Finance Minister Nirmala Sitharaman on Tuesday said non-BJP ruled States are also party to the unanimous decision related to GST on pre-packaged and pre-labelled goods. She noted that food items were under Value Added Tax (VAT), the system before GST was introduced.

All the States were present when this issue was presented by the Group of Ministers on rate rationalisation in the 47th meeting held in Chandigarh on June 28. “All States, including non-BJP States agreed with the decision,” she said.

“The GoM that recommended these changes comprised members from West Bengal, Rajasthan, Kerala, Uttar Pradesh, Goa and Bihar, and was headed by the Chief Minister of Karnataka. It carefully considered this proposal, taking into account the tax leakage,” she explained while adding that the decision was a much-needed one.

Addressing concerns

Sitharaman made these remarks through a series of tweets after the Opposition raised voice against the imposition of GST on pre-packaged and pre-labelled dairy products (curd, lassi and butter milk) and agri products (wheat, rice, wheat flour etc.). Also, many had taken to the social media to express their anger. Post recommendation by the GST Council, new rates came into effect from July 18.

Late on Sunday, the Central Board of Indirect Taxes & Custom (CBIC) came out with answers to the frequently asked questions (FAQ). It said a single packet of cereals, pulses, rice, flour etc. weighing more than 25 kg or 25 litres will not attract GST. However, multiple retail packs totalling 25 kg or more will attract tax. Further, it said supply to hotels, canteens etc. will not attract GST. Also, loose sale from a packet of 25 kg will not attract GST.

The Legal Metrology Act, 2009, defines “pre-packaged commodity” as a commodity which is placed in a package of whatever nature (without the purchaser being present), whether sealed or not, so that the product contained therein has a predetermined quantity.

Rationale behind move

Sitharaman said the States were collecting significant revenue from food grains in the pre-GST regime. Punjab alone collected more ₹2,000 crore on food grains by way of purchase tax; Uttar Pradesh collected ₹700 crore. Taking this into account, when GST was rolled out, 5 per cent tax was made applicable on branded cereals, pulses, flour. Later, this was amended to tax only such items which were sold under registered brands or brands on which enforceable right was not foregone by the supplier.

However, rampant misuse of this provision was observed soon by reputed manufacturers and brand owners, she said, adding that GST revenue from these items fell significantly thereafter. This was resented by suppliers and industry associations who were paying taxes on branded goods. They wrote to the government to impose GST uniformly on all packaged commodities to stop such misuse. This rampant evasion in tax was also observed by States. After lot of deliberation, it was proposed to change the modalities to curb evasion, which was accepted by the GST Council.

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