Flavoured milk held classifiable under Chapter Heading 0402 as “milk with added sugar or sweetening matter” and not as “beverage containing milk”, thereby nullifying GST demand and penalty.

Case Title: M/s Sri Vijaya Visakha Milk Producers Company Ltd. v. Assistant Commissioner of Central Tax & Ors.
Court: High Court of Andhra Pradesh, Amaravati
Petition No.: Writ Petition No. 254 of 2024
Date of Judgment: 10 December 2024
Category: Classification dispute
Relevant Sections: Section 122(2)(b), Section 74 of the CGST Act, 2017; corresponding provisions under APGST and IGST Acts
Relevant Tariff Headings: 0402 (Milk and Cream containing added sugar or sweetening matter – 5%) vs. 2202 (Beverages containing milk – 12%)

Facts (Paras 1–7)

The petitioner, M/s Sri Vijaya Visakha Milk Producers Company Ltd., engaged in manufacturing and selling milk and milk products, including flavoured milk, classified the product under Tariff Heading 0402 99 90 (milk containing added sugar/sweetening matter) while filing GST returns for July 2017–July 2019.
The Assistant Commissioner rejected this classification and reassigned it to Heading 2202 99 30 (beverages containing milk), reasoning that the addition of almond (Badam) flavour made it a beverage distinct from milk. Consequently, the officer raised additional tax demand and imposed penalties under Sections 122(2)(b) and 74 of the CGST Act, alleging deliberate tax evasion.
The petitioner challenged the order arguing that flavoured milk remains predominantly milk (90.5% milk, 9% sugar, 0.5% flavour and colour) and is thus covered under Heading 0402 as “milk containing added sugar or sweetening matter.”

Questions Before the Court

1. Whether flavoured milk should be classified under Tariff Heading 0402 as milk with sweetening matter or under Heading 2202 as a beverage containing milk.

2. Whether the imposition of penalty under Sections 122(2)(b) and 74 was justified for change in classification.

3. Whether the writ was maintainable despite the availability of alternative remedy.

Observations (Paras 9–16)

• On maintainability (Para 9): The Court held that though classification disputes usually lie within appellate/tribunal jurisdiction, writ maintainability was justified since the petition had been pending for over a year and appeal limitation had lapsed.

• On classification (Paras 10–15):

  • Heading 0402 includes not only milk but also milk products like cream, skimmed milk powder, and milk food for babies. Thus, the argument that only “plain milk” fits under 0402 was rejected.

  • Addition of 0.5% flavouring (Badam) does not alter the essential character of milk.

  • Heading 2202 covers beverages such as mineral water, fruit juices, and soy milk drinks — all primarily water-based. Applying the rule of Noscitur a Sociis, “beverages containing milk” under 2202 implies drinks with both milk and water, not milk-based drinks.

  • Between two potentially applicable headings, 0402 (specific entry) prevails over 2202 (general entry) as per Rule 3(a) of the General Rules for Interpretation.

  • The Court drew support from Madras High Court’s judgment in M/s Parle Agro Pvt. Ltd. v. Union of India (WP Nos. 16608 & 16613 of 2020, dated 31.10.2023), which similarly held flavoured milk as classifiable under 0402.

• On penalty (Para 16): Since the classification under 2202 was found incorrect, the consequential penalty was quashed. Even otherwise, change in classification alone could not constitute deliberate evasion.

Judgment (Para 17)

The High Court set aside the impugned order in OIO No. 14/2023-24 GST-AC(SS)-2023-24 dated 03.10.2023, holding that flavoured milk falls under Tariff Heading 0402, not 2202. The GST demand and penalty were thereby annulled. The Court made no order as to costs.

Summary of Cases Referred

Between Fine Lines

This judgment offers relief to dairy manufacturers by reaffirming that flavoured milk remains milk for GST purposes. The ruling clarifies that minor additions like sugar or flavouring do not transform milk into a beverage. Hence, flavoured milk attracts GST @ 5% under Heading 0402 instead of 12% under Heading 2202. The decision aligns with the Parle Agro precedent, ensuring uniform tax treatment nationwide and eliminating unwarranted penalties for classification differences.

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