the essay of 26 October 2022 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p align="justify"><font color="#663399" size="2"><strong><font face="Verdana, Arial, Helvetica, sans-serif">OCTOBER 26, 2022</font></strong></font></p> <p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Roti, Paratha, AAR </strong></font></p> <p align="center"><u><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>By Vijay Kumar </strong></font></u></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ROTI</strong>, kapda, makan and bandwidth are not beyond GST or the attendant confusion. In 2018, <em>Modern Food Enterprises Ltd </em>approached the Authority for Advance Ruling Under GST for the State of Kerala. This authority is popularly known as AAR. Let me warn you, the authority is by no means popular. Once I mentioned in a webinar that in <em>Anti Profiteering Authority</em>, they bring a stick and beat you, but in <em>Advance Ruling Authority</em>, you carry your own stick and allow them to beat you. But for some strange illogical unscientific reason, taxpayers do flock to the Advance Ruling Authority to get flogged - totally voluntary. GST has affected people in different ways and this is one inexplicable feature. Anyway, let's get back to our Rotis and parotas, which this column is all about.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, <em>Modern Food Enterprises </em>told the Advance Ruling Authority (AAR) that 'Classic Malabar Parota' is unleavened, 'Whole Wheat Malabar Parota' is leavened with yeast. So what? They wanted to know kindly please whether they can pay 5% GST on the parota.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The authority examined the case meticulously and gave its expert opinion that <em>"Bread is a staple food prepared by cooking dough of flour, water and yeast, whereas parotta is prepared by using ghee or oil. The dough is rolled out and brushed with ghee or oil then folded again, brushed with more ghee and folded again. This is then rolled out to a circle and cooked on a buttered griddle. The heat makes the layers of dough puff up slightly, resulting in a more flaky texture."</em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The authority showed extraordinary wisdom and held,</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nothing doing. No 5%. To add taste to the order and paratha, the Authority added a little Latin - <em><font color="#993333">absolute sententia expositore non indiget</font></em>. In case you don't understand Latin or you would rather have more lettuce than Latin or Law in your paratha, the AAR translated the Latin phrase for you - <em>The plain language used in the heading does not need an interprete</em>r. But there was a small problem - it is not <em>absolute sententia</em>, but <em>absoluta sententia</em>. Don't expect Revenue Officers to be experts in Latin and if you know a little Latin in law, the spelling doesn't matter, especially with regards to paratha. So, the Authority held that 'Classic Malabar Parota' and 'Whole Wheat Malabar Parota' classified under Heading 2106 'Food preparations not elsewhere specified or included' is taxable @18% GST.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And we dutifully reported this as - <strong><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTQyNTIw" target="_blank">2018-TIOL-237-AAR-GST</a></strong>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>SIGNATURE INTERNATIONAL FOODS INDIA PVT. LTD </em> had a similar doubt and they approached the Maharashtra AAR which ruled,</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The product is plain like a chapatti and unstuffed like Gobhi paratha, Laccha paratha. To us, this is nothing but a plain chapatti and paratha is a misnomer for this food product supplied by the applicant. As such we do not find any difficulty in classifying the product as plain chapatti covered by entry 99A of notification no. 34/2017. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Unleavened Flatbreads products such as plain chapatti, Tortilla, Tortilla Wraps, roti, Roti rolls, Wraps, Paratha and Paratha wraps are covered under Entry No. 99A of Schedule I and they would be liable to tax @ 5%. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We are in the business of reporting. So we again dutifully reported this as - <strong><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTQzODIy" target="_blank">2018-TIOL-311-AAR-GST</a></strong> </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a recent order, while confirming 18% GST for parotas, the APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT in - <a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTczMzM5" target="_blank"><strong>2022-TIOL-33-AAAR-GST</strong></a><strong>, </strong>clarified that any Advance Ruling is binding on the Applicant who has sought it and on the concerned officer or the jurisdictional officer in respect of the Applicant.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It does not bind, like the flour in paratha, anyone else.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the case of <em>SQUARE ONE HOMEMADE TREATS</em>, - <a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTUzNzQy" target="_blank"><strong>2019-TIOL-440-AAR-GST</strong></a>, the AAR gave an exhaustive order that:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Aloo Paratha, Ghee Paratha Channa Masala, Ghee Paratha Mushroom Kurma, Methi Paratha Gobi Manchurian Naranga Curry, Parotta (Maida) Chillicauliflower, Parotta (Maida) Paneer Mutter, Parotta (Wheat) Chillicauliflower, Parotta (Wheat) Gobi Manchurian, Parotta (Wheat) Paneer Mutter, Parotta Veg Curry…..</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">are classifiable under HSN Code 2106 90 99 and is liable to GST at the rate of 18%. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>ID Fresh Food </em> case, - <a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTU4OTcy" target="_blank"><strong>2020-TIOL-114-AAR-GST</strong> </a>the AAR held</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">These products also require further processing for human consumption, as admitted by the applicant. Thus, the benefit of Entry No. 99A of Schedule-I to the Notification No. 1/2017-Central Tax (Rate), is not applicable to the instant case and the applicant is not entitled for the same. </font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Not an extraordinary order, but the parota took a hot turn in appeal.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The parotta seller, <em>ID Fresh Food </em> took the matter in appeal to the APPELLATE AUTHORITY FOR ADVANCE RULING aka AAAR. In the hearing before the AAAR, the party was represented by the famous advocate Mr. Lakshmikumaran with Mr. Ravi Raghavan and Ms. Charanya Lakshmikumaran and the Department was Davidly represented by Mr. Saji Jacob, Superintendent of Central Tax.