GST Authority Rules Softy Ice Cream Not a Milk Product, Imposes 18% Tax

The GST authority has ruled that softy ice cream does not qualify as a milk product, with the Rajasthan Bench of the Authority for Advance Rulings (AAR) stating that the primary ingredient is sugar rather than milk. As a result, an 18% Goods and Services Tax (GST) will be applicable, rather than the 5% rate typically levied on milk products.

The ruling came in response to an application from VRB Consumer Products, which sought to classify its Vanilla Mix as a product eligible for the lower tax rate. The company argued that its product, made from natural milk components, should fall under the 5% GST category. This mix is used by institutional buyers to create softy ice cream. VRB contended that the product should be classified under heading 0404, which encompasses “products made from natural milk components,” regardless of any added sugar or sweeteners.

AAR rejected this classification

However, the AAR rejected this classification, determining that the Vanilla Mix contains 61.2% sugar and only 34% milk solids. The ruling emphasized that since sugar constitutes the majority of the product, it should be viewed as “milk solids added to sugar,” rather than the other way around.

Additionally, the authority noted that softy ice cream typically includes stabilizers and flavorings, further disqualifying it from being categorized as a “natural” milk product.

This decision adds to ongoing debates regarding the classification of dairy products under GST. For example, AAR previously ruled that lassi, a fermented milk product, is exempt from GST, while flavored milk incurs a 12% tax.

Industry experts, such as Sandeep Sehgal from AKM Global, have highlighted that this ruling contrasts with a Supreme Court decision in the Amrit Foods case, where the court classified both “milkshake mix” and “soft serve mix” for institutional sales as “dairy produce” under Chapter sub-heading 0404.