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Home > Finance News > Lassi jaisi koi nahi: Flavoured milk is not milk but flavoured lassi is lassi, says AAR ruling

Lassi jaisi koi nahi: Flavoured milk is not milk but flavoured lassi is lassi, says AAR ruling

“If milk and lassi were siblings, milk would have definitely asked the government “Am I adopted?” guffaws a senior executive with a leading milk co-operative on conditions of anonymity.

The situation which elicited such a response from the executive is perhaps quixotic: Varying Authority for Advance Rulings (AARs) directions on tax treatment of flavoured milk and flavoured lassi have created confusion amongst the food companies and milk co-operatives and may even end up impacting farmer payouts in the future.

Under the Goods and Services Tax (GST) framework, both milk and lassi are exempt from any tax.But, while flavoured lassi continues to remain outside the GST, flavoured milk is set to attract 12% tax following four advance rulings in Gujarat, Tamil Nadu and Karnataka.

And going by four separate rulings by various AARs, milk would be justified if it felt being treated in a step motherly fashion, he adds.

The question many food companies and co-operative societies are asking is whether milk continues to remain milk if sugar and other flavours such as chocolate, rose or cardamom are added to it.

Even for lassi, the same point is being explored.

But it appears that no amount of flavour or ingredient can ruin the lassi, but it can probably make milk taste different—at least for tax purposes.

Tax experts say that the product categorisation under the GST framework is further being complicated due to divergent or improperly examined rulings.

“The common parlance test, which was extensively used in the Central Excise regime to decide on classification issues, is also required to be considered while deciding on GST classification issues in addition to the other technical parameters to determine the appropriate harmonised System nomenclature (HSN) and rate for a specific product,” said MS Mani, partner, Deloitte India.

Some of the biggest Indian companies and co-operative societies including Britannia, Amul, Karnataka co-operative milk producers and several others are set to feel the impact going ahead.

The companies claim that a lack of clarity on this could also impact the way they pay the farmers and mar profitability.

Many food companies, farmer associations and milk co-operatives in the last one week have approached the Central Board of Indirect Taxes and Customs and sought clarity on the issue.

Under the GST framework every item is defined under Harmonized System of Nomenclature or HSN code.

And the GST rates are determined based on the HSN code of the product.

In a July ruling in the case of Sampoorna Dairy and Agrotech, Gujarat AAR said that flavoured lassi was nothing but curd, water and spices, and since these were outside GST framework, so should the flavoured lassi.

In two separate advance rulings filed by Britannia and Gujarat Cooperative Milk Marketing Federation it was ruled that flavoured milk should be taxed at 12%.

The rulings said that there are different types of milk: “full cream milk” and “partially skimmed milk” being just two variants.

Industry trackers said both flavoured milk and lassi to an extent serve as substitutes.

In most cases companies manufacture both products. Also, flavoured lassi as well as flavoured milk are stored, marketed and sold as substitutes at railway stations or at stores.

Milk and lassi are not alone. Product categorisation has been a tricky issue under GST. Unlike erstwhile tax regime, GST is nuanced, and tax rates can depend on various factors such as ingredients, end use or the way it’s manufactured by whom.

This has led to a lot of confusion for companies. ET had on August 26 written that GST on papad and how contradictory AAR rulings has created confusion as to whether ingredients used in making of a papad impact the GST rates.

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