MARCH 26, 2019

By Saurabh Malpani

ROTI, an Indian's bread, is an item of mass daily consumption. It is prepared by baking dough made up of cereal flour, which has not been leavened with yeast or baking powder. The method of preparation of western breads like pav (as known in India) is similar to that of roti.

In the pre-GST regime, the manufacture and sale of roti did not suffer any indirect taxes. Bread, falling under Chapter Heading 1905 9090, attracted nil rate of excise duty. Further, majority of the VAT Acts provided exemption on bread. For example, the entry at Sr. No.7 in Schedule A (list of goods for which the rate of tax is nil %) to the Maharashtra Value Added Tax Act, 2002 reads as under:

"Bread (excluding pizza bread), in loaf, rolls or in slices, toasted or otherwise except when served for consumption."

However, there were disputes regarding the inclusion of Indian Breads like the roti within the scope of the abovementioned exemption entry. In this regard, the decision of the Hon'ble High Court of Hyderabad in the case of Kayani and Co. vs. CST reported at AIR 1953 AP 252 held that the terms roti, paratha, etc., are descriptive prefix to connote the kind of bread and the term 'bread' (as appearing in the exemption schedule of Hyderabad General Sales Tax Act) includes and should include all forms or kinds of bread which are prepared by moistening, kneading, baking, frying or roasting meal or flour with or without the addition of yeast, leaven or any other substance for puffing or lightening the article. Also, in the recent decision of Hon'ble High Court of Chhattisgarh in the case of Kesharwani Enterprises vs. State of Chhattisgarh and Ors reported at (2018) 59 GSTR 187, it was similarly held that rusk and toast would be covered under the term 'bread' under Schedule - I, Entry 7 to the Chhattisgarh Value Added Tax Act, 2005 and further apprehended that the term 'bread' has to be given the widest interpretation, subject to the condition that the ingredients being substantially the same. Hence, it was a settled position, that Indian Breads like roti would be included within the ambit of the exemption entry of bread and thereby exempt from State VAT.

At the launch of GST, earlier exemptions to bread were continued. The entry at Sr. No. 97 of the Schedule to Notification No. 2/2017-Central Tax (Rate) dated 28.6.2017 reads as under:

"Bread (branded or otherwise), except when served for consumption and pizza bread"

The above entry is similar to the exemption entry of erstwhile State VAT Acts. Hence, applying the ratio of the judgements discussed above, bread in all its forms including roti, was exempt from the payment of GST. However, from 13th October 2017 onwards, a new entry was inserted in 5% tax slab. The said entry at Sr. No. 99A of Schedule-I of Notification No. 1/2017-Central Tax (Rate) dated 28.6.2017 reads as under:

"Khakhra; plain chapatti or roti".

The above newly inserted entry created confusion among the assesses regards the taxability of roti, as to whether it is -

- exempted under the general entry of 'bread' or

- taxable under the specific entry of 'roti'.

On approaching the Authority for Advance Ruling (AAR), a quasi-judicial body under the Goods and Services Tax (GST), their suspicion was confirmed that paratha and roti is taxable at the rate of 5% under GST ( Modern Food Enterprises Pvt. Ltd. - Kerala Ruling No. KER/23/2018 dated 12-10-2018 - 2018-TIOL-237-AAR-GST and Signature International Foods India Private Limited - Maharashtra Ruling GST-ARA- 29/2018-19/B- 91 dated 20-08-2018 - 2018-TIOL-311-AAR-GST. The Kerala Ruling even classified parotta under HSN 2106 'Food preparations not elsewhere specified or included'.

An AAR is only binding on the applicant who seeks it and not on other assessees. Therefore, an individual analysis should be done by every manufacturer or trader on issue of payment of GST on sale of roti or paratha. We would analyse whether the GST Council really intends to tax roti or parotta.

Upon deep diving into the intention of the GST Council to tax roti or parotta, it seems that a misunderstanding on the current taxation led to the said fate. This is understood from the perusal of the publicly available documents of the GST Council meeting held on 06th October 2017. The said amendment was not on the agenda of the Council (the agenda was to reduce the rate of Khakhra, one of the items in the said inserted entry, from 12% to 5%). However, as advised by the Senior Joint Commissioner Taxes (West Bengal), that roti and chapatti also suffer taxation similar to Khakhra, the Council added roti and chapatti in the said entry. However, prior to the amendment, roti and chapatti were included in the exemption entry of bread (as explained above). This leads to the conclusion that the intention of the GST Council was not to tax roti or chapatti. The Council may not have analysed the taxing statute in detail before inserting the disputed entry.

An amendment in the nature of restitutio in integrum is required to fix the damage. The words "plain chapatti or roti" should be omitted from the said entry to restore the old position under law. Till the time the said error is rectified, a legal analysis may also be required for determination of rate, as the said goods "simultaneously fall" under two entries of the GST rate notification.

(The author is Senior Associate, Lakshmikumaran & Sridharan, Mumbai and the views expressed are strictly personal.)