Insider Insights: Flour Mixes & Additives Tax Clarified!

The Gujarat Appellate Authority for Advance Ruling has made it clear that flour mixes containing additives will attract an 18% Goods and Services Tax (GST) as they are considered as food preparations not specified for a lower tax rate in the law.

This decision was prompted by an application submitted by a company in Gandhinagar that sells flour mixes for various dishes like idli, dhokla, and dahi vada. The company argued that these mixes should fall under a category eligible for a 5% tax rate.

However, the authority, in its order issued on 29th May, stated that flour mixes with spices and other ingredients in unspecified proportions cannot claim the lower tax rate. This ruling upheld a previous advance ruling given by the Gujarat Advance Ruling Authority.

Referring to a 2018 revenue department order, the Authority highlighted that mixtures of flour made from ground pulses and cereals, including those with “very small amounts of additives”, are taxed at either zero or 5%. If unbranded, they are exempt from GST, and if branded and packed, they attract a 5% tax. Nevertheless, mixes with additives in unspecified proportions do not qualify for the lower rate.

The appellate authority emphasized that only flour mixes containing “very small quantities of specified substances” are eligible for the lower tax rate. In the case in question, the additives ranged from 5-27%.

Advance rulings enable companies to seek clarity on tax matters from the authorities, thereby helping to avoid legal disputes and ensuring certainty regarding their tax obligations.

Experts noted that the classification of products and services often leads to disputes. “Classification disputes are one of the most common areas of litigation under GST. Despite the issuance of circulars, differing interpretations of the clarifications provided in these circulars have often posed challenges,” one expert remarked.