Milk Processing is Manufacturing: CBEC Clarifies GST Classification
The focus keyphrase milk processing GST has sparked debates since the service tax era. But as clarified by the CBEC and upheld in multiple judicial forums, activities like chilling, pasteurising, and packing of milk fall under manufacturing, not business auxiliary service.
This blog breaks down the issue for dairy units, tax professionals, and GST consultants, with a clear legal explanation, expert view, and compliance tip.
What’s the core issue?
Many dairy operators outsource the chilling, pasteurisation, and packaging of milk to third parties. This raised a question under indirect tax law:
Should such milk processing be treated as a ‘Business Auxiliary Service’ (BAS) or ‘Manufacturing’?
Under the service tax regime, BAS attracted tax. If the same logic continued under GST, processors would face additional tax liability.
But the CBEC and courts made it clear: processing milk into a consumable product = manufacturing.
Key Clarification: CBEC Circular No. 80/10/2004-ST
The Central Board of Excise & Customs (CBEC) issued Circular No. 80/10/2004-ST dated 17.09.2004, which clarified:
Chilling, pasteurising, packing etc. of milk is a manufacturing activity, not a service.
Hence, no service tax is applicable even under ‘business auxiliary service’.
Under GST, this logic still holds relevance, since the definition of manufacture under Section 2(72) of the CGST Act, 2017 is consistent:
“Manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use.
Processed milk after chilling and pasteurisation clearly fits this.
Legal Support: Case Law
Several judicial pronouncements have reinforced this position. A few notable ones:
| Case | Citation | Key Ruling |
|---|---|---|
| CCCE v. Gujarat Cooperative Milk Marketing Federation Ltd. | 2011 (23) STR 275 (Tri-Ahmd) | Milk processing is manufacturing |
| CCE v. Mother Dairy India Ltd. | 2012 (26) STR 75 (Tri-Del) | Processing activities on milk not taxable as service |
| Dairy Classic Ice Creams (P) Ltd. v. CCE | 2017 (52) STR 89 (Tri-Bang) | Manufacture exempted from service tax |
These rulings all upheld that processing milk into pasteurised, consumable form creates a new commercial product — not a mere service.
Impact Under GST
Here’s how it plays out for dairy businesses today:
- If done in-house: Treated as manufacturing, no GST on internal activity
- If outsourced on job work basis: GST applies only on job work service (5% or 12% depending on nature), not as BAS
- If treated as ‘supply of goods’: GST on milk (pasteurised or fresh) is Nil-rated
Expert View:
“GST does not tax basic milk processing. Classify job work contracts properly to avoid litigation.”
— CA S. Krishnan, Indirect Tax Consultant
Practical Compliance Tip
If you’re a dairy operator:
- Clearly mention ‘job work for manufacturing’ in contracts
- Classify your inputs and output (milk) as exempted goods
- Avoid using vague service categories like BAS in invoices
This helps prevent misclassification and potential GST demands.
Summary
Under GST, chilling, pasteurising, and packing of milk is classified as manufacture, not business auxiliary service. CBEC and courts have clarified this, ensuring that basic milk processing does not attract GST unless done as a taxable job work contract.
FAQs
Q1: Is milk processing considered job work under GST?
Yes, if outsourced, it is considered job work for manufacture and may attract GST at 5% or 12%.
Q2: Is there GST on pasteurised milk?
No. Milk, including pasteurised milk, is Nil-rated under GST as per Notification No. 2/2017-Central Tax (Rate).
Q3: What if I wrongly classified it as BAS and paid GST?
You can claim refund if within the limitation period, citing CBEC Circular No. 80/10/2004-ST and relevant case laws.