New Delhi. Softy ice cream ‘mix’ prepared in vanilla flavor is not a dairy product and will attract 18 percent Goods and Services Tax (GST). The Rajasthan bench of the Authority for Advance Ruling (AAR) has given this conclusion. VRB Consumer Products Pvt Ltd. had approached AAR regarding tax on vanilla mixture in powder form. It was told about the product that it contains 61.2 percent sugar, 34 percent milk solids (skimmed milk powder) and 4.8 percent other ingredients including flavor enhancers and salt.
AAR found that each raw material has a specific role to play in creating a soft and creamy product. Moreover, it is also important that not only the ingredients of the product but also the processing done in the ‘soft serve’ i.e. ice cream making machine plays a vital role in giving the smooth and creamy texture to the ‘soft serve’. According to GST law, 18 percent tax is levied on food prepared for human consumption through processing. Apart from this, 18 percent GST is also applicable on milk powder, sugar and any other additional ingredients, jelly, ice cream and similar preparations.
The authority said, “It is also clear that the product in question cannot be called a dairy product.” Thus, the product ‘Vanilla Mix’ i.e. dry softy ice cream (low fat) in vanilla flavor will attract 18 percent GST. According to Rajat Mohan, senior partner, AMRG & Associates, the judgment states that the main raw material of the product is sugar and not milk solids. This makes it a processed food product rather than a dairy based product.
Mohan said, “…this decision underlines the importance of key materials and manufacturing processes in determining GST classification.” Sandeep Sehgal, tax partner, AKM Global, said that this decision is contrary to the decision of the Supreme Court in the Amrit Foods case. In that case the Court had classified ‘Milk Shake Mix’ and ‘Soft Serve Mix’ as ‘Dairy Products’ for institutional sale. He said, “The difference between these decisions highlights the complexities faced by companies while classifying products for levy of GST. “This explains the importance of the composition of the raw material and the use of the product in determining tax liability.”