Early this month, the government issued a circular to provide clarification on GST rates and classification of certain goods based on recommendations in the 50th GST Council meeting held on August 11, 2023. One such clarification was with respect to applicable rate of GST on snack pellets in ready-to-eat form, wherein it is clarified that such goods, manufactured through the process of extrusion, attract GST at the rate of 18%.
The term, “ready-to-eat” snack, as mentioned in the circular, includes a wide range of products in the food industry which are typically extruded, a process which is used for food manufacturing. The clarification targets “Extruded or expanded products, savoury or salted” that are classified under Chapter Heading (CTH) 1905 of the Customs tariff. As a result, the clarification creates an ambiguity regarding the basis for deciding the GST rate on such savoury or salted snack items, as now one is not sure if the nature of the food product is enough to decide the GST rate or if the manufacturing process is equally important, or maybe more important, to decide the GST rate of such products.
One particular category of these snack items that may be impacted from this clarification is traditional snacks such as namkeens which are currently taxed at 12% GST. It is interesting to note that namkeens generally undergo the process of extrusion to prepare in ready-to-eat form. Considering that such products are ready-to-eat snacks and are manufactured by way of extrusion, it would be crucial to determine whether such items are taxable at 12% or 18%.
To elaborate further, the issue which arises in light of the clarification is that whether any snack item which undergoes the process of extrusion will be hit by the clarification or the general rules of interpretation will prevail if there is a specific heading provided under the Customs tariff. One might debate that namkeens manufactured by following the process of extrusion should be taxed at 18% as that would be a specific heading for classifying such items. Consequently, namkeens manufactured otherwise should be taxed at 12% GST.
“Extruded or expanded products, savoury or salted”, as provided in the circular, is not even covered as an entry in the GST Rate Notification. CTH 1905, which covers “extruded or expanded products, savoury or salted”, otherwise covers bakery products or bakers’ wares. Therefore, extending the applicability of the clarification provided in the circular to a ready-to-eat salted snack item, which goes through process of extrusion might not be right approach to determine classification.
Here, we may also take the case of good old Bhujia as an example. While the manufacturing process of bhujia also involves extrusion, by virtue of it being specifically covered under Schedule II of the GST Rate Notification, whether it will continue to be taxed at 12% GST or because of extrusion process, the clarification in the circular will apply and bhujia will have to be covered under Schedule III and taxed at 18%.
Concluding Remarks
Since the clarification has been given the status of being regularised on “as is” basis, there may not be any issue for the past period. However, the circular leaves enough scope for interpretation to tax any salted snack item in ready-to-eat form at 18% as against the industry’s practice of paying GST at 12% on such products. It is only a matter of time before the applicability of the circular is extended to apply retrospectively, which might have a significant impact on differential tax payment for such snack items. The question as to whether the circular can override the statute and tariff entries to decide rate of tax is another point which will be prone to challenge.
Brijesh Kothary is partner, Teesta Banerjee is an associate partner and Saundarya Sinha is an associate at Lakshmikumaran & Sridharan Attorneys
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