The correct GST rate for flavoured milk is 5%, not 12%, based on binding judicial precedents.

Issue

Should flavoured milk be taxed at a 5% Goods and Services Tax (GST) rate, as applicable to milk, or at a higher rate of 12%?

Facts

The petitioner, a cooperative milk union that manufactures flavoured milk, was subjected to assessment orders levying GST at a rate of 12%.
The petitioner challenged these orders, contending that the correct applicable rate for flavoured milk is 5%.
To support its claim, the petitioner relied on two key judicial decisions:
1. The Andhra Pradesh High Court’s ruling in Sri Vijaya Visakha Milk Producers Company Ltd. v. Asstt. CCT, which held in favour of the 5% rate. A Special Leave Petition (SLP) filed by the department against this decision was also dismissed.
2. A Supreme Court order in Union of India v. Heritage Foods Ltd., which further solidified this position.

Decision

The High Court did not give a definitive ruling on the rate itself but acknowledged the weight of the precedents cited by the petitioner.
It set aside the existing assessment orders and remanded the matter back to the Assessing Authority.
The explicit direction was to conduct a fresh assessment by properly considering the law as declared in the High Court and Supreme Court decisions relied upon by the petitioner.

Key Takeaways

Judicial Precedent is Binding: The Assessing Authority cannot ignore relevant High Court and Supreme Court rulings on the same issue. The decisions in Sri Vijaya Visakha and Heritage Foods have established a strong precedent that flavoured milk should be taxed at 5%.
Substance Over Form: The core issue is the classification of the product. The courts have determined that adding flavour does not fundamentally change the nature of milk, thus it should be taxed at the rate applicable to milk.
Remand for Correction: By remanding the case, the High Court has directed the lower authority to correct its initial error and apply the correct rate of tax as established by higher courts, effectively ensuring the petitioner gets the benefit of the 5% rate.

HIGH COURT OF KERALA

Malabar Regional Co-operative Milk Producers Union Ltd.

State of Kerala

Viju Abraham, J.

WP(C) No. 8217 of 2022

SEPTEMBER 17, 2025

Smt. K. Latha, Adv. for the Petitioner. M.S.Amal Dharsan, Arjun R Naik, Advs. and Jasmin, GP for the Respondent.

JUDGMENT

1. Petitioner has approached this Court challenging Exts.P1 to P6 assessment orders, which illegally and arbitrarily levied GST at the rate of 12% instead of the actual rate of 5% GST on flavoured milk.

2. The petitioner, ‘Malabar Regional Cooperative Milk Products Union Limited’, is engaged in the manufacturing of milk and milk products, including flavoured milk. It is submitted that the demand of GST @ 12% for flavoured milk instead of 5% of GST is arbitrary and unjust. Petitioner submits that the issue is covered in their favour by the judgment of the Andhra Pradesh High Court in Sri Vijaya Visakha Milk Producers Company Ltd. v. Asstt. CCT GSTL 109 (A. P.)/Writ Petition No.254 of 2024, dated 10-12-2024, wherein paragraphs 14 and 15 reads as follows:

“14. Another way of looking at this issue is to consider sweetened milk. In a case where sweetened milk is to be sold, after bottling the same, it would fall within the meaning of Milk containing added sugar or other sweetening matter, under 0402. This drink could also be called a beverage, containining milk, falling under 2202. The entry, in 0402, is the special entry and the entry, under 2202, is the general entry and would have to give way to entry 0402. The same principle would apply to flavoured milk.

15. The Hon’ble High Court at Madras, it it’s judgment, dated 31.10.2023, in WP No.16608 and 16613 of 2020, in the case of M/s Parle Agro Pvt.Limited v. Union of India, after reviewing the law and the changes in the tariff entries, had come to the conclcusion, on similar lines, that flavoured milk would fall under 0402 and not under 2202. We are fortified, in our conclusion, by this judgment.”

Though an SLP was preferred as Asstt. CCT v. Vijaya Visakha Milk Producers Company Ltd 1142 (SC)/SLP(C((D)No.17602 of 2025, the same was dismissed as per Ext.P10. Petitioner also relies on the subsequent order of the Apex Court in Union of India v. Heritage Foods Ltd 961/111 GST 196 (SC)/SLP(Civil)Diary No.30600 of 2025, wherein paragraphs 2,3 and 4 reads as follows:

“2. The issue in these petitions is whether flavoured milk has to be classified as Item 403 taxable at the rate of 5% or as Item 9930 taxable at the rate of 12%. This issue has already been decided by this Court.

3. The writ Court has held that it has to be classified as Item 04030000 and has to be taxed at the rate of 5%.

4. The special leave petition against one such decision bearing SLP(C)(D) No.17602 of 2025 has already been dismissed by this Court vide order dated 09.05.2025.”

2. Heard the learned Government Pleader also.

3. In view of the above, I am of the opinion that the matter requires fresh assessment at the hands of the Assessing Authority on the basis of the decision of law as stated above. Therefore, Exts.P1 to P6 orders of assessment are set aside, directing the 2^nd respondent to pass fresh assessment orders in the light of the declaration of law as stated above.