Softy Ice-Cream Mix: Sugar or Milk?
A recent ruling by the GST Authority for Advance Rulings (AAR) – Rajasthan bench has classified the softy ice-cream mix as a sugar-based product, making it liable to attract an 18% GST rate. The main reason behind this decision was that the product’s major component is sugar, not milk, despite the presence of other ingredients like stabilizers and flavorings. This ruling has significant implications for manufacturers and sellers of ice-cream mixes across India.
Classification Under GST: A Disputed Category
The case involved VRB Consumer Products, a private company manufacturing a product named ‘Vanilla Mix,’ which is sold to institutional buyers. These buyers then use it to produce soft-serve ice cream using specialized softy-making machines. VRB Consumer Products argued that their Vanilla Mix should fall under Heading 0404, which includes products consisting of natural milk constituents, even if containing added sugar or sweetening matter. This classification would have qualified the product for a reduced GST rate of 5%.
However, the AAR concluded that the major component of the Vanilla Mix is sugar (61.2%), with milk solids making up only 34%. This composition led the authority to conclude that the product cannot be considered a milk-based item, as the sugar component dominates. Thus, the argument for classifying the product under the GST heading meant for natural milk products was rejected. The ruling ultimately categorized the product under a broader classification, making it liable to the higher GST rate of 18%.
What Makes a Product ‘Natural’?
Another interesting point raised during the hearing was whether the presence of additives, such as stabilizers and flavorings, affects the product’s classification. The AAR observed that since the Vanilla Mix contains several non-dairy ingredients, it cannot be classified as a ‘natural’ milk product. This aspect of the ruling emphasizes how the inclusion of flavor enhancers and other additives can significantly influence the tax classification of food items under GST.
Comparison with Previous Rulings: Lassi vs. Flavoured Milk
Food products containing milk have often been a subject of debate in GST classification. In an earlier ruling, the AAR had classified lassi, a fermented milk product, as exempt from GST. On the other hand, flavored milk was ruled to attract a 12% GST rate. This inconsistency in tax classification highlights the complexities of categorizing products with varying percentages of milk and sugar.
Implications for Food and Beverage Industry
The decision by the GST-AAR has far-reaching implications for food manufacturers, especially those dealing with dairy and sugar-based products. Manufacturers of ice-cream mixes, flavored milk, and similar items must carefully consider their product compositions when determining their tax liabilities. The presence of high levels of sugar and other additives can place these products under higher tax slabs, impacting pricing and profitability.
This ruling also serves as a reminder of the importance of transparency in product labeling and ensuring that all ingredients are disclosed accurately. Incorrect classification can lead to disputes, penalties, and added costs for manufacturers.
Conclusion
The ruling on the softy ice-cream mix provides crucial insights into how GST classifications work for food items, particularly those containing sugar and milk. For businesses, understanding the composition of their products and how each ingredient affects the overall classification is key to avoiding disputes and optimizing their tax obligations. The decision underscores the importance of being aware of GST regulations to navigate the complexities of tax compliance in the food and beverage sector.
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