Parota, popcorn, oil - here's what you must know about contradictory AAR rulings

In the last few weeks, India has witnessed various scenarios where different commodities have attracted tax disputes owing to contradictory decisions taken by the Authority for advance ruling under the GST regime. One of the most infamous disputes have been around flatbreads from Southern India popularly known as ‘Parotas’.

In October 2019, ID Fresh Foods which is into the RTC ( Ready-to-cook) segment approached the AAR in Karnataka to seek clarity whether one of their items that they produce - the RTE Malabar Parotas fall under the 5% tax bracket of the GST law. It was then decided that parotas would fall under the 18% tax bracket as opposed to 5% because it requires additional processing in terms of heating the item before consumption. This was a tax dispute that attracted a lot of attention from the media and set off a series of debates on digital forums. However, there are many other commodities that have faced similar consequences and have been categorized under tax brackets that invite disputes on a large scale.

In November 2019, the Madhya Pradesh AAR ruled ‘Fryums’, a popular Indian snack under the 18% levy clarifying that it is a food commodity that doesn't fall into a specific category. The latest addition to this list is the RTE (Ready-to-eat) popcorn. The AAR bench in Gujarat recently imposed an 18% GST on RTE popcorn which is prepared by heating the corn grains. There are four levels of taxation that apply to food items under the GST regime - foods that are heavily processed attract 18% tax, preserved fruits attract 12% tax, sugar and coffee are taxed at 5% and staple fresh food like dairy and meat are not taxed at all. The range of tax slabs under GST is wide in nature and due to the lack of a lucid system in place, there is a lot of ambiguity which paves way for classification disputes.

These disputes don’t just apply to food and beverages, they also occur with respect to other FMCG products in question. There was a dispute over whether Marico’s Parachute Oil should be considered a hair oil or coconut oil. Dabur India also got into a tax dispute over it’s Dant Manjan on the grounds of whether it’s toothpaste powder or a medicated item. Parachute was eventually classified as edible coconut oil so as to attract a lower levy rate and Dabur’s dant manjan was classified as toothpaste.

Recently, hand sanitizers have become the central topic of debate between the government and the industry with respect to the GST rate being applied to the product. The Central Economic Intelligence Bureau reached out to the GST authorities notifying them that establishments manufacturing hand sanitizers should be paying 18% GST instead of the current 12%. They claim that the manufacturers in this industry have wrongly classified hand sanitizers as medicaments instead of disinfectants which attract 18% tax as a category. Government officials are also proposing combining these two slabs of 12% and 18% and putting them under 16-17% to end these tax disputes.

AARs are quasi-judicial bodies that taxpayers can approach to seek an advance ruling on the correct interpretation of GST provisions. But contradictory AAR rulings can leave taxpayers confused and lead to tax compliance complications.