The Great GST Classification Maze: Is Your Parotta a Roti or Bread?

“Sunita, I am utterly confused,” said Mr. Agarwal, a packaged foods manufacturer, to his Chartered Accountant. “We make both branded bread and packaged Malabar parottas. They are both flatbreads, made from flour. Yet, the department is telling me one is exempt from GST and the other is taxable. How can that be? It’s the Harmonized System of Nomenclature, but it feels anything but harmonized!”

Sunita, his CA, nodded. “Mr. Agarwal, you’ve walked right into the great GST classification maze. The answer lies not just in the product, but in a complex interplay between HSN codes, notification descriptions, and legal interpretation. Let’s unravel the case of the taxable parotta.”

This is a challenge businesses across India face daily. Under the GST regime, the seemingly simple task of classifying a product can have significant financial implications. The rate of tax, eligibility for exemptions, and input tax credit all hinge on getting this classification right. Let’s delve into the principles, using the now-famous parotta controversy as our guide.

The Core Conflict: HSN Code vs. Description

The GST Council, in its wisdom, adopted the Harmonized System of Nomenclature (HSN) to classify goods. The GST rate notifications list goods with their corresponding HSN codes in one column and a description of the goods in another. The problem arises when these two don’t perfectly align.

This was the heart of the Kerala Malabar Parotta case. Here’s a simplified breakdown:

• The Exemption Entry (Entry 97): This entry provided an exemption for “Bread (branded or otherwise)” falling under HSN Chapter 1905.
• The Taxable Entry (Entry 99A): A separate entry specified a 5% GST rate for “Khakhra, plain chapatti or roti,” also falling under HSN Chapter 1905 (or 2106).

Both parottas and bread are types of flatbread and can fall under the broad HSN code 1905. So, why wasn’t the parotta exempt like bread? The tax authorities argued, and the courts examined, that the description in the taxable entry was more specific. While a parotta could be considered a type of “bread” in a general sense, it is much closer in character to a “roti” or “chapatti”. The principle of specific description overriding a general one came into play.

Key Takeaway: The Parotta Principle

• Description can Trump HSN: The specific description of goods in a notification entry can be more decisive than the broad HSN code it falls under.
• Specificity Wins: When a product fits into two categories, the more specific entry will generally prevail over the more general one.
• Common Parlance Matters: How a product is known and used in the market often influences its classification.

A Hierarchical Approach to Classification

The parotta case teaches us that GST classification is not a one-step process. It requires a systematic, hierarchical approach to avoid costly errors.

1. Goods or Service? This is the foundational question. A transaction like “Mobility as a Service” (MaaS), where you pay for usage, is a service, while buying the car itself is a supply of goods. The classification determines everything that follows.
2. Find the Right Chapter and Heading: Once you confirm it’s a supply of goods, you must navigate the Customs Tariff Act (CTA) to find the correct HSN Chapter (2-digit), Heading (4-digit), and Sub-heading (6-digit).
3. Harmonize HSN with Notification Description: This is the crucial step. You must read the HSN code and the description in the GST rate/exemption notification together. Neither can be read in isolation. If the HSN is broad (“All goods of Chapter 39”), the description might narrow it down. If the description is broad (“All goods”), the specific HSN tariff item will be the deciding factor.
4. Use the Interpretative Tools: The GST law itself provides the tools to solve these puzzles. The General Rules for the Interpretation (GIR) of the CTA, along with the Section and Chapter Notes in the HSN, are legally binding. These rules help determine the essential character of a product, classify composite supplies, and resolve ambiguities.

Key Takeaway: The Classification Hierarchy

• Start with Goods vs. Service: This fundamental distinction dictates the entire tax treatment.
• Read Columns Together: The HSN code and the notification description must be read in harmony.
• The Narrower Prevails: Whether it’s the HSN or the description, the more specific entry generally overrides the broader one.
• GIR is Your Guide: The General Interpretative Rules are not just guidelines; they are the legal toolkit for classification.

Navigating the Maze with AI

For a CA like Sunita, providing accurate advice on classification means navigating a labyrinth of notifications, circulars, HSN explanatory notes, and hundreds of court rulings. Manually researching whether a biodegradable bag falls under Chapter 39 or 48, or if an extruded snack is a papad or something else, is incredibly time-consuming and prone to error.

This is where an AI-powered research assistant like ai.vidur.in becomes an essential tool. Instead of spending hours searching, Sunita can ask direct questions:

• “What is the GST classification and rate for Kerala Malabar Parotta, with relevant case law?”
• “Explain the difference between HSN 1905 and 2106 for edible preparations.”
• “Show me the GIR rule for classifying a mix of materials.”

Vidur can instantly analyze the entire body of GST law and judicial precedent to provide a precise, referenced answer. It can compare rate entries, pull up the relevant HSN notes, and summarize court findings, turning hours of complex research into minutes of clear, actionable insight. In the great GST classification maze, having an AI guide like Vidur is the surest way to find the right path.