KOCHI: The batter is leaving a bitter aftertaste! The humble banana fritter, known to Malayalis variously as ‘pazhampori’, ‘ethakkaappam’, ‘vazhakkappam’, etc., depending on where in Kerala you ask, finds itself caught in a tax tangle. The beloved fritters are being slapped with a hefty 18% GST, while their cheeky country cousin, the ‘unniappam’ — those adorable mini browns — enjoy a leisurely life in the cozy 5% tax slab.
According to the Bakers Association Kerala (Bake), traditional snacks like ‘pazhampori’, ‘vada’, ‘ada’, and ‘kozhukatta’ are subjected to differential treatment due to differences arising on account of the classification of products under the Harmonized System of Nomenclature (HSN).
Every item has a corresponding HSN code, which determines its tax rate. Although HSN codes are standardised globally by the World Customs Organisation, countries can set their own tax rates for each code. In India, the GST Council is responsible for deciding these rates.
Kiran S Palakkal, president of Bake, points out that many sweetmeats and snacks are classified under lower tax slabs, while others, due to slight variations in ingredients or preparations, are placed in higher tax slabs.
Sherry Oommen, a jurist who specialises in tax, commercial and constitutional law, notes that the question of classification is a vexed issue within GST. “The GST Department tends to adopt a stance where preparations not specifically covered for reduced levies are taxed at 18%.” Sherry explains that there could be situations where particular goods could get classified under more than one HSN, which will have a bearing on their tax rate.
Unniappam, neyyappam in 5 per cent GST slab
“Questions on classification can to a certain extent be addressed by approaching the Authority for Advance Ruling (AAR),” Sherry adds.
Illustrating the point, Sherry points out that recently a single bench of the Kerala High Court held that ‘Malabar parota’ is akin to a ‘bread’, subject to 5% tax, instead of 18% as upheld by the AAR.
Kochi-based Fresh Products recently received a favourable order from the AAR, which reduced the tax rate on several traditional sweets and snacks from 18% to 5%. These items, including unniappam, neyyappam, kinnathappam, kalathappam, rice ball (ariyunda), and aval vilayichathu, are made using deep-fried rice and jaggery. The AAR clarified that these products fall under the “sweetmeats” category, classified under HSN 2106 90.
According to Kiran, approaching the AAR can be time-consuming and taxing for small businesses. Furthermore, the AAR has been delaying many applications for clarification.
“Traditional snacks with a short shelf life, typically made by micro units like Kudumbashree and sold through bakeries, are particularly vulnerable. Unsold products are often discarded, resulting in denied input claims and significant financial losses,” he added.
Sherry points out, “In my experience, the AAR has been adopting a revenue-friendly stance, undermining its purpose. I believe an external person should be part of the AAR’s constitution to ensure impartiality which is one of the foundations of an independent judiciary.”