New Delhi, July

Companies not passing on the benefit of Input Tax Credit (ITC) on pre-packaged dairy and agro items may face profiteering charges. Experts say prices of pre-packaged and pre-labelled dairy and agro products need not go up by a flat 5 per cent because of ITC.

One of the responses in an FAQ (Frequently Asked Questions) issued by the Central Board of Indirect Taxes & Custom (CBIC), says the manufacturer/ wholesaler/ retailer would be entitled to ITC on GST charged by his supplier in accordance with the law. This FAQ is related to implementation of the GST Council’s recommendation for bringing pre-packaged and pre-labelled goods under GST. These include dairy products such as curd, lassi and buttermilk, and foodgrains or agro products such as rice and flour. A single pre-packed packet weighing up to 25kg/ litre will attract GST, while packages above that weight will not.

Following the implementation of new norms that came into effect on July 18, while some companies have hiked prices of dairy products by a flat 5 per cent and then rounded it of to the next rupee, some are in the process of doing so. Managing Director, Mother Dairy Fruit & Vegetable Pvt. Ltd, Manish Bandlish said: “With the impact of GST on certain product categories, we are revising the MRP of select pack sizes coming under the ambit of this new compliance.”

Earlier, a report by ICICI Securities said most dairy companies would be able to avail of input tax credit on the costs incurred, such as packaging material, freight and transportation, and ad-spend. This means the effective impact of the GST levy will be 2-3 per cent. Experts also think so.

Section 171 of the Central Goods & Services Tax (CGST) has prescribed two situations in which anti-profiteering measures can trigger. First, there is no commensurate reduction in prices after a reduction in rate of taxes. And second, the benefit of input tax credit is passed on to the recipient by way of a commensurate reduction in prices. In the context of the new taxation regime, the first situation will be applicable for pre-packaged and labelled products exceeding 25 kg/ litre and the second for re-packaged and labelled products exceeding 25 kg/ litre

CA Priyanka Sachdeva, Partner (GST) with AMRG & Associates, says with the implementation of 5 per cent tax on pre-packaged and pre-labeled fast-moving consumer goods, most businesses will attract anti-profiteering provisions on or after July 18. The DGAP (Directorate-General of Anti Profiteering) is expected to monitor such businesses closely, fearing a price increase would further intensify food inflation.

“Such businesses, on the contrary, would see a swift swelling up of input tax credits owing to a range of input goods and services used in the industry. The task of computing profiteering benefits may be a big challenge for the entire industry irrespective of the scale of operations, in the absence of machinery provisions,” she said.

Harpreet Singh, Partner in KPMG, says to avoid scrutiny by anti-profiteering authorities, suppliers of pre-packaged and pre-labelled goods need to revisit their product cost sheet to ensure that the benefit of additional input credits, if any, is factored in before devising the new pricing policy.

In case a charge of profiteering is proved, the company concerned will have to deposit the profiteered amount with a special fund. Besides, it could be asked to pay penalty. Under the law, there is also a provision to cancel registration in exceptional cases of profiteering.

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