Classification of Un-Fried Fryums under GST: Tariff Item 21069099 and 18% GST Applicability

Introduction

The case of Sonal Product, In Re before the Authority for Advance Rulings (AAR), GST, dated February 22, 2019, addresses the classification and applicable Goods and Services Tax (GST) rate for products manufactured by Sonal Product, Bhavnagar. The company sought an advance ruling on the correct classification and GST rate for its products categorized as “Papad and papad pipes” of various shapes, sizes, and varieties, commonly known as un-fried Fryums. The primary questions raised were:

What is the correct classification of “Papad and papad pipes” (un-fried Fryums)?
What is the applicable rate of CGST payable on such products?

The petitioner argued that their products should be classified under specific tariff items for Papad, thereby qualifying for tax exemption.

Summary of the Judgment

The AAR examined the classification of "Un-fried Fryums" as per the Customs Tariff Act, 1975, and relevant GST notifications. After thorough analysis, the ruling concluded that the products do not fall under the classification of "Papad" (HSN Code 19059040 or 19059090). Instead, they are appropriately classified under Tariff Item 2106 90 99 of the First Schedule to the Customs Tariff Act, 1975. Consequently, an 18% GST (CGST 9% + SGST 9% or IGST 18%) is applicable to the product.

Analysis

Precedents Cited

The judgment heavily relied on several judicial precedents to arrive at its decision:

Shivshakti Gold Finger: The Supreme Court held that all varieties of papad, irrespective of shape or size, fall under the Papad classification. However, this case involved fried products, distinguishing them from Sonal Product's un-fried Fryums.
State of Karnataka v. Vasavamba Stores: The Karnataka High Court aligned with the Shivshakti ruling but was subject to appeal, thereby limiting its binding authority.
T.T.K. Pharma Ltd. v. Collector of Central Excise: The Customs, Excise and Gold Appellate Tribunal (CEGAT) classified Fryums as "Namkeen," not as "Papad," under the resitory sub-heading 2107.99, emphasizing their similarity to products requiring further processing before consumption.
Commercial Tax, Indore v. T.T.K. Health Care Ltd.: The Supreme Court determined that Fryums are akin to Seviyan, requiring additional processing (frying) before consumption, thus excluding them from "cooked food" categories.

Legal Reasoning

The court employed the principle of statutory interpretation, focusing on the common parlance and commercial understanding of the term "Papad." Key points include:

Common Parlance: In the absence of a statutory definition, terms are interpreted based on their popular meaning. Sonal Product argued that "Un-fried Fryums" are not commonly recognized as "Papad" in trade parlance.
Chapter Notes of Customs Tariff Act: Chapter 21 and Tariff Item 21069099 encompass edible preparations not specified elsewhere, including namkeens and mixtures. The AAR found "Un-fried Fryums" fit within this classification due to their nature and requirement for further processing before consumption.
Exclusion from Papad Classification: Unlike fried papads, the un-fried nature of the Fryums aligns them more closely with non-ready-to-eat namkeens, requiring additional processing (frying) for consumption.

Impact

This judgment clarifies the classification boundaries between "Papad" and other similar products like "Namkeens" or "Fryums" under GST. It establishes that un-fried products requiring further processing do not qualify for the Papad classification and the associated tax exemptions. Businesses manufacturing similar products must invoice an 18% GST, ensuring compliance and avoiding potential disputes in the future.

Complex Concepts Simplified

HSN Code and Tariff Items

HSN Code (Harmonized System of Nomenclature) is a standardized numerical method of classifying traded products. Tariff Items refer to specific categories within these codes that determine the applicable taxes and duties.

Common Parlance Test

This legal principle dictates that in the absence of specific definitions, terms should be interpreted based on their ordinary or widely accepted meaning within the relevant industry or commerce.

Residuary Sub-heading

The residual category in a tariff schedule that captures goods not specifically enumerated elsewhere. Classification under a residuary sub-heading often implies a default tax rate unless otherwise specified.

Conclusion

The AAR's ruling in Sonal Product, In Re delineates the tax classification between "Papad" and products like "Un-fried Fryums." By classifying these Fryums under Tariff Item 21069099, the ruling underscores the necessity for businesses to assess their products' readiness for consumption when determining applicable tax rates. This decision serves as a precedent for similar cases, guiding manufacturers and traders in accurate product classification and GST compliance.