The Haryana appellate authority for advance ruling (AAAR) has ruled that the pizza topping is not a pizza and hence should be classified differently and levied a higher 18% goods and services tax (GST).
This could complicate taxation for several pizza brands, especially when the pizzas are sold within a hotel or restaurant, said tax experts.
GST rates on pizzas differ on the basis of how they are prepared and sold. A pizza sold and eaten within a restaurant attracts 5% GST; the pizza base bought separately attracts 12%, while a pizza delivered at home attracts 18% GST.
The AAAR ruled on March 10 that pizza toppings should face 18% GST as their preparation method is different from that of a pizza. It considered all the ingredients used in a topping and concluded that while a pizza topping is sold as a “cheese topping,” it’s not really cheese and hence should attract higher taxes.
The authorities ruled that pizza toppings contain “vegetable fat” as a substantial portion, being 22% of the ingredients, and hence, it does not qualify to be categorised as “processed cheese” or a type of cheese. Pizza topping would merit classification as “food preparation,” it said.
While the tax experts said GST rates could depend on three tests-common parlance test, end-use test, or ingredients test-and that often tax rates could differ depending on how a product is categorized. Cheese, for example, is taxed at a lower rate if it is called “fat” or “processed food preparation.”
The authorities have given weightage to the actual ingredients vis-a-vis common parlance, under which one would treat them as cheese toppings and classify them accordingly. This demonstrates once again that GST classification is a factor of various principles, such as end use of product, key constituents, common parlance, and so on, and thus a complex process.
A separate tax controversy is raging around kiosks, restaurants, and home delivery under GST. Tax experts said that in the future, restaurants, kiosks, and even pizza companies that buy these toppings would have to cough up 18% GST. Many of them, however, will be able to charge only 5% GST when they sell pizzas to customers. According to tax experts, this could impact the margins of some pizza companies.