Softy ice cream not classified as milk product; 18% tax imposed by GST authority

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A recent ruling by the GST authority has clarified the tax classification of softy ice cream, determining that it does not qualify as a milk product and is therefore subject to an 18 per cent Goods and Services Tax (GST). This decision follows an application from VRB Consumer Products, which sought to have its Vanilla Mix classified under the 5 per cent GST category reserved for milk products.

The Rajasthan Bench of the GST Authority for Advance Rulings (AAR) evaluated the case and firmly rejected the classification of softy ice cream as a milk product. The authority noted that the primary ingredient in the product is sugar rather than milk. In its ruling on 15th October, the AAR pointed out that the composition of softy ice cream significantly favours sugar, which constitutes 61.2 per cent of the product, while milk solids account for only 34 per cent. This ratio led the authority to conclude that the product is primarily sugar-based, with milk solids added, rather than being a milk product with sugar included.

VRB Consumer Products argued that their Vanilla Mix should qualify for the lower GST rate, asserting that it is made from natural milk components. The company sells this product to institutional buyers, who use it to create softy ice cream. They contended that the mix should fall under heading 0404, which covers ‘products made from natural milk components' regardless of any added sweeteners or sugars.

However, the AAR maintained that the significant sugar content, along with additional ingredients such as stabilisers and flavourings, disqualifies softy ice cream from being classified as a ‘natural' milk product. The ruling reinforces the notion that softy ice cream does not meet the criteria established for milk-based products under GST law.

This ruling is not an isolated incident; there have been ongoing discussions and controversies surrounding the classification of milk products in India. In a previous ruling, the AAR declared lassi - a fermented milk product - exempt from GST, while imposing a 12 per cent tax on flavoured milk. These instances highlight the complexities involved in defining dairy products under the GST framework.

According to a report by Business Standard, Sandeep Sehgal, Partner-Tax at AKM Global, expressed that this latest ruling stands in stark contrast to a Supreme Court decision in the Amrit Foods case. In that instance, the court classified ‘milkshake mix' and ‘soft serve mix' for institutional sales as "dairy produce" under Chapter sub-heading 0404.90, suggesting that the legal interpretations surrounding milk and dairy products remain contentious and fluid.

As a result, businesses in the dairy and food industry must navigate these complexities carefully, ensuring compliance with the evolving regulatory landscape while advocating for fair classifications that reflect their products accurately.