The Authority for Advance Ruling (AAR, Karnataka) has pronounced a ruling that parantha (frozen / packaged) is different from plain roti and as such shall attract a higher rate of GST, i.e., 18% instead of 5% applicable to roti. [In Re: ID Fresh Food (India) Pvt. Ltd. (2020) 6 TMI 183 (AAR, Karnataka)].
In the instant case, a Bangalore based ready-to- cook meal maker, ID Fresh Food (India ) Pvt. Ltd. sought an advance ruling on GST rate on frozen / preserved paratha / parota. The company was a food products company involved in preparation & supply of wide range of ready to cook, fresh foods including idli & dosa batter, parotas, chapatis, curd, paneer, whole wheat parota and malabar parota. It sought clarity on the GST rates that are levied on Indian bread (roti, naan, parantha or parota).
It sought advance ruling in relation to classification of whole –wheat parota and malabar parota and rate of GST thereon on following question :
“Whether the preparation of Whole Wheat parota and malabar parota be classified under Chapter heading 1905, attracting GST at the rate of 5%?”
According to the company, their products such as frozen (or preserved) malabar parathas and whole-wheat parathas should be taxed the same way as khakhra, plain chapati or roti. It contended that their products which are frozen Malabar paranthas and whole-wheat paranthas should be classified as roti and should attract only 5% GST. However, AAR declined this argument and said that the products (like plain roti or khakhra) that attract 5% GST are already prepared or pre-cooked and do not require the customer to undertake any further process. Further, their products should be able to reap the benefits of 5% GST and should be classified under Tariff Heading 1905. However, according to AAR, products can be charged 5% GST only if they satisfy two conditions:
In this case, the first condition is fulfilled but because the impugned products are not khakhra, plain chapati or roti, the product will be subject to higher taxes.
It was contended by the application that the product whole wheat parota and malabar (refined floor) parota is available in ambient and frozen form with a shelf life of minimum 3 days and maximum 7 days. The applicant supplies the product to distributors, retailers and other foodservice operators located in India and overseas. The product consists the ingredients of refined wheat flour (maida), RO purified water, edible vegetable oil, edible vegetable fat & edible vegetable salt. After adding all the ingredients, the product is subjected to heat treatment on a pan or tawa, for making it available for consumption. According to the applicant, the product merits classification under Chapter heading 1905, under the product description of ‘khakhra, plain chapatti or roti”.
Notification No. 1/2017-Centra1 Tax (Rate) dated 28.06.2017, as amended by Notification No.34/2017-Central Tax (Rate) dated 13.10.2017, had inserted new entry No.99A has been inserted with the description “Khakhra, plain chapatti or roti”, without defining the said description.
The AAR observed that the impugned products having description “parota” do not have any specific entry in the Customs Tariff Act, 1985/ GST Tariff. The products covered under heading 1905 are already prepared or completely cooked products and no further process is required to be done on them for consumption and hence they are ready to use food preparations. In the instant case the impugned products are admittedly not ready for consumption, but need to be heated before consumption. Thus, the impugned products do not merit classification under heading 1905.
On applicability of entry 99A of Schedule I to the Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 34/2017-Central Tax (Rate) dated 13.10.2017, which specifies the applicable rate of GST as 5%, in respect of the goods covered under heading 1905 or 2106 and having description as “khakhra, plain chapatti or roti, it was observed that, GST rate of 5 percent shall be applicable on products subject to fulfillment of the conditions that (i) they should be classified under heading 1905 or 2106 and (ii) they must be either khakhra, plain chaptatti or roti. In the instant case, the first condition of classification was fulfilled as the classification of the impugned products has been resolved as 2106. As for as the second condition is concerned the impugned products were described as “parota” and hence are neither khakhra, plain chaptatti nor roti. Further the products khakhra, plain chaptatti or roti are completely cooked preparations, do not require any processing for human consumption and hence are ready to eat foods preparations, whereas the impugned products are not only different from the said khakhra, plain chaptatti or roti but also are not like products in common parlance as well as in respect of the essential nature of the product. These products also require further processing for human consumption, as admitted by the applicant. Thus the benefit of entry No.99A of Schedule I to the Notification No. 1/2017 -Central Tax (Rate) dated 28.06.2017, as amended vide Notification No.34/2017-Central Tax (Rate) dated 13.10.2017 is not applicable and the applicant is not entitled for the same.
The AAR, Karnataka, in conclusion ruled against the assessee and held that the product ‘parota’ is classified under Chapter Heading 2106 and is not covered entry No.99A of Schedule I to the Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 34/2017-Central Tax (Rate) dated 13.10.2017.
It is a standard global practice that branded products and seal packed food items attract higher taxation. For example, there is no GST on milk but tetra packed milk is sold @ 5% GST and condensed milk @ 12% GST.
Many FMCG companies like Nestle, Hindustan lever etc make significant profit on sale of packaged food items by selling then at higher rates which are largely consumed by people who are not economically weaker. These items too attract a higher tax. On the other hand, plain roti / paratha / khakara attract 5% GST only which is served by restaurants, dhabhas, take aways and so on. It is also a fact that the subject advance ruling does not provide any ruling on plain roti or paratha.
It may be worth mentioning here that the issue of GST on frozen or preserved paratha was discussed in 37th meeting of GST Council and it did not recommend any rate reduction as it was being sold in organized sector.