The Karnataka High Court has held that flavoured milk should be treated as a dairy product and not as a beverage for GST purposes, making it taxable at 5% instead of 12%.

The bench hedaed by Justice S.R. Krishna Kumar examined whether flavoured milk falls under the GST tariff heading meant for beverages containing milk or under the category covering milk and cream with added sugar or sweeteners. The court concluded that flavoured milk continues to retain the character of milk and therefore falls under Tariff Heading 0402.

Case Brief:

The case arose from a dispute involving a manufacturer of milk and milk products, including flavoured milk. Tax authorities had classified the product as a beverage under Tariff Heading 2202 and imposed GST at higher rates of 12% and 18%, instead of the 5% rate applicable to dairy products.

A show cause notice was issued to the manufacturer under Section 74 of the CGST Act, followed by an order confirming the tax demand. The company deposited ₹72.95 lakh towards GST in December 2021 under protest and challenged the order. However, the first appellate authority dismissed the appeal, leading the assessee to approach the High Court.

The bench referred to the case of Sri Vijaya Vishakha Milk Producers Company Ltd. vs. Assistant Commissioner of Central Tax and others, in which Andhra Pradesh High Court held that...

''flavoured milk cannot be treated to fall under the Tariff Heading 2202, the question of penalty under any of the aforesaid provisions would not arise. In any event, the question of whether a penalty can be levied, even if flavoured milk falls within 2202, merely on the ground that the dealer changed his classification of goods from one entry to another is left open.''

The bench further noted that the judgment passed in Sri Vijaya Vishakha Milk Producers (supra) was confirmed by the Supreme Court.

In view of the above findings, the High Court allowed the writ petition and set aside the impugned orders. The bench also directed the tax department to refund the amount deposited by the assessee, along with applicable interest.

Case Title: M/s Dodla Dairy Limited v. Union of India