How palatable is the move by the GST Council to slap a 5 per cent levy on pre-packaged and pre-labelled retail packs?
Till the 47th meeting of the GST Council, GST was exempted on specified food items, grains etc when not branded, or right on the brand has been foregone. The meeting recommended a revision of the scope of exemption. Now, pre-packaged and pre-labelled retail pack in terms of Legal Metrology Act, including pre-packed, pre-labelled curd, lassi and butter milk, will attract GST. This curdled, so to speak, the debate on the subject.
The Tax Research Unit of the Ministry of Finance issued a set of nine FAQs to clear the air. After reading the FAQs taxpayers were left wondering whether they should refer to the provisions of the GST Acts or the Legal Metrology Act since the response to every FAQ prompted the reader to certain paragraphs of the Legal Metrology Act.
The confusion prompted the Finance Minister to issue a 14-thread tweet, which clarified that the tax was imposed only to curb rampant evasion of tax — branded items being sold pre-packaged and escaping the tax.
The FAQs state that for the purposes of GST, ‘pre-packaged and labelled’ means a pre-packaged commodity as defined in clause (l) of section 2 of the Legal Metrology Act, 2009, where the package in which the commodity is pre-packed, or a label securely affixed thereto is required to bear the declarations under the provisions of the Legal Metrology Act and the rules under it.
However, if such specified commodities are supplied in a package that do not require declaration(s)/compliance(s) under the Legal Metrology Act, 2009 (1 of 2010), the same would not be treated as pre-packaged and labelled for the purposes of GST levy. This would broadly imply food items (such as pulses, cereals like rice, wheat, flour etc), in pre-packaged and labelled packages exceeding 25 kg (or 25 litre).
GST would apply whenever a supply of such goods is made by any person, i.e. manufacturer supplying to distributor, or distributor/dealer supplying to retailer, or retailer supplying to individual consumer. Further, the manufacturer/wholesaler/retailer would be entitled to input tax credit on GST charged by his supplier in accordance with the Input Tax Credit provisions in GST. A supplier availing threshold exemption or composition scheme would be entitled to exemption or composition rate, as the case may be, in the usual manner. Supply of packaged commodity for consumption by industrial consumer or institutional consumer is excluded from the purview of the Legal Metrology Act by virtue of rule 3 (c) of Chapter-II of Legal Metrology (Packaged Commodities) Rules, 2011. Taxing food articles has never been easy from the days of Service tax and VAT, given the sheer number of items and the varieties. Under GST, since most of the food items were in the 5 per cent bracket, there was a denial of input tax credit.
Amendments have been made to ensure that the pre-packaged and labelled food items would be eligible for input tax credit; this should ensure that the burden of GST is not passed on to the end-customer. However, the first few cases of anti-profiteering under GST laws were on food items. It is possible that the Competition Commission might be interested in checking whether any of the retailers are profiteering due to the new levy. There is a genuine worry amongst taxpayers as to how many GST officers would be aware of the provisions of the Legal Metrology Act. A wrong interpretation of the provisions could lead to harassment and litigation. Apart from the FAQs, it is important for CBIC to issue guidelines as to how assessments of the tax on food items need to be done. Another question is whether so much of nit-picking is required for a 5 per cent tax. The GST Department could use the tax on food items as a project to decide whether they should tax the good or service without distinguishing between items within those goods and services.
The writer is a chartered accountant