Introduction
GST was rolled out in India in 2017 but even after more than five years of implementation of GST, there are still various mysteries pertaining to the taxability, rate of tax & the classification of certain goods and services. One such unresolved mystery relates to most commonly consumed snacks such as Samosa, Kachoris, Bread Pakoda, Mirchi Vada, etc. which are sold & consumed across India in their varied nomenclatures & compositions.
Background
It is important here to understand that the said items necessarily belong to the category of snacks which are consumed all-round the day and which may or may not constitute a meal in itself. Further, it is also important to note here that the said products are supplied by different kinds of suppliers which include sweets & namkeen shops, canteens, tea stalls, restaurants, cafes, etc. So, it is clear that there may not be any kind of service component involved in the supply of such products when they are sold by the counters which are selling sweets & namkeens, tea stalls, etc. On the contrary, such products when supplied in a restaurant, cafe, etc. would certainly have a component of service and the taxability of such products would be determined accordingly.
In this article, we are going to discuss the taxability of such products when they are supplied by a typical sweets & namkeen shop which just has a counter without any provision for service to the customer i.e., we are dealing a case where the said products are being supplies by a shop where customers order their products and the said products are packed & handed over to the customer or otherwise are not packed & handed over to the customer in plates for the purpose of consuming instantly.
Prevalent Trade practice since implementation of GST
The most common trade practice prevailing in the industry whereby the said products are being classified under Chapter 21 under HSN 2106 90 and the tax is being charged at 5% under the Entry No. 101A of Notification No. 1/2017 CTR under “Namkeen, Bhujia, Mixture, Chabena and similar edible preparations, in ready for consumption form other than those pre-packed and labeled (amended entry)”. The said supply is considered as supply of goods and the suppliers / manufacturers / traders are availing ITC on the inputs & input services used for making the said supply.
This practice has been adopted by most of the suppliers which not only include small shopkeepers but also big players of the industry who have established brands (with registered trademarks). The understanding behind this practice is that the said items get covered into this entry under the phrase “Similar Edible preparations”.
Issues raised in the Notices issued by department
Recently, the GST department has issued notices to such taxpayers asking them to discharge tax liabilities on such products at 18% tax rate. The department has proposed to tax the said items under Entry No. 23 (HSN Code 2106) of Notification No. 1/2017 CTR under “Food preparations not elsewhere specified or included [other than roasted gram, sweet meats, batters including idli / dosa batter, namkeens, bhujia, mixture, chabena and similar edible preparations in ready for consumption form, khakhra, chutney powder, diabetic foods”.
Judgement of Hon’ble Uttarakhand High Court in the matter of Sarva Shri Neeraj Misthan Bhandar v. The Commissioner, Commercial Tax, Uttarakhand, Dehradun, Commercial Tax
The department is issuing the said notices by applying the judgment dated 09.03.2018 rendered by the Hon’ble Uttarakhand High Court in the matter of Sarva Shri Neeraj Misthan Bhandar v. The Commissioner, Commercial Tax, Uttarakhand, Dehradun, Commercial Tax wherein Hon’ble court covered the Samosa under the residual entry by considering it as “Cooked food” and thus, did not cover it under the Entry which possessed tax rates for Namkeens.
Although, the tariff entry for interpretation by the Hon’ble Court was different from the tariff entry relevant for the present dispute, as the said entry under dispute before the Hon’ble Uttarakhand High Court was under the U.P. Trade Tax Act, 1948 which is reproduced as under:-
“43 (i) Sweetmeats, namkin, rewari, gazak and sugar products except any of the aforesaid goods, which are notified under any other category in any notification issued under U.P. Trade Tax Act.
43(ii) Cooked food, cakes pastries, toffees, chocolate, confectionery and biscuits excluding bread, buns and rusk.”
It is pertinent to note here that the relevant tax entry in question before the Hon’ble Uttarakhand High Court did not contain the terms “similar edible preparations” and also there was a separate entry for cooked food. It was only in those peculiar circumstances the Uttarakhand High Court placed samosa under the category of ‘cooked food’ and not ‘namkeen’. On the other hand, the instant case stands on an entirely different pedestal as the relevant tax entry is “Namkeens, bhujia, mixture, chabena and similar edible preparations” and also there is no separate provision for cooked food in the HSN Codes. It is nowhere the case that ‘Samosa’ is a ‘Namkeen’, but it is case that ‘Samosa’ comes within the purview and ambit of the connotation ‘similar edible preparations’.
