– By Brijesh Kothary and Saundarya Sinha
Popcorn, a beloved snack for movie enthusiasts and casual snackers, has become a focal point in the ongoing debate over its classification and applicable rate of Goods and Services Tax (GST). On December 21, 2024, Finance Minister Nirmala Sitharaman, chairing the 55th GST Council meeting, briefed the media regarding the clarification to be issued regarding the applicable rate of tax on popcorn based on its preparation and flavour. Popcorn flavoured with salt and spices that are not pre-packaged and labelled are taxed at 5%, while pre-packaged and labelled popcorn fall under the 12% tax rate. Caramel popcorn, categorized as a sugar confectionery, is taxed at the higher rate of 18%. The announcement has provoked backlash from the industry and stirred outrage on social media, with many questioning the intricacies of the GST system in India.
The hullabaloo revolves around how popcorn is categorized based on its flavouring. The Finance Minister clarified the reasoning behind taxing caramel popcorn at 18%, stating that products with added sugar are subject to a different tax rate. This decision definitely creates an ambiguity regarding the basis for deciding what popcorn should one eat, as now one is not sure if the nature of the food product is enough to decide the GST rate or if the manufacturing process is equally important, or maybe more important, to decide the GST rate of such products.
In Maharashtra and Tamil Nadu, Advance Ruling Authorities have ruled that flavoured popcorn are classifiable under Chapter Heading 2008, which pertains to “Fruit, nuts, and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter…” applying a 12% tax rate. Meanwhile, the Telangana Advance ruling Authority has placed flavoured popcorn under Chapter Heading 1904, which carries 18% tax rate. The proposal to tax caramelized popcorn at 18% on the mere premise that it is a sugar confectionery does not clearly flow from these rulings as the entry prescribing 12% also covers products ‘with added sugar or other sweetening matter’. This divergence suggests that the GST Council’s recommendation will throw more light in the forthcoming Central Board of Indirect Taxes and Customs (CBIC) Circular.
It is interesting to note that the proposal to clarify the application of multiple tax rates on different forms of popcorn is unlikely to impact the cinema or multiplex industry. This is for the reason that food and beverages sold in cinemas qualify as composite supply and fall under the category of ‘restaurant services’ and are taxed at 5% GST (without ITC).
Concluding remarks
In view of the authors, applying three different tax rates to popcorn contradicts the fundamental goals of GST, which aim to simplify compliance, promote ease of doing business, and create a streamlined tax structure. However, the clarification brings consistency and addresses variations in field-level interpretations without increasing the overall tax burden. As the clarification has been formalised on an “as is” basis, it is unlikely to raise concerns for the past period. It will be interesting to see the CBIC Circular which will be issued to provide clarification on this matter. Will the rates be revised owing to large controversies it created, or the rates will remain the same as clarified in the GST Council meeting? The issue of whether such a circular can supersede the statute and tariff entries to determine the tax rate is another aspect likely to face challenges.
(Brijesh Kothary is Partner; and Saundarya Sinha is Associate at Khaitan & Co.)
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