The GST regime, having recently celebrated its sixth anniversary, stands as a remarkable achievement in the Indian tax landscape. Over this time, it has made substantial contributions to Gol’s financial coffers.
To provide a snapshot, the gross collection for FY2023 reached an impres- sive 18.10 lakh crore, with an average monthly collection of 1.51 lakh crore for the year: This fiscal year’s gross revenues marked a 22% increase over the previous year. This remarkable progress was highlighted by the World Bank in its India Development Update Spring 2023.
Nonetheless, it’s imperative to acknowledge the World Bank’s update in 2018, which drew attention to the global landscape of GST systems vis-à-vis India. Among 115 countri- es implementing GST, 40 utilise a single tax rate, and 28 others employ a dual-rate structure.
India is one of the few countries to have opted for a more intricate structure, featuring four or more tax slabs. GST slabs in India are 0%,5%, 12%, 18% and 28%. The complexity escalates as cess is applied to certain luxury and ‘sin’ products, such as cars. Furthermore, cess rates vary based on fac- tors like the vehicle’s length and fuel type, be it petrol or diesel.
A recent Authority for Advance Rulings (AAR) ruling in the case of Sirimiri Nutrition Food Products exemplifies the complexities arising from such a multifaceted system. AAR held that several of its products, including dry fruit and spirulina chikki, will be categorised under Chapter 17, which covers ‘sugar confectionery not con- taining cocoa’ and will attract GST at 5%. However, ‘chocolate-peanut chikki’, which contains cocoa powder, will fall under Chapter 18, which covers chocolate and other cocoa-containing food preparations, subjecting it to a higher rate of 18%. While advance rulings do not set a legal precedent, they carry persuasive weight in similar cases.
On September 29, 2017, the indirect tax board issued a Frequently Asked Questions (FAQ) document regarding GST classification and rates. It determined that HSN (Harmonised System of Nomenclature) code 1704 encompassed most sugar preparations in solid or semi-solid forms that were suitable for immediate consumption.
These are collectively referred to as sweetmeats, confectionery or candies. As a result, products like peanut, rajira and sesame chikki, and shakkarpara fell under this code, initially attracting an 18% GST rate (later reduced to 5% from November 15, 2017).
This FAQ also clarified that halwa, barfi (khoya, or evaporated milk product) and laddoos fall under HSN code 2106, classified as sweetmeats and subject to a 5% GST rate.
However, the situation becomes mur kier when dealing with chocolate-infused variations, like chocolate barfi. In this context, an FAQ from August 3, 2017, explains that the Bengali mithai sandesh, whether or not containing chocolate, attracts a 5% GST.
This raises questions about whether chocolate barfi will be treated similar- ly to chocolate sandesh. Only time
will tell. Such classification-related complexities create confusion for manufacturers, retailers and consumers alike.
HSN classification, which serves as the basis for GST categorisation, adheres to an internationally accepted system developed by the World Cus toms Organisation. In India, this system is extensive, comprising 21 sec- tions, 99 chapters, 1,244 headings and 5,224 sub-headings. Each section and chapter encompasses broad categories of goods, while headings and subheadings provide intricate details. Classification criteria are diverse, considering factors such as end use, principal purpose, ingredients and manufacturing processes. As society evolves, with an increasing variety of customisable products, detailed classification may not suffice to mitigate litigation.
It’s worth noting that classification related disputes existed even under the previous excise laws. For instance, the Supreme Court has recently addressed issues such as whether homoeopathic hair oil or prickly heat pow- der should be classified as medicaments (entitled to lower excise duties) or cosmetics. Even as hundreds of such cases remain pending before the apex court, classification-related litigation continues under the GST regime.
In the current GST system, a bar of chocolate bears an 18% GST rate, while a bar of gold attracts only 3%. In the light of stable GST revenues and persistent litigation, it is evident that a move towards reducing the slabs and rationalising the rates is necessary.
Back in 2015, a committee led by then-chief economic adviser Arvind Subramanian proposed a threetier GST structure. This included a standard rate of 17-18%, which would encompass the majority of goods and services, a lower rate of 12%, and a higher rate of 40% for luxury and ‘sin’ goods. While the concept of ‘One Nation, One Tax’ may not necessarily translate into a single GST rate, restructuring is the need of the hour.