Even otherwise the dispute in the ruling of the Hon’ble Uttarakhand High Court was pertaining to VAT regime, whereas the dispute in the present case relates to interpretation of the GST Law, wherein the tariff entries are starkly different from the VAT regime and hence the judgement of Hon’ble Uttarakhand High Court is entirely inapplicable in this case.
Advance ruling in the case of Square one homemade treats by Kerala AAR
The department has also placed reliance on an Advance Ruling in the case of “Square One Homemade Treats” by Ld. Kerala AAR to reach to conclusion that Samosa would be taxed at the rate of 18% GST. However, it is pertinent to mention here that the ruling by the Kerala AAR stand on entirely different pedestal. It is stated that firstly, Advance Authority Rulings cannot travel beyond the statutory provisions of the Act and secondly, they are not law which can be made binding on other parties. Section 103 of the CGST Act clearly stipulates that Advance Ruling is only binding on the applicant and the concerned jurisdictional officer.
Nevertheless, it is relevant to state that the item under consideration before the Ld. Kerala AAR was Mini Chicken Samosa, Noodle Chicken Samosa, Noodle Veg Samosa and Punjabi Samosa, which cannot be treated akin to items under consideration.
Similarity between Samosa and Namkeen and Explanation as to why it should fall within the ambit of ‘Similar Edible Products’.
Entry 101-A of Schedule I of the CGST rate Notification stipulates that “Namkeens, bhujia, mixture, chabena and similar edible preparations in ready for consumption form, [other than those put up in unit container and,- (a) bearing a registered brand name; or (b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any actionable claim or any enforceable right in respect of such brand name has been voluntarily foregone, subject to the conditions as specified in the ANNEXURE]” would be taxed @ 5% GST and Entry No. 23 of Schedule III stipulates that “Food preparations not elsewhere specified or included [other than roasted gram, sweetmeats, batters including idli/dosa batter, namkeens, bhujia, mixture, chabena and similar edible preparations in ready for consumption form, khakhra, chutney powder, diabetic foods” are to be taxed @ 18 % GST.
It is stated that Samosa, Kachori and other allied products would fall within the ambit of ‘Similar Edible Products’ because Samosa is intrinsically similar to Namkeen on all counts be it ingredients used, method of production or the ultimate use of the product. It is relevant to mention here that the term similar is not akin to the term ‘identical’ or the term ‘same’ and cannot be assigned a restrictive meaning and must be interpreted in a widest possible sense. Reference can be made to the decision of the Hon’ble Supreme Court in the matter of Collector of Central Excise, Shillong v. Wood Craft Products Ltd. reported in (1995) 3 SCC 454.
The Hon’ble Supreme Court in the matter of Nat Steel Private Ltd. v. Collector of Customs as reported in (1988) 1 SCC 605 observed as follows:-
“The expression “similar” is a significant expression. It does not mean identical but it means corresponding to or resembling in many respects; somewhat like; or having a general likeness. The statute does not contemplate that goods classed under the words of “similar description” shall be in all respects the same.”
For the sake of reference, the Learned CEGAT in the matter of Ranbaxy Laboratories Ltd. v. Collector (Appeals) reported in 1997 SCC OnLine CEGAT 763, wherein the issue was relating to similarity of drugs, the Hon’ble Tribunal had held that since 11 inputs are common between the drugs, the drugs are similar in nature.
The Learned CEGAT in the matter of Collector, Vadodara v. Gujarat State Fertilizers Co. Ltd. reported in 1996 SCC OnLine CEGAT 809, wherein the question was pertaining to whether synthesis gas was similar to coal gas, the Tribunal held that ‘general composition’, ‘method of production’ and ‘use’ were determining factors in ascertaining whether the goods are similar or not. The similarity between ‘Namkeen’ and ‘Samosa’ on the aforementioned three tests is delineated herein below:
|
Factors to determine similarity/ Product |
Namkeens | Samosa/Kachori/Mirchi Bada/Bread Pakoda |
| General Composition | The composition of the namkeens can be said to include:-
a) Besan b) Maida c) Spices d) Oil e) Potato f) Dal g) Dry Fruits |
The composition of Samosa and other allied items can be said to include:-
a) Besan b) Maida c) Spices d) Oil e) Potato f) Dal g) Dry Fruits |
| Method of Production | Namkeen is deep fried | Samosa is also deep fried. |
| Use | Namkeen are used as a filler or as a snack and does not constitute a complete meal in itself. Further it can be used to compliment the main meal. | Samosa is also used as a snack in most parts of the country or as a filler and it is also certainly not considered as a complete meal in itself and thus it cannot be called as food. |
By adopting the definition of ‘similar’, as has been laid by the Constitutional Courts and specialized tribunals, it can be considered that Samosa and allied products are similar edible product as that of Namkeen and may lie within the tax bracket of 5% under Entry 101A.
