In a major setback for pizza lovers, the Appellate Authority for Advance Ruling (AAAR) has ruled levying a higher GST on pizza toppings. The body said that since toppings are not pizza, hence, 18% higher GST should be applied on them.

A 5% tax is charged for a pizza sold and eaten within restaurants, while a 12% tax is levied on a pizza base bought separately and a home-delivered pizza is charged 18% GST.

Highlighting that a pizza topping contains "vegetable fat" as a substantial portion (about 22 per cent of the ingredients used), the AAAR stated that it does not qualify to be categorised as 'processed cheese' or a type of cheese. Pizza topping would merit classification as 'food preparation', it added.

“The authorities have given weightage to the actual ingredients…Under which one would treat them as cheese toppings and classify them accordingly,” said Harpreet Singh, partner at accounting firm KPMG India. “This reiterates the fact that classification under GST is a factor of various principles, viz. end use of product, key constituents, common parlance, etc., and hence a complex process.”

This could complicate taxation for several pizza brands, especially when the pizzas are sold within a hotel or restaurant, said tax experts.

GST rates could be based on 3 tests - common parlance test, end use test or ingredients test according to tax experts. Moreover, they opined that often tax rates could differ depending on how a product is categorised.

Under the GST, the classification of products has been a complex issue. For example, while lassi and milk attract no charges, flavoured lassi is taxed at 12%.