Ready-to-eat parottas, unlike rotis, need to be further processed for human consumption and hence are liable for 18 per cent GST, the Authority of Advance Ruling (AAR) has said.
Bengaluru-based ID Fresh Foods had approached the Karnataka bench of the AAR on whether preparation of whole wheat parotta and Malabar parotta can be classified under Chapter 1905 attracting 5 per cent GST.
The AAR in its ruling said that parottas are neither rotis or khakhras and hence cannot be taxed at 5 per cent.
With social media abuzz with the roti-parotta debate, the Central Board of Indirect Taxes and Customs (CBIC) in a series of tweets said the AAR has decided that frozen (and preserved) wheat parotta and Malabar parotta available in ambient and frozen form with a shelf life of three-seven days is not plain roti but a distinct product.
“Hence, such frozen and preserved parotta is not like a plain roti, Khakhra etc. Accordingly, the AAR held that such frozen and preserved parotta would not be entitled to concessional GST rate as available to roti (plain roti, khakra etc attracts concessional GST rate of 5 per cent GST).
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“It has been held by AAR that frozen and preserved parotta would attract GST at the rate of 18 per cent,” the CBIC said.
The applicant ID Fresh Foods is involved in the preparation and supply of ready-to-cook items like idli and dosa batter, parotta, and chapatis, among others.
The AAR in its ruling said parotta is neither khakhra, plain chapatti nor roti.
“Further, the products khakhra, plain chapatti and roti are completely cooked preparations, do not require any processing for human consumption and hence are ready to eat food preparations, whereas the impugned product (whole wheat Parottas and Malabar Parottas) are not only different from the said khakhras, plain chapatti or roti but also are not like products in common parlance as well as in the respect of essential nature of the product.
“These products also require further processing for human consumption,” the AAR said.
Explaining further, a finance ministry official said frozen parotta is preserved, sealed packed, branded, not a staple item and consumed by a class that can afford to pay tax.
Even items like biscuits, pastries and cakes attract 18 per cent GST. The official further said that plain roti or parotta served in a restaurant or provided in takeaways get the same treatment in rates and attract 5 per cent GST only.
Also, this order does not decide the rate of ordinary plain parotta.
“The ordinary or any parotta served for consumption by a restaurant or a takeaway would attract 5 per cent GST rate just like plain roti,” the official said.
Also, the GST Council at its 37th meeting had discussed the rate on frozen and preserved parotta and did not recommend reducing the tax rate as this product is sold by the organised sector, the official added.
AMRG & Associates Senior Partner Rajat Mohan said tax arbitrage to the tune of 13 per cent (18 per cent minus 5 per cent) has given rise to a classification dispute between a roti and parotta, without appreciating the ground reality that these terms are used interchangeably in common Indian language.
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“This classification dispute would give shockwaves to the entire supply chain engaged in ready to eat foods, and such businesses are looking at high tax risk in relation to the tax positions taken since July 2017,” Mohan added.
However, according to government officials standard practice of classifying products differently quite common in other nations as well, however, tax analysts say that fewer slabs and uniform rates might help in reducing such classification disputes.
The FMCG companies comprise the organised segment of the processed food industry and make significant profits on sale of packaged food items by selling them at higher rates, and that’s why they are taxed at higher rates, officials said.
(With inputs from agencies.)