Industry seeks clarity on namkeen, snacks amid ambiguity over GST product categorisation

The ambiguity in product categorisation when it comes to Goods and Services Tax (GST) rates is causing confusion once again—this time it is snacks and namkeens. The snacks industry is now seeking clarity from the government on the status of namkeen, fryums and snacks after a slew of DGGI notices, sources told CNBC-TV18.

“DGGI has sent notices to industry players seeking GST at 18%. The industry is of the view that namkeen and related snacks should be treated at 12% GST under HSN Code 2106 and the uncooked and unfried snack pellets attract 5% GST,” they added.

The industry is basing its stance on the 2012 Supreme Court ruling in an excise regime-related case between the government and Pepsi Foods Ltd on Kurkure, where the apex court classified it as namkeen. After the Supreme Court order, Pepsi Foods and other industry players have been filing GST under the Namkeen category at 12%.

However, sources say that “DGGI is of a view that select namkeen and snacks such as chips attract 12%, and other namkeen and snacks which are treated as fryums or snacks cooked and involving extrusion process attracts 18% GST.”

This category has products such as Bhujia, Kurkure, Cheetos, select varieties under Bingo etc, which are treated as namkeen, snacks with process of extrusion, thus should be treated at 18%.

The confusion over the GST classification has been an issue for both the government and the industry. The CBIC circular in January 2023 clarified that snack pellets such as fryums etc made after the process of extrusion are to be classified, under HSN Code 1905 and will attract 18% GST. Not just this, another circular issued in August 2023 said that uncooked and unfried snack pellets would attract 5% GST.

Some of the impacted industry players are PepsiCo, Haldirams, ITC, Pratap Snacks, Bhikaji, Bikano, etc.

The key thing to watch out for is what view the government and GST Council take after considering the ongoing industry representation and what happens to the DGGI notices that have been issued.

Experts note ambiguity in this regard and suggest the GST Council to provide adequate clarification as the way forward.

“The endeavour of the GST council and the select committee report for rates was to levy a lower rate for essential products such as food products. The higher rate of 18% for snacks which involves extrusion process leads to disparity in taxing namkeen and snacks. In other words, there is a lack of intelligible differential to impose a higher rate of tax based on an essential process which is required to prepare such snacks”, said Abhishek A Rastogi, founder of Rastogi Chambers, who has argued before the writ court on the differential rate of the product when it leads to arbitrariness.

“Fixation of the tax rate is certainly a policy decision of the legislature. But when such a policy decision is arbitrary, vague, or leads to absurd results, the decision may have to cross the test of constitutional validity”, he added.

"The ready-to-eat food processing industry is one of the fastest-growing in India. Moreover, the industry is very dynamic and has an ever-evolving product line, and thus is subject to varied challenges under GST law, particularly classification. The classification and tax rate of certain processed food items such as namkeen, bhujia, snacks, and similar edible food items have been a contentious issue since the introduction of GST, and multiple changes have also brought in the tax schedule in relation to the same from time to time. The law specifies definite GST rates for namkeen, bhujia, chabena and similar edible preparation (in packaged and labelled form, and otherwise) as well as un-fried/ un-cooked snack pellets; however, there is a lack of clarity as to which all products would get classified under these heads, for instance, chips, packed samosa, mathri etc. Accordingly, the industry has been taking different tax positions in terms of tax rates of such items, keeping in view the recipe, trade parlance, method of preparation, etc., and have thus been subjected to scrutiny by DGGI authorities in the recent past. It is therefore imperative that adequate clarification is provided by the GST council in terms of the classification and rates for the above ready-to-eat food items which shall provide sufficient relief to the industry and settle the debate on this issue," says Saurabh Agarwal, Tax Partner, EY.