Softy ice-cream mix attracts higher GST: It’s mainly sugar not milk holds GST-AAR

MUMBAI: Is a softy ice-cream mix made of milk or sugar? According to a recent ruling given by the GST Authority for Advance Rulings (AAR) – Rajasthan bench, the product’s major component is sugar, not milk. Further, since it contains additives like stabilizers and flavorings, it is no longer a ‘natural’ dairy product. Consequently, the AAR held that it would attract a Goods and Services Tax (GST) rate of 18%.
The manufacturer VRB Consumer Products, a private company, had sought a ruling on classification of its ‘Vanilla Mix’. This product was sold to institutional buyers who in turn used it to produce soft serve ice cream using softy-making machines. The company argued that their product should be classified under Heading 0404. This covers products ‘consisting of natural milk constituents – whether or not containing added sugar or sweeting matter’. Thus, the product would be eligible for a lower, making it eligible for a lower GST rate of 5%.
However, the AAR refuted this claim and observed that the major ingredient of the product is sugar (61.2%) and not milk solids (34%), which are added to the sugar.
“On account of a higher percentage of sugar 61 percent in the final product, the advance ruling authority concluded that ‘milk solids are added to sugar’ and not that ‘sugar is added to milk solids’. Accordingly, the applicant’s argument for classifying the product under the entry which covers ‘milk products’ was rejected as it was held that the final product comprises of several ingredients and each ingredient plays a vital role in the product” said Harpreet Singh, Partner, Indirect Tax, at Deloitte-India.
Products that contain milk have often been the subject matter of dispute. Earlier, the AAR held lassi, which is a fermented milk product, to be exempt from GST. However, flavoured milk was held subject to 12% GST.