GST on Sale made to Institutional & Industrial Consumer after 18.07.2022

As per Notification No. 06/2022 Central Tax Rate, issue on 13^th July 2022, certain commodities were made to be taxed if they are in Pre-Packaged & Labeled form.

The expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (l) of section 2 of the Legal Metrology Act, 2009 (1 of 2010) 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, 2009 (1 of 2010) and the rules made thereunder.’

Pre-packaged commodity as per section 2 (l) of  Legal Metrology Act, 2009 is as under:

“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;

Hence, taxability will be based on two conditions:

1. The item is pre-packaged &

2. It is required to bear the declaration under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder.’

The FAQ released on 17^th July 2022, has only referred Rule 3 of (LMA) for the purpose of declaration requirement. As per Rule 3 of Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder:

3. The provisions of this chapter shall not apply to-

(a) packages of commodities containing quantity of more than 25 kilogram or 25 litre;

(b) cement, fertilizer and agricultural farm produce sold in bags above 50 kilogram; and

(c) packaged commodities meant for industrial consumers or institutional consumers.”

Meaning thereby, if a say.. Pluses/rice is supplied to an industrial consumers or institutional consumers, tax at the rate of 5% will not be charged on same.

As per LMA:

(bb) “industrial consumer” means the consumer who buys packaged commodities directly from the manufacturer or from an importer or from wholesale dealer for use by that industry and the package shall have declaration ‘not for retail sale’;

(bc) “institutional consumer” means the institution which buys packaged commodities bearing a declaration ‘not for retail sale’, directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and not for commercial or trade purposes;’

Hence, exemption w.r.t sale made to industrial consumer shall be available only if:

• It is a prepackaged commodity
• Bought directly from manufacturer or from an importer or from wholesale dealer
• Package shall have a declaration – not for retail sale

Vic-a-vic exemption w.r.t sale made to institutional consumer shall be available only if:

• It is a packaged commodity
• Package shall have a declaration – not for retail sale
• Bought directly from manufacturer or from an importer or from wholesale dealer
• used by that institution and not for commercial or trade purposes;