GST Council Can Recommend Rate But Can’t Determine Classification

Madras High Court Allows Parle Agro’s Petition Challenging flavour classification

The Madras high court has held that the GST council’s role, particularly in product classification, is only recommendatory. In Parle Agro’s case, the court determined ‘flavored milk’ to be under a lower GST tariff of 5% despite the council recommending a higher rate of 12% in its meeting of December 22, 2018. This decision would support taxpayers against GST demands based solely on council discussions or even mere clarificatory circulars.

However, the government can introduce changes, including in GST rates, through legal amendments or notifications. “The GST council in its meeting had stated that flavoured milk will be liable for a higher rate of GST. However, no amendment was carried out by way of a notification leading the HC to hold that the ‘minutes of the meeting’ do not represent the law. A similar situation could also arise where a clarification is issued by the GST council through a circular rather than through appropriate amendment in law or a notification,” said Sunil Gabhawalla, founder of a CA firm specialising in indirect taxation. The HC relied on a Supreme Court ruling in Mohit Mineral, which had emphasised that GST council recommendations aren’t binding on the Union and states. It said that treating council’s recommendations as binding would disrupt fiscal federalism.

The Madras High Court has ruled that the role of the GST council, particularly in product classification, is only advisory. In a recent case involving Parle Agro, the court determined that flavored milk should be taxed at a lower rate of 5% despite the council recommending a higher rate of 12%. This decision supports taxpayers who may face GST demands based solely on council discussions or clarificatory circulars. However, the government can still make changes to GST rates through legal amendments or notifications. The court’s ruling reaffirms the principle that the GST council is an advisory body, not a law-making entity.