Yesterday, On 18th June, Kerala High Court issued a stay on the judgment that classified Malabar Parota under the 5% GST category instead of 18%. The stay order came in response to an appeal by the State government challenging the earlier ruling by a single judge in April. This initial judgment based on a petition filed by Modern Food Enterprises Pvt. Ltd.
Kerala: The Kerala High Court issued a stay on a recent judgment made by a single-judge . The previous judgment ruled that Malabar parota, a type of flatbread, should attract a Goods and Services Tax (GST) rate of 5 percent instead of the 18 percent rate.
A division bench of Justices A Muhamed Mustaque and S Manu now stayed the operation of the single-judge’s judgment for a period of two months. This stay order passed in response to an appeal filed by the Kerala state government, who challenging the earlier judgment.
The stay effectively means that the 18 percent GST rate on Malabar parota will continue to be applicable, at least until the division bench reviews the case further over the next two months.
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Modern Enterprises Pvt. Ltd. filed a petition before the Kerala High Court challenging a decision by the Appellate Authority for Advanced Ruling. The ruling stated that its products, including classic Malabar Parota and whole wheat Malabar Parota, are subject to an 18% GST rate according to the Rate Notifications under the Central/State Goods and Service Tax Act, 2017.
Modern Food contended that its products should be classified under Tariff item No.1905 9090 of the First Schedule to the Customs Tariff Act, 1975. They argued that Indian flatbreads are encompassed by the term ‘bread‘ under Heading 1905.
Their primary argument that the ingredients and preparation process for the parotas, similar to those of the products listed under the relevant tariff item, and thus, they should fall under that category.
The government pleader countered this argument, asserting that the ingredients and methods used for making parotas are different and that parotas and bread are not interchangeable.
After examining the arguments, the single-judge ruled that Malabar Parota falls under HSN 1905, as the ingredients and preparation method are similar to those products taxed at a 5% GST rate.
The single-judge in the judgment stated,
“I am of the considered opinion that if the petitioner’s products are akin to the products mentioned in HSN code 1905 of Chapter 19, which pertains to preparations of cereals, flour, starch, or milk; pastrycooks’ products, given that the ingredients used and the processes applied in their preparations are somewhat similar to the products listed under Chapter heading HSN Code 1905, excluding the petitioner’s products from Entry 99A of the Rate Notifications, which are almost similar to the three products mentioned in said Entry cannot be justified. In light of the aforementioned discussion, I believe that the petitioner’s products should also be taxed at a 5% GST rate (2.5% CGST + 2.5% SGST) rather than the 18% rate as argued by the learned Special Government Pleader and determined by the Advance Ruling Authority and Advance Ruling Appellate Authority,”
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The State filed an appeal with the division bench against the single-judge’s decision. On June 18, the division bench put a two-month stay on the single-judge ruling.
The State government’s appeal expected to be heard before the two-month stay expires.
The High Court’s stay order offers temporary relief to manufacturers and sellers of Malabar Parota, who had been grappling with uncertainty over the tax implications.
Read Judgement: [State of Kerala v. Modern Food Enterprises Private Limited].