5% or 18%: No final ruling on ‘ready-to-cook’ parota GST rate

(This story originally appeared in on Oct 06, 2020)

MUMBAI: Parota lovers, waiting to hear if the ‘ready-to-cook’ item will be taxed at 5% or 18% under the goods and services tax (GST), will be disappointed to learn that the Appellate Authority for Advance Ruling (AAAR) — Karnataka bench, has abstained from ruling on the applicable rate.

As the classification issue was pending in another proceeding, the previous ruling of the lower authority, which applied a rate of 18% has been held as void. This leaves the issue open and it’s likely that the litigation will continue.

Readers may recall that, iD Fresh Food, a Bengaluru-based food products company, engaged in the preparation and supply of a wide range of ready-to-cook items including whole-wheat parota and Malabar parota had approached the AAR — Karnataka Bench. It had contended that parotas should be classified under the product description of ‘khakhara, plain chapati or roti’ (or to be more technical under heading 1905) and thus be taxed at 5%.

The AAR, in its ruling given in May, had differed with this classification and held that GST at 18% applied. Given that the GST rate on ready-to-cook rotis or pizza bread is 5%, social media was soon abuzz with memes. Subsequently, iD Fresh Foods filed an appeal with the appellate bench of the AAR.

Before the AAAR, the food company further clarified that its products are not frozen. Malabar parotas can be stored in a cool and dry place and have a shelf life of up to four days, whereas it is recommended that whole-wheat parotas be refrigerated, to enable the product to remain fresh for up to seven days.

The products merely required heating, say on a tawa (griddle), prior to serving to ensure crispness. Before the AAAR bench, the company also put forth an additional argument that parotas are species of bread and eligible for GST exemption (aka nil rate).

GST laws require that the AAR cannot admit any application for an advance ruling, if the question raised in the application is pending or has already been decided. In this case, the AAAR observed that iD Fresh Foods had not intimated about a proceeding initiated by the director general of GST investigation (DGGI) — Chennai Zone on the issue of classification of parotas. Hence, the AAAR declared the original order of the AAR, against which the appeal was filed as void. As the issue of classification was pending in the proceeding, the AAAR declined to rule on the applicable GST rate.

Giving an inkling on what lies ahead, The company in its official statement to TOI said, “We have always followed the principle of paying the correct amount of tax, which on parotas is either 0% or 5% and will be following the due process of law in establishing the correct rate of tax payable; as against the ruling of the AAR, which indicated it to be 18%.”

“Our application to the AAR was made with bona fide intention. The AAAR has nullified the previous ruling, on a different point — on jurisdiction,” the statement added.

Advance rulings are binding on the parties with respect to the transaction on which the ruling is sought. However, they do have a persuasive impact in assessment of similar cases.

5% or 18%: No final ruling on ‘ready-to-cook’ parota GST rate 5% or 18%: No final ruling on ‘ready-to-cook’ parota GST rate Reviewed by TechCO on 10/07/2020 Rating: 5

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