Taxing pizzas, ice cream or vehicles: GST is neither good nor simple | Business Standard Column

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Separate state-wise Appellate Authority for Advance Ruling don’t serve a useful purpose: there is a need for a national one.

T C A Srinivasa-Raghavan

It can happen only in India that a pizza is taxed at three different rates and where a pizza topping is different from a pizza, as decreed two days ago by the Haryana authority for advance rulings. The results are ridiculous.

Thus pizza sold in a restaurant attracts 5% GST, whereas a pizza delivered at home attracts 18% GST. A pizza base bought separately attracts 12% GST.

And therein lies a much larger problem: the waywardness of the various authorities. They are screwing things up as only Indian bureaucrats can.

Advance ruling was a mechanism devised, according to the CBIC (Central Board of Indirect Taxes and Customs), to “provide certainty in tax liability” and “reduce litigation”. They are serving neither purpose. Each State has an Authority for Advance Ruling (AAR) and an Appellate Authority for Advance Ruling (AAAR).

The scope for adding complexity to an already complex tax is, thus, vast.

According to the Haryana AAR ruling, pizza toppings are distinct from the pizzas themselves and should be taxed differently, at 18%. Let’s accept this for a minute.

However, the complexities arise when you try to figure the tax impact depending on where you try to eat the pizza. A restaurant selling pizzas within its premises thus has to pay higher rates for its inputs–18% for the topping and 12% for the base–than it collects on the sale of the final pizza (5%).

While the GST Council is trying to rectify inverted duty structures, the AARs are introducing more. Sometimes, the Government itself enters the picture and adds to the complexity.

In October last year, it said that ice cream sold by a parlour was different from ice cream sold in restaurants. Where the former was a good, the latter was a service, and so would attract different rates of tax.

Earlier, some AARs had ruled that ice cream sold by parlours constituted restaurant services and would be taxed as such. You scream, I scream, anybody?

Let’s take another example. Unflavoured lassi and milk are not taxed under GST, yet flavoured milk is taxed at 12% while flavoured lassi is not taxed.

Over the years, complexities have been introduced with regard to the tax treatment of samosas (whether eaten in a restaurant or outside), cookies wrapped in chocolate (are they cookies or chocolates), chocolates wrapped around a wafer biscuit (is it a biscuit or a chocolate), and many, many other items affecting multiple sectors.

The problem does not end there, though. If the issue was just about needless complexity, then that could be systematically addressed over time. Compounding the problem is the fact that different States’ AARs deliver contradictory orders, completely undermining the ‘one nation one tax’ element of GST.

For example, last year, the Karnataka AAR ruled that an executive director of a company is not liable to pay GST as she was an employee of the company and so her work did not qualify as a supply under GST. However, it also said that a non-executive director was not an employee and so had to pay GST. This went against previous orders by other AARs that said that all directors of a company would have to pay GST.

The Madhya Pradesh AAR last year passed a ruling that auto companies would not be able to avail of input tax credits on vehicles used for demonstration, whereas the Maharashtra and Kerala AARs had earlier said that ITC was available for these vehicles.

Separate state-wise AARs no longer serve a useful purpose, if they ever did. There is a need for a national AAR. The Government knows this. The Finance Act 2021 brought in amendments to replace the AARs with a central Board for Advance Ruling, but nothing has happened since then.

Result: GST is neither good nor simple. It’s merely taxing.

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