GST Update No 241 on pre-packaged and labelled goods

The applicability of different tax rates on branded and non-branded food items or the grant of exemptions on the condition that the goods are not sold under brand name has its roots from erstwhile GST regime. In the 47th GST Council Meeting, it was recommended to revise the scope of exemption and exempt only those items which are not “pre-packaged and labelled” in accordance with Legal Metrology Act vide Notification No. 06/2022-Central Tax Rate dated 13.07.2022. Further, the Tax Research Unit has also issued FAQs on 17.07.2022 on the subject matter under consideration to address the difficulties and issues faced by the trade and industry. The notification and FAQs released in this respect are subject matter of our present update. The present notification has widened the scope wherein concept of branded and unbranded food items has been completely replaced by concept of “Pre-packaged and labelled” goods. It is further clarified vide the said notification that the term “pre-packaged commodity” is defined in Section 2(1) of the Legal Metrology Act, 2009 (LMR) as the package in which the commodity is pre-packed or a label is securely affixed thereto to bear the declarations under the provisions of the Legal Metrology Act, 2009 and the rules made thereunder. It is pertinent to mention that the LMR defines the pre-packaged commodity as “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.” Therefore, the supply would be covered under the ambit of GST provided it is pre-packaged product and kept ready for sale whether it is sealed or otherwise and it requires declaration in accordance with provisions of LMR Act. Aligning with the above, it can be concluded that both the retail trade and wholesale trade stands taxable. This is analysed after having a detailed discussion on provisions related toTrade wherein it is prescribed that provisions of the LMR shall not apply in following cases: 1. Single Packages of commodities containing quantity of more than 25kgs or 25 Ltrs. 2. Cement, fertilizer and agricultural farm produce sold in bags above 50 kgs 3. Packaged commodities meant for industrial consumers or institutional consumers Consequently, notified products stated above will be eligible for exemption and therefore, shall not be taxable. Accordingly, GST would be attracted on supply of such goods provided the pre-packaged commodity is supplied in packages containing quantities less than or equal to 25kgs. Various issues on this were raised before Government seeking clarification as regards to applicability of GST in case several packages are sold out to customer. To illustrate, what will happen if 10 packages of 10kgs each are sold in a larger pack? The Government communicated via FAQ that in such a scenario, since these individual packages are meant for eventual sale to customer, GST would be levied. Question were also raised as regards to the fact that whether the retailer is liable to collect GST even if loose quantities from the package is supplied. In this respect, it was clarified that supply by retailer is not a supply of packaged commodity and therefore, no GST shall be attracted in the said transaction. However, a package of rice of 50 kgs will not attract GST even if LMR Act makes it mandatory to provide certain declaration in this respect. On the other hand, in case of rice millers for example, selling packages of 20 Kgs rice and would be required to make declaration being covered under pre-packaged and labelled commodity for GST purposes and thereby, GST shall be attracted on same. As far as wholesale trade is concerned, the scope of LMR is as follows: 1. 10 or more retail packages sold as one pack to an end consumer will also get covered under ‘wholesale package’ 2. Any number of retail packages sold as one package to intermediary and not to a single consumer From the above it is crystal clear that the GST would be attracted on entire supply chain i.e. from wholesaler to retailer to end consumer. The intention behind incorporating this is to keep entire supply chain within the ambit of tax and support the view of seamless flow of input tax credit.Clarification was also sought regarding taxability if pre-packaged commodity is supplied for consumption to industrial consumers or institutions. The question is answered by stating that the said supply is excluded from the purview of the LMR Act, and therefore, no GST shall be attracted on the same. The government has complicated the exemption by introducing the concept of “pre-packaged and labelled goods”, which also makes reference to the provisions contained in the Legal Metrology Act. The taxpayers would now have to be vigilant as regards the applicability of the provisions of Legal Metrology Act on the “pre-packaged and labelled goods” supplied by them as it is possible that no GST is applicable if their product does not require declaration to be made under the Legal Metrology Act.

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GST Update No 241 on pre-packaged and labelled goods

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