cbic: CBIC clarifies ambiguity on GST on pre-packaged items, new rates from Monday

The Central Board of Indirect Taxes and Customs (CBIC) on Sunday clarified that all pre-packaged items containing a quantity up to 25 Kg, will attract a GST of 5%.

The CBIC said that the items, which are pre-packaged in above 25 Kg, in a single packet will be exempt from GST.

Also the clarification said that if several packages intended for retail sale to the ultimate consumer, say 10 packages of 10 Kg each, are sold in a larger pack, then GST would apply to such supply. Such a package may be sold by a manufacturer through a distributor.

For instance a package of rice containing 50 Kg would not be considered a pre-packaged and labelled commodity for the purposes of GST levy, even if rule 24 of Legal Metrology (Packaged Commodities) Rules, 2011, mandates certain declarations to be made on such wholesale items.

The CBIC also clarified that packaged commodities supplied for consumption by industrial consumers or institutional consumers are excluded from the purview of the Legal Metrology Act. Therefore no GST will be attracted to this.

In case a manufacturer is supplying to distributor, to dealer and to retailer then GST will be applicable to it but 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.

The clarification came after many businesses said that the notification issued by the CBIC has left much ambiguity and may be subject to multiple interpretations.

The Finance Ministry has notified GST rates for various goods sold as pre-packaged and pre-labelled beside others, which was decided by the 47th GST council meeting held in Chandigarh.

The notification, said that “expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (l) of section 2 of the Legal Metrology Act, 2009.

Under the Legal Metrology Act “pre-packaged commodity” means a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre-determined quantity.

Experts said that the notification mentioned about retail sales only, so, the issue is will declaration on packages of above 25 kgs also required and they sought clarification from the government.

Saurabh Agarwal, Tax Partner, EY India, said, “The specified pre-packaged and labelled commodities (without registered brand name) such as wheat, rice, maize, makhana, specified flours, etc would be liable to 5% GST from 18 July 2022 increasing the cost for the customer”.

He added that it is important for industry to examine whether the specified pre-packaged commodities are required to have a declaration on it under the Legal Metrology Act, 2009 as the levy of GST on such products have been linked to the declarations under the said Act.

Small Traders Protests

Trade bodies from across the country have been writing to the finance minister to withdraw the five percent GST imposed on unbranded pre-packaged food items.

Sanjay Chhabria, Director Nexdigm, adds,” This move is likely to have adverse implications on the small traders and retailers who hitherto were outside the GST net and had neither obtained any GST registration nor undertaken any compliances”.

He added that with such pre-packaged and pre-labelled food items getting costlier for the end consumers, the levy could lure them to more established brands, or prefer items which are loosely sold given that they continue to be exempt from GST.

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