EXPLAINED | Why Parotta taxed at 18% GST, while Roti only at 5%

The Karnataka government has stated that parotta must be taxed at more than triple the GST tax rate on roti. This came after a Bengaluru firm ID Fresh Foods was told by a special court that its products - whole wheat parotta and Malabar parotta with a shelf life of three-five days - are not ready-to-eat as they need to be heated before they are consumed, which puts it into the category of products that are taxed at 18 per cent.

Why this difference?

The Karnataka bench which preceded over the ruling found that parotta does not come under the HSN system and also needs to be processed for human consumption. So the bench decided to charge it under the category of “Food preparations, not elsewhere specified or included,” and not under “Bread, pastry, cakes, biscuits and other bakers wares, whether or not containing cocoa; communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products.” Whereas, Roti, has been seen as a ready-to-eat product.

Why use HSN codes?

CA Ami Dhabalia, in his whitepaper contributed to Avalara India stated that, various states in India had their own systems for classifying goods for tax rate determination. However, with the advent of Goods and Services Tax (GST), there has been a more uniform classification - not just on the national level but internationally. Hence, the move to the Harmonised System of Nomenclature (HSN) for goods and the Service Accounting Code (SAC) system for services came into practice.

What are HSN Codes and how are they used?

HSN or HS (Harmonised Commodity Description and Coding System) is a multipurpose international product nomenclature developed by the World Customs Organisation (WCO). India, a member of WCO since 1971, has been using HSN codes since 1986 to classify commodities for Customs and Central Excise. The department added two more digits to make the codes more precise, resulting in an eight-digit classification.

Now, under GST, the majority of dealers have to adopt two, four, or eight-digit HSN codes for their commodities, depending on their turnover in the year prior.

For example, dealers with turnover of less than Rs 1.5 crore will not be required to adopt HSN codes for their commodities, where as, dealers with turnover between Rs 1.5 crore and Rs 5 crore shall be required to use two-digit HSN codes. Turnover equal to Rs 5 crore and above will attract the use of four-digit HSN codes, whereas, imports/export commodities will have a mandatory eight digit HSN code. This is to ensure that the GST is compatible with international standards and practices.

Social media reaction to Parotta vs Roti GST

While #HandsOffPorotta has been trending on Twitter, industrialist Anand Mahindra and many other prominent personalities expressed their views on the micro-blogging site.