Papad is exempt from GST irrespective of its shape- CBIC makes a clarification

In this article, we will have discussion on a very interesting topic which is a classic example of confusions created by GST law in India. ‘Papad’ is a favourite eatable of every Indian without any barriers of caste, religion, culture and state. But our tax authorities have not been able to take clear stand over the taxability of ‘Papad’. Since inception of GST in India in July 2017, many taxpayers sought advance ruling from ‘Advance Ruling Authorities’ on the issue “Whether Papad is exempt from GST or not?”.

However, the rulings rendered by the Authorities rather made things worse despite the fact that a clear entry is given in the exemption notification issued by CBIC in this regard. Notification No. 2/2017- Central Tax (Rate) dated 28-06-2017 prescribes exemption in respect of supply of various categories of goods under the GST laws. Entry at Sr. No. 96 of the said Notification provides for exemption from GST in respect of ‘Papad’ as follows:

Analysis:

• From the above entry, it is clear that Supply of Papad shall be exempted from GST. Papad is served in every corner of India with different names and sizes. Papad may be sold in round shape or square shape or in the form of fryums. It is known in various parts of country by different nomenclatures e.g. Papad, Fryums, Bhungla, Nadda, Gongo, Ponga, Gold Finger, White Finger, Finger, Nali etc. The words ‘by whatever name it is known’ strengthens our opinion that Papad in any form, name or shape shall be eligible for exemption from GST.

• However, it is also clear from perusal of the above entry that the exemption from GST shall not be available where Papad is served for consumption, like restaurants serving roasted papad or fried papad or masala papad for consumption to their customers. The above entry specifically excludes such cases.

But, the Advance Ruling Authorities in some instances gave divergent rulings on the similar issue. To quote one such case, in the matter of Jayant Food Products, the Gujarat GST AAR held that 18% GST is liable on unfried fryums which is nothing but papad. In our view, fryums is nothing but a papad in a different shape may be oval or square or triangle and the same should be classified under Entry No. 96 of Notification No. 2/2017- Central Tax (Rate) dated 28-06-2017.

However, the AAR had an opinion that the above item should be classifiable under S.No. 23 Chapter heading 2106 of Notification No. 1/2017 – Central Tax (Rate) as “Food preparations not elsewhere specified or included [other than roasted gram, sweetmeats, batters including idli/ dosa batter, namkeens, bhujia, mixture, chabena and similar edible preparations in ready for consumption form, khakhra, chutney powder, diabetic foods]” and thus liable for tax at the rate of 18%.

Now, the hilarious turn came on this issue when a tweet was made by the industrialist Mr. Harsh Goenka which again highlighted the issue. He tweeted as follows:

“Did you know that a round papad is exempt from GST and a square papad attracts GST? Can anyone suggest a good chartered accountant who can make me understand the logic?”

The tweet made by Mr. Harsh Goenka brought Central Board of Indirect Taxes and Customs (CBIC) in action which made a clarification on the issue of taxability of Papad in different shapes and sizes.

Conclusion:

It apparently seems that the dispute over the taxation issue of ‘Papad’ has come to an end after the above tweet of CBIC. But in reality, it is not so. We will see more rulings in future over this issue which will be beyond the actual intention of law.  Even in the case of many other categories of goods or services where confusions have aggravated due to divergent rulings of different AARs, we will need few more tweets like that of Mr. Harsh Goenka, so that CBIC awakes and removes ambiguities and confusions over taxability of such goods or services.

Disclaimer: The above article contains the information which is a personal opinion of the author and is meant only for informative purposes. Readers are requested to act diligently and under consultation with a professional before applying the above information in any manner or purpose.