Gujarati thali is incomplete without papad. Fortunately for consumers, as the GST burden is ultimately borne by them, the Gujarat bench of the Authority for Advance Ruling (AAR) has held that Papads will attract 0% GST.
Interestingly, the AAR bench observed that Papads were produced using the traditional handmade method. Hence, it could be rolled effortlessly into a round shape. Today, with the advancement of technology, the old traditional round papad has given way to various shapes and sizes.
In the past, a few high court decisions have treated Fryums to be similar to Papad. The statements clarified that since Fryums are also flour mixed with spices and come in a variety of shapes & sizes, these should also be classified as Papad and hence, subject to nil GST rate.
But AAR rulings stood still and stated that they do not want to set a precedent (a decision that has happened in the past and that is considered as an example or rule to follow in the same situation later), which will have an effective impact on the future. Hence, this good traditional snack food cannot be equated with packaged 'un-fried Fryums’ and cannot have similar tax treatment, the Authority for Advance Rulings has ruled.
Petition Filed Against The Rule & Arguments Stated By The Applicant
The Gujarat Authority of Advance Ruling (AAR) ruled that 18% GST will be imposed on ‘Un-fried Fryums’. This unjustified statement led the owner of M/s. Jayant Snacks and Beverages Pvt. Ltd. to file a petition against the rule. The applicant has been engaged in the business of production and selling of Papad & Un-fried Fryums of different shapes and sizes for years now. The applicant presented the following arguments in the petition:
1. Papad is a seasoned, crunchy snack that is neither fully cooked nor ready to eat and can be stored for a longer period. Papad is prepared mainly with ingredients like flour, spices, salt and oil. This product is unfried and it is not cooked food. Further, it is not instant food that is ready for human consumption. Consumers need to fry or roast the product, the applicant explained. Consumers first need to cook it either by frying or roasting it to make it ready for consumption.
Now, this same Papad becomes ‘unfried Fryums’ when the dough is moulded and given a certain shape. People enjoy Papad in a variety of shapes and that is the reason why these Fryums and colourful pellets are so much in demand. Considering the different demands of the consumers, innovations are made in the conventional Papad product and now it comes in different shapes and sizes classified under ‘Un-fried Fryums’.
2. The applicant stated in the petition that be it Papad or Fryums, it does not require any extra effort to do the same with minor variations in the ingredients of Papad. The dough can be moulded in the desired shapes and size may be round, semi-circle, hollow cylindrical with bars in between or maybe square with bars in between. The shape and size can vary completely but the ingredients, its proportions and the recipe remain similar, if not exactly the same.
3. The applicant has filed an advance ruling on the issue under tariff Heading: ‘PAPAD of different shapes and sizes manufactured/supplied would attract CGST and SGST’. The jurist later ruled that the product ‘Un-fried Fryums’ manufactured and supplied by the individual applicant is classifiable under the valid Tariff Item No. of the Customs Tariff Act, 1975. Hence, the Goods and Services Tax rate of 18% is not applicable to the product ‘Un-fried Fryums’ as per law.
4. The applicant submitted that from the stated grounds it can be noticed that supplies of Papad are exempted from payment of tax irrespective of the nomenclature. Thus, it can be conveniently said that irrespective of different names, shapes and sizes Papad or any unfried Fryums is exempted from payment of tax under the GST Act.
The Statement From AAR In Response To The Petition -
The AAR rejected the order associated with the petition seeking to bring irregular-sized, packaged un-fried Fryum snacks at par with Papad for applicability of GST. It said that in the matter of the product under reference, no clear definition has been provided in the statute (i.e, law). In this case, the principle of common parlance has been used by the applicant. This principle basically holds the idea that the interpretation of the statutes was intentionally done to unravel the mind of the lawmakers, rather than providing any scientific reasoning or fact to reach any justification.
The AAR ruling brings clarity in the matter of taxation disputes where no clear definition of a product category is available but rates are decided by the makers based on this principle.
In this particular case, it is very clear that all other 'un-fried packaged food' has been considered as 'namkeen' and not as 'Papad'. Hence, they attract separate tax rates as compared to the traditional food item. With this interpretation, Papad cannot be equated with any other ‘un-fried Fryums’ and hence, it is liable to pay 18% GST, as against nil GST applicable for Papad, the AAR stated.