Britannia Industries will have to make a submission before Directorate General of GST Intelligence (DGGI) that ‘Kulcha’ is ‘bread’ and it deserves exemption. This action is required because of a recent ruling by the Calcutta High Court.

The issue surfaced on December 16, 2021 when DGGI conducted a search at the petitioner’s premises in Delhi. A Show Cause Notice (SCN), dated August 3, 2024, was issued seeking recovery of over ₹105 crore in GST, along with interest and an equivalent penalty or six financial years (FY 2017-18 to FY 2022-23

The SCN contains several allegations against the company. First, it accuses the the company of wrongfully availing the benefit of an exemption on the supply of ‘Kulcha’ by misclassifying it as ‘bread’. A notification, dated June 28, 2017, prescribes exemption for ‘Bread (branded or otherwise), except when served for consumption and pizza bread’.

Principles of natural justice

The company approached the High Court with a plea to quash the SCN. It contended that the SCN is without jurisdiction and has been issued in gross violation of the principles of natural justice.

In its submission, the tax department said that the classification of ‘Kulcha’ as ‘Bread’ and subsequent claims for exemption constitute wilful misstatement. At the same time, rules clearly exclude such products from exemption. The ‘Common Parlance Test’ as held in matter related with Signature International Foods India Pvt (2019) confirms that products like ‘Kulcha’ do not fall under the definition of ‘Bread’ for exemption purposes.

After going through all the facts presented and submissions made, the single judge bench refrained from adjudicating or delving into the merits of the case as the issues raised in the petition.

Sandeep Sehgal, Partner with AKM Global said that the court advised the company to resolve the matter through the prescribed legal processes, such as responding to the SCN, engaging in adjudication proceedings and seeking appellate remedies, if unsatisfied with the outcome. “This ruling reaffirms the importance of following the statutory procedure for tax disputes instead of seeking immediate judicial intervention,” he said.

This is not the first time when GST on bread like products has been facing legal scrutiny. Earlier, in 2022 the Himachal Pradesh High Court took 12 years to conclude that rusk is actually bread-sans-moisture and as such, exempt from Value Added Tax (VAT). Prior to that the High Court in Meghalaya had earlier decided that rusk was different from bread. Hence, there would be no exemption from VAT.