17.04.2024: Kerala High Court rules Malabar ‘Parota’ to be treated as bread at 5% GST

In another unique case stemming from GST classification challenges, the Kerala High Court ruled that Malabar ‘Parota’ is akin to ‘bread’ and should thus be categorised under Heading 1905 for taxation purposes. The decision contradicts the previous rulings of the Authority for Advance Ruling (AAR) and  Appellate Authority for Advance Ruling (AAAR).

The Kerala High Court determined that both ‘Classic Malabar Parota' and ‘Whole Wheat Malabar Parota' products should be taxed at the GST rate of 5% rather than 18%, as they share similarities with items listed under HSN code 1905, such as bread.

The high court ruled that products “are eligible at the rate of 5% GST (2.5 % CGST + 2.5 % SGST) and not 18% as was being pleaded by the government, which was citing orders of the Advance Ruling Authority and the Advance Ruling Appellate Authority,” where the treatment was decided to be 18%

The ruling was delivered by Justice Dinesh Kumar Singh at the Kerala High Court.

Advocates M. Gopikrishnan Nambiar, K John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C Abraham, Raja Kannan, R Chethan Krishna and S Parvathi appeared on behalf of the assesee, whereas Advocate P G Jayashankar and Special Government Pleader (Taxes) Muhammed Rafiq were representing the government.

The assessee, Modern Food Enterprises Pvt. Ltd, is engaged in the manufacturing and supply of food products ‘Classic Malabar Parota' and ‘Whole Wheat Malabar Parota’ (products). The assessee had sought clarity from the authority for advance ruling on classification, rate of GST, and whether the product can be treated as ‘bread’ under GST or not.

The assessee had filed a writ, which was allowed by the Kerala High Court via observations that according to Rule 4 of the General Rules of Interpretation of the Harmonized System (GRI), the goods that cannot be classified in accordance with Rules I to III shall be classified under the Heading appropriate to the goods to which they are akin. Thus, paving the way for the product to be treated under 5%.

The high court also elaborated on the explanatory notes to HSN sub-heading 1905, which provide that the most common ingredients of the products in this heading are cereal flours, leaves, and salt but they may also contain other ingredients that facilitate fermentation and improve characteristics and appearances of the products.

The Kerala High Court further noted that the products of this heading may also be obtained from dough based on the flour of any cereal, whereas Chapter Heading 21, particularly HSN 2106, prescribes food preparation not elsewhere specified or included and assessee products or not akin to any of the products which are mentioned in Chapter Heading 2106.

The court observed that the assessee’s products are to be included in Chapter Heading 1905 as the petitioner’s products are akin to the products mentioned in the said Chapter Heading 19 and will be eligible to be taxed at the rate of 5% GST and not 18%.

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