Paratha is no Khakra, to be taxed at highest GST slab, food remains hot item for taxman
Food, it seems, is a hot topic when it comes to indirect taxation. Even as the Papad Vs Fryum debate rages on, Gujarat Authority on Advance Rulings (AAR) has thrown a spanner in works by putting parathas in the highest GST tax slab of 18% versus 5% applicable on roti, chapati or Khakra.
The Authority has argued that Paratha does not fall under the category of Roti, Chapati or Khakra since it is not mentioned in the ‘Harmonised System of Nomenclature (HSN) code. It is a 6-digit uniform code used worldwide to classify over 5000 plus products and goods for the purpose of taxation. HSN code was introduced by the World Customs Organisation (WCO) and implemented in 1988.
The Gujarat AAR, according to Economic Times, said Parathas are not Rotis or Khakras as the former is different in composition and requires further processing before it can be made fit for human consumption. Digging deeper into the paratha, it concluded that flat preparation is a 'ready-to-cook' product and not 'ready-to-eat', in this particular case.
The Authority in its order issued Tuesday said, “The composition of paratha is different from the composition of khakhra/ plain chapatti/roti. Moreover, ‘paratha’ also requires further processing for human consumption as admitted by the applicant themselves.”
Tushar Aggarwal, Founder Partner, Tattvam Advisors says Gujarat ARA’s view appears to align itself with last year’s ruling by the Karnataka Authority wherein Parotas were held to be taxable at 18% despite having similar composition and purpose to that of a chapatti.
"The key detractor highlighted therein and now, is that ready-to-cook foods require further preparation and as such cannot be classified as ready-to-eat chapattis. While this seems principally sound at first glance, it needs to be strictly tested against the rules of interpretation that have been routinely relied upon by the Apex Court for the purpose of classification of goods. One of these rules provides that any heading for an article shall include an unfinished or incomplete version of that article so long as in that particular state, said article contains the essential characteristics of the finished article. Ignoring this rule and the general necessity of ready-to-cook foods in this work-from-home era, the authorities continue to pinpoint the commercial aspect of these foods as the distinguishing factor to tax them at higher rates despite the absence of any clear provision under the relevant tariff entry for making such an assertion," Aggarwal added.
The order further stated that parathas are not ‘ready-to-eat’ preparations or ‘product ready for consumption' but require some kind of cooking process in order to make them ready to consumption, “i.e., they need to be heated on a pre-heated pan or a griddle,” the authority rationalised.
The GST does not define paratha which has created ambiguity for companies marketing frozen parathas on the issue of taxation. Companies that sell ready-to-cook parathas have therefore taken to the AARs arguing that the flatbread preparation be taxed at GST rate of 5% at par with rotis. The Gujarat AAR has, however, ruled that it will be taxed at the highest GST rate of 18%.
GST wars: Papad Vs Fryum
It is to be recalled that recently the Central Board of Indirect Taxes & Customs addressed Papad Vs Fryum dispute clarifying that the former will not be taxed under GST as they are homemade and made up of flour, salt, oil and spices. While Fryums are made with flour and additives and therefore will attract 18% GST. Some months back, it has been clarified that Fryums are not papad.
Aggarwal further added that while fryums are no doubt flours mixed with spices, same as papads, their classification under the same name as the GST exemption entry is something that is only likely to be settled at higher judicial level. The Supreme Court of India has routinely held that while classifying consumer products, the consumer’s perception is a strong factor and must assume significance.
At present, fryums are largely marketed and seen as fried snacks, and not as accompaniments to traditional Indian meals such as papads. While fryum manufacturers continue to argue on the merits of the technical composition of the product, there is yet a far steeper hill to climb when it comes to convincing the Court that these goods are sold and understood as papads in the general public," he added.
Food has always been a controversial area between the makers of indirect tax laws and the taxpayer. The erstwhile service tax laws had concepts such as a distinction between indoor and outdoor catering
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