of tax. While doing so, the High Court recognised the well-settled principle of law that, in taxing matters, latitude can be given to the authorities while fixing the rate of tax. 

The GST Council had previously in December 2018 decided to tax flavoured milk at the rate of 12% under Tariff chapter 2202.  

Experts said the decision of the Madras High Court is likely to be appealed in the Supreme Court.  

“This is an important judgment that would come to the taxpayer’s aid when the revenue authorities seek to demand tax relying on the discussion in the GST Council meetings with regard to classification of products,” said a note by PwC India. However, it is pertinent to note that the power to bring such decisions by the GST Council into effect by amending the relevant provisions of the law is still a tool in the hand of the government that could be exercised, it further said. 

Raghavan Ramabadran, Executive Partner at Lakshmikumaran & Sridharan Attorneys said Court has held that only plant-based milk products are covered under Tariff Chapter 2202 and not dairy-based milk products. “More importantly, it has reiterated the position of law that recommendations of the GST council under Article 279A of Constitution are by its very name only recommendatory. It has also laid down that the GST council does not have the power to decide on the classification disputes,” he said, adding that it is a refreshing decision for the dairy-based industry.   

The industry will have to analyse the application of this decision thoroughly before taking tax positions, he further said.