Flavoured milk's a drink, will be taxed, says AAAR ruling

Flavoured milk is not milk; it is in fact a drink that has milk as an ingredient, the Appellate Authority of Advance Ruling (AAAR) has said.

Milk is outside the gamut of goods and services tax but flavoured milk attracts 12% tax.

Vadilal, the ice cream major, had approached the apex appellate authority for clarity on the matter.

The company had approached the AAAR after an Authority for Advance Ruling (AAR) had said that GST should be applicable on flavoured milk.

Gujarat AAAR affirmed the AAR ruling on classification and said that flavoured milk is not milk but a beverage containing milk.

The AAAR ruled that the flavoured milk is not the natural form of milk but was obtained after application of specific processes on the milk.

"Classification of products under GST requires looking into aspects like common parlance, end-use, technical specifications, constituents of the products etc. In this particular case, the authorities have given precedence to the contents of the product rather than common parlance," said Harpreet Singh, indirect tax partner at KPMG in India. Interestingly, every other milk-based product from curd to lassi, whether flavoured or not, are treated on a par under the GST framework.

Under the GST framework, both milk as well as the sweet yogurt-based drink lassi are exempted from any tax. But, while flavoured lassi continues to remain outside the GST gamut, flavoured milk attracts 12% tax. Tax experts said the product categorisation under the GST framework is only becoming complicated due to such rulings.

"Even if flavour is added to milk, under common parlance, most would still treat the product as milk and not as a beverage. This plea was not accepted by the authorities," said Singh.

Earlier, too, several AARs have ruled on goods and services tax applicable on food items. Parata is not similar to paratha but naan, and a samosa eaten over the counter and on a chair outside the shop probably tastes different, so it should be taxed differently.