Supreme Court Affirms 5% GST on Badam-Flavoured Milk, Upholding Tariff Heading 0402
In May 2025, the Supreme Court dismissed the Revenue’s
Special Leave Petition (SLP No. 18877/2025), thereby affirming the Andhra
Pradesh High Court’s classification of badam-flavoured milk under Tariff
Heading 0402, which carries a 5 percent GST rate (2.5 percent CGST + 2.5
percent SGST), rather than under Heading 2202, which attracts 12 percent GST .
This decision upholds the principle that a specific (special) tariff entry
overrides a more general one and confirms that the nominal addition of 0.5
percent almond flavour does not alter the fundamental character of milk .
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Background: Andhra Pradesh High Court Ruling
Parties and Product: M/s Sri Vijaya Visakha Milk Producers Co. Ltd. (the petitioner) is a registered dealer under the GST Act, engaged in processing and sale of badam-flavoured milk within and outside Andhra Pradesh .Original
Classification Dispute: The petitioner had initially filed its returns classifying the product
under Tariff Heading 0402 99 90 (“Milk containing sugar or other
sweetening matter”), which carries a 5 percent GST rate . The tax
department reclassified the product under Heading 2202 99 30 (“Beverages
containing milk”), which incurs a 12 percent GST rate, and accordingly
issued demands for the shortfall along with penalties under Sections
122(2)(b) and 74 of the CGST Act .
Composition
and Technical Arguments: The petitioner demonstrated that its flavoured milk comprises
approximately 90.5 percent milk and 9 percent sugar, with only 0.5 percent
comprising artificial or natural flavourings and permitted color additives
. Relying on the Food Safety and Standards (Food Products Standards &
Food Additives) Regulations, 2011, the petitioner argued that these
additives do not change its classification as milk under Heading 0402 .
High
Court’s Decision: A Division Bench of Justices R. Raghunandan Rao and Maheswara Rao Kuncheam
held that “sweetened milk, when bottled for sale, falls squarely within
Entry 0402, which is a special entry, and must prevail over the general
Entry 2202” . The Court quashed the tax demands and penalties, finding no
basis to treat flavoured milk as a differently classified beverage .
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Supreme Court Decision
SLP
Dismissal: The Revenue challenged the High Court’s ruling in the Supreme Court by
filing SLP (Civil) 18877/2025. In May 2025, a Supreme Court bench
dismissed the SLP “observing that it is not inclined to interfere with the
High Court’s well-reasoned judgment” .
Key
Observations:
- No Change in Character: The Court agreed that the 0.5 percent almond flavour does not alter the essential nature of milk.
- Priority of Specific Entry: It reaffirmed that under the Customs Tariff Act, a specific tariff entry (0402) takes precedence over a more general one (2202).
Outcome: With the dismissal of the SLP, the 5 percent GST rate on badam-flavoured
milk under Heading 0402 stands conclusively settled, and the earlier
demands and penalties against the petitioner remain quashed .
Implications for the Dairy and FMCG Industry
Tax
Certainty: Producers of flavoured milk now have clear judicial backing
to classify their products under the lower 5 percent slab, reducing tax
outflows and compliance uncertainty.
Judicial
Precedent: The ruling reinforces the binding nature of special
entries and underscores the limited persuasiveness (not binding authority)
of GST Council recommendations on classification.
Substance
Over Form: The decision exemplifies that minor flavour additions,
which do not change the product’s intrinsic character, will not attract
higher tax rates merely due to nomenclature or minimal formulation
differences.