Residual Entry cannot be invoked when a item can be covered in Specific Entry
It is also a settled principle of law and time and again been reiterated by the Hon’ble Apex Court that specific tariff entry would give way to general tariff entry and not vice-versa. It is submitted that Samosa, Kachori and other allied products would specifically fall within the terminology of “Namkeens, bhujia, mixture, chabena and similar edible preparations” and not the residual entry as sought to be done by the Department.
Moreover, the residual entry is to be used as a last resort when a particular product does not and cannot fall within any of the stipulated entries. In the instant case, the products in question are definitely similar edible preparation as that of Namkeen, Bhujia, Mixture and Chabena and therefore, the Department ought to have calculated the tax liability under Entry 101 A of the CGST Rate Notification and not under the residual entry.
Reliance can be placed on the Judgement passed by the Hon’ble Supreme Court in the case of CCE v. Wockhardt Life Sciences Ltd., (2012) 5 SCC 585. The Relevant extract of which is quoted hereunder –
37. A commodity cannot be classified in a residuary entry, in the presence of a specific entry, even if such specific entry requires the product to be understood in the technical sense (see Akbar Badrudin Giwani v. Collector of Customs [(1990) 2 SCC 203 : 1990 SCC (Cri) 291] and Commr. of Customs v. G.C. Jain [(2011) 12 SCC 713] ). A residuary entry can be taken refuge of only in the absence of a specific entry; that is to say, the latter will always prevail over the former.
The Hon’ble Supreme Court in the case of CCE Vs. Jayant Oil Mills Pvt. Ltd. reported in 1989 (40) ELT 287 (SC) observed, inter alia, as follows
“It is well settled that resort could not had to the residual item if the product comes within the ambit of any other tariff item.”
Discussions held in the 3rd GST Council Meeting dated 18 & 19 October 2016
The samosa, kachori and other allied products are consumed by the masses of the country and it cannot be the intention of the GST Council to tax it at the rate of 18% in the residual category. This intention is also reflected from the minutes of the 3rd meeting of GST Council dated 18 & 19 October 2016, wherein it was categorically observed that ‘items of mass consumption should not be taxed at higher rate’.
GST Council further in the same meeting had expressed its intention to make four Tax slabs and proposed following four tax slabs:
i. “6% (to cover those goods presently attracting combined tax rate of Central Excise and VAT between 3% and less than 9%);
ii. 12% (to cover those goods presently attracting combined tax rate of Central Excise and VAT between 9% and less than 15%);
iii. 18% (to cover those goods presently attracting combined tax rate of Central Excise and VAT between 15% and less than 21 %);
iv. 26% (to cover those goods presently attracting combined tax rates of Central Excise and VAT equal to or more than 21 %)”
The 6% rate was later changed to 5% and products attracting a combined VAT and excise duty between 3% to 9% were to be subsumed under the tax bracket of 5%.
Prior to the implementation of GST, most of the State VAT laws covered Samosa, Kachori and other allied products were taxed nearly at @5% and Central Excise duty was exempted on these products. Thus, in toto the total tax incidence on the products in question was around 5% and according to the aforementioned intention of the GST Council, it should have been subsumed within the tax bracket of 5%. The Department by taking a view that Samosa, Kachori and other allied products are liable to be taxed @18% has completely somersaulted the intention of the GST Council and has completely diverted from an established trade practice under the VAT and Excise regime wherein these products were taxed @5%. It is relevant to state here that the GST Council is at the helm of the affairs when it comes to deciding the applicable tax rates on various products. Further, it is a settled principle of law that if one interpretation furthers the intention of lawmaker and the other interpretation destroy it, then the former shall always be resorted to.
Conclusion
Therefore, it can be stated that the contentions made by the Trade in this issue are clearly on a strong footing and such items may be taxed at 5% under GST. But since it’s a disputed question of law now and more specifically an issue of classification, it is onto the courts & other judicial bodies to decide the fortune in GST laws of few of the most loved snacks in India. Needless to mention, a timely clarity by the Government would throw more light on the issue and decide the future recourse in the matter.
Author Bio
Sir
In the similarity chart, there should have been one more row for “Shelf life” – when Samosa / Kachori has very short shelf life whilst Namkeens have longer. This would be a moot point while comparing these two products.
FYI please.