LEVY OF GST ON ROTI AND PAROTA

[Dr. Sanjiv Agarwal]

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: M/S. ID FRESH FOOD (INDIA) PVT. LTD. 2020 (6) TMI 183 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA].

The AAR, Karnataka had recently ruled that frozen / preserved wheat parota or malabar parota sold in a frozen from has a shelf life upto 7 days and is a distinct product from a normal wheat parota and therefore, will attract GST @ 18 percent.

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:

• The products should be classified under Tariff Headings of either 1905 or 2106
• The products must be either khakhra, plain chapatti or roti

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 description of classification under heading 19059090 is as follows :

Tariff Heading	Description
1905	Bread, pastry, cakes, biscuits and other bakers’ wares, whether or not containing cocoa; communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products.
1905.90	Other
1905.90.90	Other

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.

Further, for the purpose of classification of goods, General Rules of Interpretation for classification of goods under Schedule I to the Customs Tariff Act, 1975 are relevant, viz,

1. The titles of Sections, Chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:
2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished articles has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.

(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.

3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
   1. The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
   2. Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.
   3. When goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

The AAR interpreted the applicability of classification of parota. Accordingly, Rule 1 is not applicable since no Heading, Chapter Note or Section Note mention ‘porota’. Rule 2 is also not applicable since there is no mention of the finished article, i.e. ‘porota’ anywhere in the tariff. Rule 3 is about classification of mixed or composite goods, prima facie, classifiable under two or more headings. In the instant case the product ‘porota’ is though, made up of whole wheat flour or refined flour (maida) along with common ingredients like RO purified water, edible vegetable oil or refined oil, edible common salt and edible vegetable fat, there is no specific entry competing against a general entry (Rule 3 (a)); or has any specific essential characteristic by which we can describe the product (Rule 3 (b)).

Rule 3 (c) provides that when goods can’t be classifiable under Rule 3(a) or 3(b), then they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. Thus even if the applicant’s argument of classification of impugned products under heading 1905 as well as the classification under heading 2106 are considered as two relevant headings, the heading 2106 occurs last in numerical order and hence the heading 2106 would be more appropriate and right classification by virtue of Rule 3(c).

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.

End Note

Indian parantha (parota) is a layered flat bread which may or may not be stuffed. Frozen parota is not considered as a staple item and is generally not eaten or consumed by poor or is consumed by few. One argument could be that it is consumed by a class of people who may also afford to pay taxes. Item like cakes, pastries, biscuits etc also fall in GST slab of 18%.

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 37^th meeting of GST Council and it did not recommend any rate reduction as it was being sold in organized sector.