diff --git a/dp-core/vr_datapath.c b/dp-core/vr_datapath.c
index 1772c4c93..66fc98c9a 100644
--- a/dp-core/vr_datapath.c
+++ b/dp-core/vr_datapath.c
@@ -349,6 +349,13 @@ vr_handle_arp_reply(struct vr_arp *sarp, struct vr_packet *pkt,
         if (fmd->fmd_label >= 0)
             return !handled;
 
+        /*
+         * in gro cases, fmd label won't be set. Hence, resort to the
+         * following check to identify whether the packet was tunneled
+         */
+        if (fmd->fmd_dvrf != vif->vif_vrf)
+            return !handled;
+
         /* If fabric: Agent and kernel are interested in it */
         cloned_pkt = vr_pclone(pkt);
         if (cloned_pkt) {
diff --git a/dp-core/vr_vxlan.c b/dp-core/vr_vxlan.c
index 95f98c075..bf0ffcef8 100644
--- a/dp-core/vr_vxlan.c
+++ b/dp-core/vr_vxlan.c
@@ -57,7 +57,8 @@ vr_vxlan_input(struct vrouter *router, struct vr_packet *pkt,
         drop_reason = VP_DROP_INVALID_PACKET;
         goto fail;
     }
-    pkt->vp_flags |= VP_FLAG_GRO;
+    if (vr_perfr)
+        pkt->vp_flags |= VP_FLAG_GRO;
 
     if (nh->nh_vrf >= 0) {
         fmd->fmd_dvrf = nh->nh_vrf;