Facts of the Case

M/S Dodla Dairy Limited, a registered dealer engaged in the manufacture and sale of milk and milk products, including flavoured milk, classified flavoured milk under Tariff Heading 0402 after the GST regime came into effect, having earlier classified it under Heading 2202 under the erstwhile Central Excise regime. Respondent No.3 issued a show cause notice dated 10.11.2021 under Section 74 of the CGST Act, 2017, alleging that flavoured milk fell under Heading 2202 ("beverages containing milk", attracting a higher rate) and that the change in classification amounted to deliberate tax evasion, inviting penalty under Section 122(2)(b). After the petitioner's reply, an adjudication order was passed on 19.05.2022 confirming the demand. The petitioner deposited Rs.74,99,474 under protest on 13.07.2022 and appealed, but the first appellate authority dismissed the appeal on 25.04.2023. The petitioner then approached the Karnataka High Court under Articles 226 and 227, seeking classification of flavoured milk under Heading 0402 and refund of the amount paid.

Issues Involved

  1. Whether flavoured milk is classifiable under Tariff Heading 0402 (milk and cream, taxed at 5%) or under Heading 2202 ("beverages containing milk", taxed at a higher rate).
  2. Whether the change in classification from Heading 2202 to Heading 0402 after the GST regime amounted to deliberate evasion of tax attracting penalty under Section 122(2)(b) read with Section 74.
  3. Whether the writ petition was maintainable despite the availability of an alternative appellate remedy on a question of classification.

Petitioner's Arguments

  • Flavoured milk is predominantly milk (approximately 90.5%) with a small addition of sugar and flavouring (about 9.5%), and therefore falls within the scope of "milk" under Tariff Heading 0402.
  • Heading 0402 is the specific entry while Heading 2202 is the general entry, and under the rules of interpretation the specific entry must prevail; the "common parlance" test also supports classification under 0402.
  • Relied on Division Bench rulings of the Andhra Pradesh High Court in the petitioner's own case (arising from the same issue in Andhra Pradesh) and in Sri Vijaya Vishakha Milk Producers Company Ltd. v. Assistant Commissioner of Central Tax, both holding flavoured milk taxable under Heading 0402 at 5%.
  • Also relied on the Madras High Court's ruling in Parle Agro Pvt. Ltd. v. Union of India, holding flavoured milk classifiable under Heading 0402 and not 2202.

Respondent's Arguments

  • Flavoured milk, on addition of Badam flavour, ceases to be plain "milk" and becomes a distinct beverage falling under Heading 2202 as "beverages containing milk", which is the more specific entry under Rule 3(a) of the General Rules of Interpretation.
  • The petitioner had itself earlier classified flavoured milk under Heading 2202 under the pre-GST regime and changed its classification to 0402 without any change in manufacturing process, which amounted to deliberate evasion of tax, attracting Section 122(2)(b) read with Section 74.
  • Raised a preliminary objection that questions of classification ought to be left to appellate forums/tribunals and should not be entertained in writ jurisdiction.

Court Order / Findings

  • Rejected the preliminary objection on maintainability, holding that existence of an alternate remedy is not an absolute bar to judicial review under Article 226, particularly where the writ had been pending for a year and the appellate limitation had lapsed.
  • Held that the controversy was directly and squarely covered by the Andhra Pradesh High Court's rulings in the petitioner's own case and in Sri Vijaya Vishakha Milk Producers Company Ltd. (the latter affirmed by the Supreme Court in dismissing the SLP), as well as the Madras High Court's ruling in Parle Agro.
  • Flavoured milk is classifiable under Tariff Heading 0402 and is taxable at 5%, not under Heading 2202 as a "beverage containing milk"; Heading 0402 covers milk and milk products including those with added sugar or sweetening matter, and is the specific entry that prevails over the general entry 2202.
  • Since the classification itself was vindicated in the petitioner's favour, the question of penalty under Section 122(2)(b) read with Section 74 for alleged deliberate evasion did not survive.
  • Quashed both the adjudication order dated 19.05.2022 and the appellate order dated 25.04.2023, and directed refund of Rs.74,99,474 paid under protest, together with applicable interest, within three months.

Important Clarification

  • Flavoured milk, being predominantly milk with only a minor addition of sugar/flavouring, is classifiable under Tariff Heading 0402 (5% GST) and not under the general entry Heading 2202 covering "beverages containing milk".
  • Under Rule 3(a) of the General Rules of Interpretation of the Customs Tariff Act, 1975, a specific tariff entry prevails over a general one when goods can arguably fall under both.
  • A mere change in classification of goods after the introduction of the GST regime, without more, cannot by itself be treated as deliberate evasion of tax inviting penalty under Section 122(2)(b) read with Section 74.
  • Availability of an alternate appellate/tribunal remedy does not oust writ jurisdiction under Article 226, especially where the issue stands squarely covered by binding precedent and limitation for appeal has lapsed.

Sections Involved

  • Section 74, CGST Act, 2017 — determination of tax not paid or short paid by reason of fraud or wilful misstatement, under which the original demand was raised.
  • Section 122(2)(b), CGST Act, 2017 — penalty for non-payment/short payment of tax due to fraud or wilful misstatement, sought to be levied for the alleged deliberate misclassification.
  • Article 226, Constitution of India — writ jurisdiction invoked to challenge the classification dispute and demand orders.

Decision – In Favour of

The writ petition is allowed in favour of the Assessee, with both the adjudication order and the appellate order quashed, and refund of the amount paid under protest directed with interest.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: Writ Petition No. 20935 of 2025 (T-RES)
Coram: Hon'ble Mr. Justice S.R. Krishna Kumar
Date of Order: 11 December 2025
Petitioner's Counsel: Sri T. Suryanarayana, Senior Counsel with Sri S.G. Prashanth Murthy and Sri Sahil Afnan S.
Respondent's Counsel: Sri Aravind V. Chavan (for Respondents 1 to 3); Smt. Jyoti M. Maradi, HCGP (for Respondent 4)

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