Malayalis' Favourite Banana Fritters Caught Up In Tax Hike
The beloved banana fritter of Malayalis, fondly known as ‘pazhampori’, ‘ethakkaappam’, ‘vazhakkappam’, ‘kaayporichath’, etc. – depending on where in Kerala you ask – is not that humble anymore. The snack has found itself tangled in tax games. The fritters are now being slapped with a hefty 18% GST. Not only the banana fritters, but its long-time friend the ‘unniappam’, is touched up with a 5% tax slab.
As per the Bakers Association Kerala (Bake), traditional snacks like ‘pazhampori’, ‘vada’, ‘ada’, and ‘kozhukatta’ are subjected to differential treatment. The move is adopted due to differences arising on account of the classification of products under the Harmonized System of Nomenclature (HSN).
Every item has a corresponding HSN code, determining its tax rate. Although HSN codes are standardised globally by the World Customs Organisation, countries can set their own tax rates for each code. In India, it is the GST Council responsible for deciding the rates.
While snacks like banana fritters and others are placed under higher tax slabs, other items like sweetmeats and unniyappam are placed under lower tax slabs. The difference is based on variations in ingredients and preparations.
Sherry Oommen, a jurist who specialises in tax, commercial and constitutional law, said that “The GST Department tends to adopt a stance where preparations not specifically covered for reduced levies are taxed at 18%”, as quoted by media. Sherry explains that there could be situations where particular goods could get classified under more than one HSN, which will have a bearing on their tax rate.
He said the questions on classification can to a certain extent be addressed by approaching the Authority for Advance Ruling (AAR). He also pointed out that recently a single bench of the Kerala High Court held that ‘Malabar parota’ is akin to a ‘bread’, subject to 5% tax, instead of 18% as upheld by the AAR.
Recently, Kochi-based Fresh Products were met with a favourable order from the AAR, which reduced the tax rate on several traditional sweets and snacks from 18% to 5%. These items are made using deep-fried rice and jaggery, and included unniappam, neyyappam, kinnathappam, kalathappam, rice ball (ariyunda), and aval vilayichath. The AAR clarified that these products fall under the “sweetmeats” category, classified under HSN 2106 90.
However, approaching the AAR can reportedly be time-consuming and taxing for small businesses. Not to mentionthat the AAR has been delaying many applications for clarification.
Sherry points out, “In my experience, the AAR has been adopting a revenue-friendly stance, undermining its purpose. I believe an external person should be part of the AAR’s constitution to ensure impartiality which is one of the foundations of an independent judiciary”, opined Sherry, as quoted by media.
