Andhra Pradesh High Court Rules in Favor of Dodla Dairy: Flavoured Milk Classified under Tariff Heading 0402, Not 2202

[YAGAY andSUN]

DODLA DAIRY LIMITED VERSUS THE ADDITIONAL COMMISSIONER STATE TAX AND APPELLATE AUTHORITY AND OTHERS - 2025 (4) TMI 1008 - ANDHRA PRADESH HIGH COURT

Background

The case revolves around the classification of flavoured milk for GST purposes, and the rate of tax applicable to milk conversion charges. Dodla Dairy Limited, a prominent dairy products manufacturer, challenged the assessment order dated 09.03.2021 and the appellate order dated 16.12.2024, both of which were unfavorable to the company.

The main contention was that:

1. Flavoured milk was incorrectly classified under Chapter Heading 2202 (beverages containing milk) instead of Chapter Heading 0402 (milk and cream).

2. Conversion charges collected for converting milk into milk powder were taxed at 18%, which the petitioner argued should instead be taxed at 5%.

Legal Issues Considered

1. Classification of Flavoured Milk

• The Assessing Officer had categorized flavoured milk under CH 2202, which typically includes water-based or beverage-type products.

• Dodla Dairy contended that flavoured milk remains essentially milk, with only added flavors and processing, and thus must fall under CH 0402, which covers milk and cream, concentrated or containing added sugar or other sweetening matter.

Court's View:
The Court relied on its previous ruling in M/S. SRI VIJAYA VISAKHA MILK PRODUCERS COMPANY LTD., VERSUS ASST. COMMISSIONER OF CENTRAL TAX AND OTHERS - 2024 (12) TMI 784 - ANDHRA PRADESH HIGH COURT, where it was held that flavoured milk does not lose its identity as milk, even with additives. Hence, it falls under Tariff Heading 0402, making it eligible for lower GST rates applicable to milk products.

2. Taxability of Conversion Charges

• The issue also extended to whether conversion charges for turning milk into milk powder were subject to 18% GST.

• Dodla Dairy pointed out that in a subsequent appellate order for FY 2019–20, authorities had already accepted that such conversion services were taxable at 5%, not 18%.

Court's Response:
While the Court acknowledged this argument, it refrained from issuing a definitive ruling on this point and left the issue open for reconsideration by the Assessing Officer during the reassessment.

Court’s Orders

1. Assessment order (dated 09.03.2021) and appellate order (dated 16.12.2024) were set aside.

2. The matter was remanded to the Assessing Officer for fresh consideration.

3. The Assessing Officer was directed to:

   • Treat flavoured milk under Tariff Heading 0402 for tax purposes.

   • Re-examine the taxability and applicable rate for conversion charges, keeping in view the petitioner’s submissions and past appellate rulings.

Significance of the Judgment

✅ Clarity on Flavoured Milk:
This decision aligns with judicial consistency and benefits the dairy industry by ensuring uniform classification and lower tax incidence on a staple product.

✅ Consistency in Tax Administration:
By directing reassessment based on past appellate decisions, the Court reinforces fair and predictable tax treatment.

✅ Tribunal Absence Not a Barrier:
The Court accepted the writ due to the non-establishment of the GST Appellate Tribunal, thus ensuring that taxpayers are not denied justice due to administrative delays.

Conclusion

This judgment offers crucial relief for Dodla Dairy and sets an important precedent for other dairy companies facing similar classification and taxation issues. It reaffirms the principle that substance prevails over form in GST classification, and that technical processing does not necessarily change the core nature of a product.

As the GST Appellate Tribunal is still awaited, such High Court decisions remain pivotal in bridging the judicial gap for taxpayers across India.