GST Update on Why Paratha is not a Roti - AAR Karnataka 69/2020-21

A recent GST advance ruling pronounced by the Karnataka Authority for Advance Rulings holding that parotas would be subject to a higher GST rate of 18 per cent as compared to roti being taxed at 5% has ignited a new spark of debate as regards classification of parotas .
Bengaluru-based food products company M/s ID Fresh Food (India) Pvt. Ltd.involved in preparation and supply of ready-to-cook items had approached the AAR to comment on the issue whether preparation of whole wheat parotta and Malabar parotta may be categorised as identical to khakhara, plain chapati or roti, which attract GST rate of 5%?
The products khakhra, plain chapatti and roti are completely cooked preparations, do not require any processing for human consumption and hence are ready to eat food preparations.The impugned product (whole wheat Parottas and Malabar Parottas) are different from the said khakhras, plain chapatti or roti as they require heat process before consumption but comprise of ingredients similar to roti in common parlance.
According to the authority, khakhra, plain chapatti or roti are ready or completely-cooked merchandise, so that they fall within the class of ready-to-use meals merchandise beneath the Customs Tariff Act, 1975. But parathas must be heated before consumption and can’t be positioned in the identical class. Karnataka bench was of the view that unlike roti, plain chapati, khakhra etc which are wholly cooked,parota is half baked and needs further cooking to be ready to eat. Consequently, it held that the parotas are classifiable under chapter 2106 but are not eligible for GST rate of 5% applicable to rotis/chapattis.
After studying the above decision, it is surprising that the parathas are not considered as akin to roti so as to apply GST rate of 5%. We reiterate that the classifications disputes stem from multiplicity of tax rates. In past also we have seen the classification dispute in case of M/s Nestle India Ltd. over the issue of the correct rate of excise duty applicable to the famous KitKat chocolate vis-à-vis a wafer. The rate of excise duty applicable to chocolates was 20% and the excise duty for wafers/biscuit was 10%. Nestle claimed that KitKat was a wafer with a chocolate coating and the Excise Department claimed that KitKat as a chocolate.
In the present case, the Karnataka AAR interpreted the product category 1905 “Khakhara, plain chapati or roti” as one that covered ready-to-eat food items while the ID Fresh Food parottas required heating before eating and hence were determined as falling in a different category. The AAR has determined that the packaged Parotas will come under heading 2106, and accordingly it will be taxed at 18%. The order makes it clear that it is applicable to the parotas made in the factories of the food processing company, which are kept frozen, and they need further processing by consumers before consuming them. This also makes it clear that the order is not applicable to parotas served at food stalls and restaurants, which are completely cooked products and consumers can consume them directly without requiring any further processing. Accordingly, we may presume that the GST rate of 18% is applicable only for frozen parathas and not to parathas served at restaurants.
In our opinion, frozen parota is preserved, sealed, packed, branded and is usually sold at higher prices adding that it is not a staple item and is consumed by the class which can afford to pay taxes. Many food items that fall in 0% category are generally items of essential category. Products such as milk is tax-free, but milk in tetrapack is taxed at 5% whereas condensed milk is taxed at 12%.The FMCG companies comprise the organised segment of the processed food industry and make significant profits on sale of packaged food items by selling them at higher rates, and that’s why they are taxed at higher rates.This is the reason why Karnataka bench has put frozen parota in 18% GST slab rate.

This is solely for educational purpose.
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GST Update on Why Paratha is not a Roti - AAR Karnataka 69/2020-21

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