GST Rate Debate: Extruded vs. Non-Extruded Snacks

Government Clarification Sparks Debate in Food Industry

Recent government clarification has sparked a debate within the food industry, particularly regarding the classification of snacks into extruded and non-extruded categories. According to industry sources consulted by FE, this distinction has significant implications for the Goods and Services Tax (GST) rates applicable to different types of snacks.

Extrusion vs. Non-Extrusion: Implications for GST Rates

In food processing, extrusion is a common technique wherein ingredients are pushed through a machine to achieve a specific shape. Many popular ready-to-eat snacks, such as PepsiCo’s Kurkure, Prataap Snacks’ Yellow Diamond puffs and rings, and ITC’s Bingo Mad Angles, are produced using this method. On the other hand, snacks like biscuits and potato chips are categorized as non-extruded.

GST Rate Discrepancy

Extruded snacks reportedly contribute 25-30% to the total salty snacks market, valued at Rs 47,000 crore, according to industry experts. The remaining share is attributed to non-extruded snacks. While food companies have been subject to a 12% GST on snacks overall, the GST Intelligence body is now advocating for an 18% GST on extruded snacks and maintaining a 12% rate for non-extruded snacks.

Challenges Faced by Food Companies

Industry sources have revealed that major players in the sector, including those mentioned earlier, have received notices amounting to approximately Rs 1,000 crore for additional GST payments. Requests for comment from ITC went unanswered, while executives from PepsiCo and Prataap Snacks were unavailable for immediate response.

Call for Clarity

Balaji Wafers officials acknowledged the issue as a point of contention between food companies and the GST Intelligence body. A senior executive from Balaji Wafers emphasized that there was no intention to evade taxes and attributed the dispute to the classification of snack foods.

Expert Opinion and Conclusion

This viewpoint is echoed by an expert closely monitoring the matter, who emphasized the need for clarity at the GST Council level. While the government has issued a circular outlining the applicable GST rates, the snack food industry disputes the creation of separate categories with varying tax rates based on certain processes. The expert stressed the urgency of addressing the issue to prevent prolonged litigation.

In recent months, a surge in GST notices has been observed not only among food firms but also non-food entities. These notices highlight discrepancies in GST payment, erroneous utilization of tax credits, and inconsistencies in tax returns filed for the financial years 2017-18, 2018-19, and 2019-20.