Subsidized rate of GST for plant-based milk beverages: A dispute in the brewing

As promised by the Prime Minister, the GST Council in the 56th meeting deliberated and rationalized the GST rates for various goods and services across various Industries. In this article, the main thrust is to highlight the GST rate changes in relation to ‘food products and other consumer durable products’ that saw a major reduction in GST rate. However, the decision of the GST council has left many surprised with an increase in the GST rate for “non-alcoholic beverages” from the erstwhile rate to 40% (new rate) effective from September 22, 2025.

Non-alcoholic beverages are classifiable under Chapter Heading No.22.02 of the Customs Tariff Act, 1975 (CTA). The GST rate applicable till September 21, 2025 ranges from 12% to 28%, with a few of the products, such as aerated water, lemonade, caffeinated beverages, carbonated beverages, etc., attracting compensation cess of 12% also. In the said period, only caffeinated beverages, carbonated beverages and flavored/ sweetened water (classifiable under Tariff Heading No.22.02 10) were liable to GST at 28%. In other words, till September 22, 2025, goods such as aerated water, lemonade, caffeinated beverages, carbonated beverages, etc. attracted 40% tax under GST, whereas beverages other than aerated water, lemonade, caffeinated beverages, carbonated beverages, etc. falling under Chapter heading 22.02 of the CTA attracted 18% or 12% only.

In light of the recent decisions of the 56th GST Council meeting, the Council has decided to bring “all” goods classified under Chapter heading 22.02 (except soya milk drinks whether or not sweetened or flavoured covered by Tariff Item No. 2202 99 10 of CTA, fruit pulp or juice based drinks covered by Tariff Item No. 2202 99 20 of CTA, beverages containing milk covered by Tariff Item No. 2202 99 30 of CTA and plant-based milk drinks, ready for direct consumption as beverages covered by Tariff Item No. 2202 99 of CTA) under 40% bracket, with effect from September 22, 2025, by covering the same under Serial No. 1 to 4 of the Schedule III to Notification No. 9/2025-Central Tax (Rate) dated September 17, 2025.

All non-alcoholic beverages, other than a few specified ones, even where earlier they attracted 18%, would now be liable to GST at the rate of 40% with effect from September 22, 2025.

This was a conscious decision, which is evident from the recent FAQ dated September 3, 2025, issued in relation to the recommendations given in the 56th GST Council meeting by the Ministry of Finance, which reads as follows:

"14. What is the reason for 40% rate on ‘other non-alcoholic beverages’?

The principle behind the recent rate rationalisation exercise is to keep similar goods at the same rate to avoid issues of misclassification and disputes. This has also been applied to ‘other non- alcoholic beverages.’"

It is pertinent to note that to give effect to the above changes, two new entries have been inserted in Notification No. 9/2025-Central Tax (Rate) dated September 17, 2025, which did not exist in Notification No. 1/2017-Central Tax (Rate) dated June 28, 2017 as amended. The two new rate entries read as under:

Serial No. 148 of the Schedule I to the Notification No. 9/2025-Central Tax (Rate) dated September 17, 2025, bears the description ‘Plant-based milk drinks, ready for direct consumption as beverages.'

The said description does not exist anywhere in the Customs Tariff or even in the HSN explanatory notes. Further, the term ‘plant-based milk drinks’ is also not defined or explained anywhere in the HSN explanatory notes or the Customs Tariff. Hence, the said expression would be required to be interpreted as per common parlance and as per its general meaning and understanding.

In light of the above, there is a possibility of a dispute as to whether a product is a ‘plant-based milk drink’ or just a ‘plant-based drink’ and consequently not eligible for a concessional/ beneficial rate of GST at 5%.

Further, a question which further needs to be clarified is whether the product to be covered under Serial No. 148 of the Schedule I to the Notification No. 9/2025-Central Tax (Rate) dated September 17, 2025, needs to be a beverage made from plant-based milk or whether the plant-based milk alone would be covered under the said entry.

It may also be noted that a plain reading of the entry suggests that only plant-based milk drinks would be covered under the aforesaid entry. Consequently a question may arise as to whether the intention of the legislature is to subject vegetable juice-based drink such as carrot juice, amla juice, etc., even if it is a plant-based drink for direct consumption, as a beverage under the general entry of 40% GST intended for caffeinated beverages, etc., - when both fruit juice based drinks and plant based milk drinks have been subjected to 5% GST only.

In the present circumstances, with the difference in GST rate between the two possible rates for the products being as vast as 35%, the GST Council needs to clarify the scope of the goods covered under Serial No. 148 of the Schedule I to the Notification No. 9/2025-Central Tax (Rate) dated September 17, 2025.

The industry too should represent to the board to obtain due clarification on the subject matter.

This is required, especially considering the huge difference in the rate of GST and the absence of any precedents on the meaning of the term ‘plant-based milk’ and ‘plant-based milk beverages.'

About the authors: Nambirajan R is a Principal Partner, Nirav Karia is a Partner and Vatsal Bhansali is a Principal Associate at Lakshmikumaran and Sridharan attorneys.

Disclaimer: The opinions expressed in this article are those of the author. The opinions presented do not necessarily reflect the views of Bar & Bench.

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