In a landmark ruling, the Rajasthan Authority for Advance Rulings (AAR) has determined that baby food products containing ingredients other than milk could now be subjected to an 18% Goods and Services Tax (GST), a stark increase from the 5% rate applicable to pure milk products. This precedent-setting decision could have far-reaching implications for the baby food industry.
The case in question involved an application from Jaipur-based Bebymil, seeking clarification on the GST rate for its products, marketed under the trade name Momylac. Bebymil’s product line includes infant milk formulas enriched with cereals and protein supplements, designed as substitutes for mother’s milk.
The AAR’s ruling hinges on the classification of these products under the Harmonised System of Nomenclature (HSN) codes. The authority concluded that Bebymil’s products fall under HSN 1901, which pertains to food preparations where milk is one of several ingredients. In contrast, products classified under HSN 0402, which exclusively cover milk products, enjoy a lower GST rate of 5%.
Experts have pointed out that the ingredient composition of a product plays a crucial role in determining its appropriate tax classification. The level of non-milk ingredients in any baby food product significantly influences its classification and the applicable GST rate,” noted tax expert Sehgal. This ruling underscores the complexity of GST regulations and the importance of precise product classification to ensure compliance and optimize tax liabilities.
This decision by the AAR not only clarifies the GST rate for Bebymil’s products but also sets a significant precedent for other manufacturers in the baby food sector. The industry now faces the challenge of adapting to these regulatory changes, which may impact pricing strategies and market dynamics.
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