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Departmental Representative submitted that:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The DGGI, had initiated an investigation against M/s ID Fresh Food (India) Pvt Ltd on the issue of misclassification of <em>"Parotas" </em>paying GST at the lesser rate of 5% instead of 18%. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. DGGI issued summons and statements were recorded. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. During the pendency of the investigation, M./s ID Fresh Foods had applied for an Advance Ruling on the same issue of classification of Parota and the Authority has given a ruling that the product in question is classifiable under Chapter Heading 2106. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. The Appellant has obtained the ruling by not revealing the fact of the ongoing investigation on the same subject matter which is violative of Section 98(2) of the CGST Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. The ruling given by the lower Authority be held as <em>void ab-initio </em> in terms of Section 104 of the Act in as much as the ruling has been obtained by suppressing facts.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In his rebuttal, the representative for the Appellant submitted that:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. The matter was only under investigation and no 'show cause notice' was issued. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Matters under investigation will not attract the provision of the proviso to Section 98(2). </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. The investigation initiated by the DGGI is not within the ambit of the term 'proceedings' for the purpose of Section 98(2) of the CGST Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Mere initiation of an investigation or pendency of proceedings under the Act by itself would not exclude the jurisdiction of the AAR. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. A mere notice issued by an authority cannot be considered to be a jurisdictional bar on the assessee for raising the question before the AAR. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The term 'proceedings ' as mentioned in the proviso, does not cover any and all steps / actions that the Department may take under the Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. The sequence of events in the present case indicates that the investigation initiated against the Appellant was at a preliminary stage at the time of filing the application before the AAR. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. The application for advance ruling filed before the AAR was well within the knowledge of the Department. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9. The issue of jurisdiction cannot be raised at a belated stage before the Appellate Authority. Since the issue was not raised during the pendency of the application before the AAR, nor at the time of hearing before the AAR, it cannot be allowed at the stage of the appellate proceedings. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10. There is no appeal filed by the department against the order of the AAR. In such a situation the issue of jurisdiction raised by the Government Representative at the time of personal hearing is ex-facie perverse and cannot be entertained.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The AAAR was not impressed. In its order in - <a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTYxMzEy" target="_blank"><strong>2020-TIOL-57-AAAR-GST</strong></a>, the Appellate Authority held:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. We are not impressed by this argument. The term 'proceeding' is a very comprehensive term and generally speaking means a prescribed course of action for enforcing a legal right and hence it necessarily embraces the requisite steps by which a judicial action is invoked. Therefore, commencement of investigation in terms of Section 67 of the CGST Act, can be said to be the start of a proceeding to safeguard the government revenue. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. The usage of the words <em>"any proceeding"</em> in the proviso to Section 98(2) of the CGST Act will encompass within its fold the investigation launched by the agencies. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. The application for advance ruling could not have been made in this case as it is hit by the provisions of Section 98 (2) of the CGST Act in as much as an investigation was already initiated against them by DGGI on the very same issue that was raised before the Authority for Advance Ruling. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. The order of the lower Authority is <em>void ab initio </em> as it was vitiated by the provisions of Section 98(2) of the CGST Act. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. The view of the Appellant that the issue of jurisdiction could only have been raised before the lower Authority and not having been raised before it, the Department had waived its rights to raise the same is not entirely correct. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The proceedings before the lower Authority had been conducted without any participation of the jurisdictional officer. The jurisdictional officer was not asked to furnish comments nor was the jurisdictional officer present at the time of the personal hearing. The impugned ruling was given based only on the submissions made by the applicant. As such it was not possible for the jurisdictional officer to put forth any views / objections as to the admissibility of the application for advance ruling. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. The mere fact that no objection was taken before the lower Authority would not by itself bestow jurisdiction to the said Authority. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. The Department has brought to our notice the fact that the advance ruling has been obtained by suppression of material facts and we are inclined to take cognisance of this information placed before us. It is trite law that when one comes for justice one should come with clean hands. This is not the case here. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9. We, therefore, invoke the provisions of Section 104 of the CGST Act, and declare the advance ruling order dated 22nd May 2020 as <em>void ab initio.</em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the AAAR dismissed the appeal without deciding the classification of parotta and its rate of tax.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Maybe the parotta has to travel to Supreme Court for finality.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please note that paratha spelt any which way has the same rate of GST.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whenever I eat a paratha, I remember that what I eat is already tax paid - good and simple!</font></p> <p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Next week </font></p> </body> </html>