Bengaluru-based ID Fresh Foods had approached the Karnataka bench of the AAR on whether preparation of whole wheat parota and Malabar parota can be classified under Chapter 1905 attracting 5 per cent GST.
Ready-to-eat parotas, unlike rotis, need to be further processed for human consumption and hence are liable for 18 per cent GST, the AAR has said.
Bengaluru-based ID Fresh Foods had approached the Karnataka bench of the Authority of Advance Ruling (AAR) on whether preparation of whole wheat parota and Malabar parota can be classified under Chapter 1905 attracting 5 per cent GST.
The applicant is a food products company involved in preparation and supply of ready-to-cook items like idli and dosa batter, parota and chapatis, among others.
The AAR in its ruling observed that parota does not have any specific entry in Customs Tariff Act or GST tariff.
It said 5 per cent GST is applicable on products subject to fulfilment of conditions that they are classified under heading 1905 or 2106, and they must be either khakhra, plain chapatti or roti.
While 'parota' falls under heading 2106, it is neither khakhra, plain chapatti or roti.
"Further, 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, whereas the impugned product (whole wheat parotas and Malabar parotas) are not only different from the said khakhras, plain chapatti or roti but also are not like products in common parlance as well as in the respect of essential nature of the product.
"These products also require further processing for human consumption," the AAR said.
AMRG & Associates senior partner Rajat Mohan said tax arbitrage to the tune of 13 per cent (18 per cent minus 5 per cent) has given rise to a classification dispute between a 'roti' and 'parota', without appreciating the ground reality that these terms are used interchangeably in common Indian language.
"This classification dispute would give shockwaves to the entire supply chain engaged in 'ready to eat foods', and such businesses are looking at high tax risk in relation to the tax positions taken since July 2017," Mohan added.