The decisive factor in the AAR's findings was that the parota product was not like khakhra/ chapatti/ roti, as these latter products are completely cooked preparations that do not need processing for human consumption.
The Karnataka Authority for Advanced Ruling (AAR) has ruled that "parotas" cannot be lumped in the same category as rotis for tax purposes or to claim the reduced 5% Goods and Services Tax (GST) that can be availed when it comes to the sale of rotis, plain chapattis and Khakhras. (ID Fresh Foods Matter)
As per Entry 99A to Schedule I of GST Notifications issued in 2017, a reduced 5% GST rate can be availed on the sale of goods, if two conditions are satisfied, i.e.
they should be classified under the Tariff Headings of either 1905 or 2106;
they must be either "Khakhra, plain chapatti or roti."
Food production company, ID Fresh Food had applied to the GST Authority claiming that their ready to eat Whole Wheat and Malabar Parota products merits classification under the Tariff Heading "1905 90 90".
The Tariff Heading 1905 comprises a the following product description “Bread, pastry, cakes, biscuits and other bakers’ wares, whether or not containing cocoa, communion wafers, empty cachets of a king suitable for pharmaceutical use, sealing wafers, rice paper and similar products."
ID Fresh Food further argued that their parota products were, in sum and substance, like a roti, given the similar manufacturing/ production process involved. Hence, it was contended that their product would fall under the description of “Khakhra, plain chapatti or roti.”
Thus, the company sought to avail the reduced GST rate of 5% GST rate under Entry 99A, rather than the 18% GST otherwise applicable.
Notably, in their application, the company also admitted that the product had to be heated on a pan or tawa to make it fit for human consumption.
This particular aspect, however, led the AAR to conclude that the parota product cannot be classified with rotis.
Rather, the AAR found that the "parota" product was not like a khakhra, plain chapatti or roti, as these are completely cooked preparations and do not require any processing for human consumption.
"The products covered under the 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 no merit classification under 1905."
In the absence of the word "parota" in any of entries of the Customs Tariff Act and the GST Tariff Act, the AAR proceeded to conclude that the more applicable categorisation of parota would be under Tarriff Heading "2106.90."
In other words, the AAR classified the parota product as falling under a heading that covers preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk etc.) for human consumption, provided they are not covered by any other heading of the Nomenclature.
This conclusion was arrived on a reading of Rule 3(c) of the General Rules of Interpretation under the Customs Tariff Act, 1975.
As per this provision, where goods are not classifiable under one heading that is appropriate, the product is to be classified under the heading which occurs last in the numerical order among those headings which equally merit consideration.
"Thus even if the applicant’s argument of classification of impugned products under heading 1905 as well as 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", the order states.
On these findings, the AAR ultimately ruled that the parota products would not be eligible for the 5% GST as per Entry 99A.
The Ruling was passed by a Bench of Dr Ravi Prasad MP and Mashood ur Rehman Farooqui.
Ankush Surana from PwC represented ID Fresh Foods before the Authority.
