Papad is once again in the spotlight at the Authority for Advance Rulings (AAR)—this time over a key ingredient, Papad Khar, rather than its shape. The Gujarat AAR has ruled that this essential ingredient will be taxed at an 18 per cent GST rate.
This is unique situation as multiple Advance Rulings (including Gujarat AAR/AAAR decisions) have confirmed that papad, irrespective of shape, size, or form, is exempt from GST. The Applicant submitted that following the principle established in GST jurisprudence, when finished product (papad) is exempt from GST, essential raw materials and processing ingredients used in its manufacture should logically qualify for similar treatment or at minimum preferential treatment. “Papad Khar is not a standalone product but an ingredient integral to papad production,” the applicant, Rajkot based Sardar Chemical Industries based said.
However, while disposing of the petition, Gujarat AAR said that it did find any such established principle in GST jurisprndence which suggests that raw materials used in the manufacture of the finished product should be exempt from GST when the finished product is exempt from GST. GST classification principles do not automatically indicate that raw materials should be charged at NIL rate of GST simply because the final product is exempt.
GST is a value-added tax, and tax rates for inputs and final products are decided independently by the Government based on economic policies and the recommendations of the GST Council.
separate items
“A raw material and its final product are separate items with their own specific HSN codes and the rate for each is determined strictly by its specific tariff entry in the rate schedules, not by its position in a supply chain. We, therefore, find this contention of the applicant to be illogical and devoid of merit,” it said.
Accordingly, it replied in negative to the question whether Papad Khar should be classified as Common Salts with 5 per cent GST based on its alkaline salt composition and food application. Also, it declined to accept the plea to consider this ingredient as ‘Prepared Food Additives/Condiments’ based on its nature as a food processing ingredient. “Papad Khar does not qualify for GST exemption,” it said while clarifying that the said product will attract 18 per cent GST.
According to the AAR, as per data available online, Papad khar (also known as saji khar or papad kharo) is a traditional alkaline salt. Chemically, it is a mixture of sodium carbonate and sodium bicarbonate. Sodium Carbonate, often known as washing soda or soda ash, is the main alkaline agent that gives the dough its elasticity and crispiness whereas Sodium Bicarbonate, commonly known as baking soda, acts as a leavening agent that releases gas to expand the papad when fried.
Papad Khar is often sold and refined to as sodium sesquicarbonatc and is primarily used in Indian cuisine to give crispiness, volume, and an extended shelf life to papads and other crispy snacks and acts as a dough conditioner, helping the papad puff up beautifully when fried or roasted. Further, if one is cooking and needs to substitute papad khar, the closest and most accessible alternative is baking soda, AAR said.
Source from: https://www.thehindubusinessline.com/economy/papad-khar-to-attract-18-gst-says-gujarat-aar/article71341003.ece
