Ready-to-eat parottas (paratha), unlike rotis, need to be further processed for human consumption and hence are liable for 18 per cent GST, the Authority of Advance Ruling (AAR) has said.  

Bengaluru-based ID Fresh Foods had approached the Karnataka bench of the AAR on whether preparation of whole wheat parotta and Malabar parotta can be classified under Chapter 1905 attracting 5 per cent GST.

The AAR in its ruling said that parottas are neither rotis or khakhras and hence cannot be taxed at 5 per cent. 

With social media abuzz with the roti-parotta debate, the Central Board of Indirect Taxes and Customs (CBIC) in a series of tweets said the AAR has decided that frozen (and preserved) wheat parotta and Malabar parotta available in ambient and frozen form with a shelf life of three-seven days is not plain roti but a distinct product.

What is advance ruling?

An advance ruling helps the applicant in planning his activities which are liable for payment of GST, well in advance. It also brings certainty in determining the tax liability, as the ruling given by the Authority for Advance Ruling is binding on the applicant as well as government authorities.

Further, it helps in avoiding long drawn and expensive litigation at a later date. Seeking an advance ruling is inexpensive and the procedure is simple and expeditious. It thus provides certainty and transparency to a taxpayer with respect to an issue which may potentially cause a dispute with the tax administration. 

A legally constituted body called Authority for Advance Ruling (AAR) can give a binding ruling to an applicant who is a registered taxable person or is liable to be registered. The advance ruling given by the Authority can be appealed before an Appellate authority for Advance Ruling (AAAR).

The objectives for setting up a mechanism of advance ruling are:

1) Provide certainty in tax liability in advance in relation to an activity proposed to be undertaken by the applicant.

2) Attract foreign direct investment (FDI).

3) Reduce litigation.

4) Pronounce ruling expeditiously in a transparent and inexpensive manner.

Advance ruling can be sought as specified in sub-section (2) of section 97 or subsection (1) of section 100 of the CGST Act, 2017 in following subjects:

1) Classification of goods/or services.

2) Time and value of supply.

3) Rate of tax.

4) Admissibility of input tax credit.

5) Liability to pay tax, liability to take registration. 

6) Whether a particular transaction amounts to a supply under GST law.

Authority for advance ruling

The Authority for advance ruling constituted under the provisions of State Goods and Services Tax Act or Union Territory Goods and Services Tax Act shall be deemed to be the Authority for advance ruling in respect of that state or Union Territory under the CGST Act, 2017.

Both the Authority for Advance Ruling (AAR) & the Appellate Authority for Advance Ruling (AAAR) is constituted under the respective state/Union Territory Act and not the central Act. 

If there is a difference of opinion between the two members of AAR, they shall refer the point or points on which they differ to the AAAR for hearing the issue. 

If the applicant is aggrieved with the finding of the AAR, he/she can file an appeal with AAAR. Similarly, if the prescribed  or jurisdictional officer of CGST/SGST does not agree with the finding of AAR, he can also file an appeal with AAAR. 

The law gives power to AAR and AAAR to amend their order to rectify any mistake apparent from the record within a period of six months from the date of the order. Such mistake may be noticed by the authority on its own accord or may be brought to its notice by the applicant or the prescribed or the jurisdictional CGST/SGST officer. If a rectification has the effect of enhancing the tax liability or reducing the quantum of input tax credit, the applicant must be heard before the order is passed.

Both the AAR and AAAR are vested with the powers of a civil court under Code of Civil Procedure, 1908, for discovery and inspection, enforcing the attendance of a person and examining him on oath, and compelling production of books of account and other records. Both the authorities are deemed to be a civil court for the purposes of section 195 of the Code of Criminal Procedure, 1973. 

Setting up of AAAR

In January 2019, the Union Cabinet approved setting up of a centralised Appellate Authority for Advance Ruling (AAAR) under the goods and services tax that would decide on cases where there are divergent orders at the state level. The setting up of a centralised AAAR would require amendments to the GST Acts.

The centralised authority as an appellate body will only take up cases wherein the Authority for Advance Ruling (AAR) of two states have passed divergent orders.

Manorama Yearbook app is now available on Google Play Store and iOS App Store