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 .
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 .
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 (GST Press).