In a significant legal development, the Division Bench of the Kerala High Court has issued a stay on the lower GST ruling for Malabar Parota. This stay comes as a response to the single-judge bench’s earlier decision, which had reduced the GST rate for the product.
The interim order, articulated by Justices A. Muhamed Mustaque and S. Manu, suspends the previous judgment for two months. This period allows for further examination of the case, following an appeal lodged by the State Government. Notices have also been dispatched to the involved parties, including the manufacturer, the Central Government, and the Central Board of Excise and Custom (CBIC), with the next hearing scheduled for July 17.
Earlier this year, Justice Dinesh Kumar Singh of a single-judge bench ruled in favor of Kochi-based Modern Food Enterprises, positing that if the key ingredients (cereals, flour, starch, etc.) and preparations for products are comparable, it is unjustifiable to exclude one product from a reduced tax category. This ruling hinged on HSN code 1905 of Chapter 19, which delineates GST rates for products like pizza, bread, khakhra, and plain chapati or roti, asserting eligibility for a 5% GST rate or exemption.
The single-judge bench’s April 2 ruling contended that the petitioner’s products should attract a 5% GST (2.5% CGST + 2.5% SGST), rather than 18%. Modern Food Enterprises, the manufacturer of ‘Classic Malabar Parota’ and ‘Whole Wheat Malabar Parota’, had previously approached the Authority for Advance Rulings (AAR) seeking clarity. However, the AAR determined an 18% GST rate was applicable, asserting that the products did not qualify for the bread exemption.
Dissatisfied with the AAR’s decision, the company sought recourse from the Appellate Authority for Advance Rulings (AAAR). The AAAR upheld the higher tax rate, reasoning that products under subheading 1905, which include bakery items in ready-to-eat form, did not apply to Malabar Parota. This product requires heating or further preparation before consumption, distinguishing it from other bakery goods.
Following this, Modern Food Enterprises contested the AAAR ruling in the High Court. The single-judge ruling favored the manufacturer, invalidating the AAAR and AAR’s conclusions. However, the division bench now asserts that more deliberation is necessary, resulting in the current interim stay on the lower GST rate.
This ongoing legal tussle underscores the complexities of GST classifications and the need for meticulous judicial scrutiny to ensure equitable taxation policies.
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