2024 (4) TMI 763 - HC - GST

Classic Malabar Parota classified under Chapter 1905 deserves 5% GST rate like similar products

Modern Food Enterprises Private Limited Versus Union Of India, State Of Kerala, Central Board Of Indirect Taxes And Customs, Kerala State Goods And Services Tax Department, The Appellate Authority For Advance Rulings, The Kerala Authority For Advance Rulings Goods And Services Tax Department Thiruvananthapuram

Kerala HC ruled that Classic Malabar Parota and Whole Wheat Malabar Parota are classifiable under Chapter Heading 1905 rather than 2106. Applying GRI Rule ... Classification of goods - rate of tax - Classic Malabar Parota - Whole Wheat Malabar Parota - classifiable under Chapter Heading 1905 or same are to be covered under Chapter Heading 2106- exemption from payment of GST in terms of entry No. 97 of N/N. 2/2017 dated 28.06.2017 Central Tax/ SRO No. 361/2017 dated 30.06.2017 - HELD THAT:- The Explanatory Notes to HSN sub heading 1905 provides that the most common ingredients of the products of this Heading are cereal flours, leavens and salt but they may also contain other ingredients such as gluten, starch, milk, sugar, fats, improvers etc., like yeast, sour dough, baking soda which facilitates fermentation and improve characteristics and appearances of the products. The products of this heading may also be obtained from dough based on the flour of any cereal - Rule 4 of GRI provided that goods which cannot be classified in accordance with the Rules I to III shall be classified under the Heading appropriate to the goods to which they are akin. It cannot be doubted that the products of the petitioner would be in category of Chapter Heading 1905, and therefore, by applying the fourth GRI which provides that goods which cannot be classified in accordance with the above rules shall be classified under the Heading appropriate to the goods to which they are most akin should be applied to see whether the goods should fall under the Chapter Heading 1905 or not. It is also relevant to take note of the fact that Chapter Heading 21 particularly, Entry HSN 2106 prescribes food preparation not elsewhere specified or included and the petitioner product or not akin to any of the products which are mentioned in Chapter Heading 2106. In view thereof, the petitioner’s product are to be included in Chapter Heading 1905. The two Rate Notification mentioned above would provide that similar products such as Khakhra, plain chapati or Roti are exigible for 5% tax as per 99A of the Schedule I or they are exempted from the payment of GST as per the Rate Notification - It is no doubt that the petitioner’s product is not specifically included in the exemption from payment of GST under entry 97 as the exemption notifications are to be constituted strictly and they are item specific. The petitioner’s item is not included in the exemption notification, and therefore the petitioner claims the exemption from payment of the GST has no merit. When there is no doubt in any manner that the petitioner’s product should fall within the HSN 1905, as the petitioner’s products are akin / similar to the products mentioned in the said Chapter Heading 19 and the ingredients used in and the process applied in their preparations are somewhat similar to the other products which are specifically mentioned there, the tax in the products of the petitioner’s at the rate of 18% would not be justified. If the petitioner products are akin / similar to the products mentioned in HSN code 1905 of Chapter 19 with heading Preparations of cereals, flour, starch or milk; pastrycooks’ products as the ingredients used and process applied in their preparations are somewhat similar to the products mentioned in Chapter heading HSN Code 1905, excluding the petitioner’s products from Entry 99A of the Rate Notifications which are almost similar to the three products mentioned in the said Entry, cannot be justified - the petitioner's products are also exigible at the rate of 5% GST and not 18% as contended by the learned Special Government Pleader and held by the Advance Ruling Authority and Advance Ruling Appellate Authority. The present writ petition is partly allowed. Issues Involved:1. Classification of the petitioner's products under the HSN code.2. Eligibility for exemption from GST under Entry 97 of Notification No. 2/2017-Central Tax (Rate).3. Applicable GST rate for the petitioner's products.Summary:Issue 1: Classification of the Petitioner's ProductsThe petitioner, a dealer under the CGST/SGST Act, 2017, challenged the appellate authority's order classifying its products, Classic Malabar Parota and Whole Wheat Malabar Parota, under Chapter Heading 2106, thereby attracting 18% GST. The petitioner argued that these products should be classified under Tariff item 1905 9090 as 'bread' under Heading 1905, which would attract a lower GST rate.The appellate authority determined that the products did not qualify as 'bread' under HSN 1905 because they are not bakery products nor ready for human consumption without further heating or processing. The authority classified the products under Entry 2106 90, making them liable for 18% GST.Issue 2: Eligibility for Exemption from GSTThe petitioner sought exemption under Entry 97 of Notification No. 2/2017-Central Tax (Rate), which exempts 'Bread (branded or otherwise)' from GST. The appellate authority rejected this, stating that the products do not qualify as 'bread' under HSN 1905, and thus, are not eligible for exemption.Issue 3: Applicable GST RateThe petitioner contended that its products should attract a standard GST rate of 5% under Entry 99A of Notification No. 1/2017-Central Tax (Rate) for goods classified under HSN 1905 or 2106. The appellate authority, however, held that the products fall under HSN 2106 and are subject to 18% GST.Analysis:The court considered whether the petitioner's products should be classified under Chapter Heading 1905 or 2106. It noted that Chapter Heading 1905 covers products made from cereals, starch, milk, and pastry cooked products, which are generally ready-to-eat. The court applied Rule 4 of the General Rules for Interpretation (GRI), which states that goods should be classified under the heading to which they are most akin.The court found that the petitioner's products, being semi-cooked and requiring heating, are more akin to the products under Chapter Heading 1905. Therefore, the products should be classified under HSN 1905.Conclusion:The court concluded that the petitioner's products are akin to those under HSN 1905 and should be classified accordingly. Consequently, the products are eligible for a GST rate of 5% (2.5% CGST + 2.5% SGST) as per Entry 99A of the Rate Notification, rather than 18% as held by the appellate authority.The writ petition was partly allowed, and it was held that the petitioner's products are liable to be taxed at 5% GST.