Confusion around applicability of GST exemption on Non-branded food items w.e.f. 18th July, 2022

The 47th GST Council meeting was held at Chandigarh, just before the 5th anniversary of the introduction of GST in India. Proposed several recommendations, an important recommendation was regarding withdrawal of exemptions on specified food items, grains etc.

The said recommendation was given effect by issuance of Notification No. 06/2022 and 07/2022 – CT(R), vide the said notifications the Government has withdrawn the GST exemption on non-branded food items and introduced a new jargon of “Pre-packaged and labelled” food items to bring even non-branded food items into tax net. Before this there was distinction between branded and non-branded goods for tax exemption. Branded food items were taxable whereas certain non-branded food items were exempt. Now this concept has been replaced with pre-packaged and labelled items, which we have tried to deal in detail below.

  • The expression ‘pre-packaged and labelled’ is explained in Notification No. 06/2022 and 07/2022 – CT(R) to mean 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.

Before we decode the explanation, it is important to venture into various definitions and rules of Legal Metrology Act, for better understanding:

Legal Provisions as provided under The Legal Metrology Act, 2009 read with relevant rules under The Legal Metrology (Packaged Commodities) Rules, 2011

  • pre-packaged commodity under Section 2 (l) of the Act, is placed in packaging of any type, whether sealed or not, without the presence of the customer, such that the product contained inside has a predetermined amount.

Therefore, to fall under this section ambit the commodity must be placed in a package in the absence of the buyer and must have a pre-determined quantity.

  • Rule 2(k) – The Legal Metrology (Packaged Commodities) Rules, 2011.Retail package” means the packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of the commodity contained therein and includes the imported packages :Provided that for the purposes of this clause, the expression ‘ultimate consumer‘ shall not include industrial or institutional consumers;
  • Rule 2(r) – The Legal Metrology (Packaged Commodities) Rules, 2011. 

    Wholesale package” means a package containing-

    (i) a number of retail packages, where such first mentioned package is intended for sale, distribution or delivery to an intermediary and is not intended for sale direct to a single consumer; or

    (ii) a commodity sold to an intermediary in bulk to enable such intermediary to sell, distribute or deliver such commodity to the consumer in smaller quantities; or,

    (iii) packages containing ten or more than ten retail packages provided that the retail packages are labeled as required under the rules.

  • Rule 3- The Legal Metrology (Packaged Commodities) Rules, 2011. 

Applicability of the Chapter-

The provisions of this Chapter shall not apply to,-

(a) packages of commodities containing quantity of more than 25 kg or 25 litre (excluding cement and fertilizer sold in bags up to 50 kg); and

(b) packaged commodities meant for industrial consumers or institutional consumers.

Explanation :- For the purpose of this rule,-

i) “institutional consumer” means the institutional consumer like transportation, Airways, Railways, Hotels, Hospitals or any other service institutions who buy packaged commodities directly from the manufacturer for use by that institution.

ii) “industrial Consumer” means the industrial consumer who buy packaged commodities directly from the manufacturer for use by that industry.

  • Rule 26 – The Legal Metrology (Packaged Commodities) Rules, 2011. 
Exemption in respect of certain packages –

Nothing contained in these rules shall apply to any package containing a commodity if—

(a) the net weight or measure of the commodity is ten gram or ten milli litre or less, if sold by weight or measure;

(b) any package containing fast food items packed by restaurant or hotel and the like;

(c) it contains scheduled formulations and non-scheduled formulations covered under the Drugs (Price Control) Order,1995 made under section 3 of the Essential Commodities Act, 1955 (10 of 1955)’;

(d) agricultural form produces in packages of above 50 kg.

Our understanding:

  • Items packed over the counter in the grocery shop in front of the customer / self-packed in mega stores (viz. D-mart) by the customers would be out of the purview of this section;
  • Retail packages above 25 Kgs/ ltrs and  50 Kgs in case of agricultural produce will continue to enjoy the benefit of exemption under GST;
  • Packages of 10g/ 10 ml or less will also be outside the net of GST;
  • Packages of any quantities supplied to industrial consumers or institutional consumers would enjoy the benefit of exemption.

To conclude we would want that CBIC issues clarifications to resolve the open matter as there are many grey areas and interpretational issues with the understanding. Also, trade and commerce should come up with their understanding of the open issues and seek a clarification from the CBIC on their understanding on the said matter. Trade in case of such far reaching and complex amendment should have been provided with sufficient time by the department to analysis the impact and be ready with the system and compliance changes.

<<views in this article are personal first views of the author and cannot be regarded as a legal opinion.>>

Author Bio

Qualification: CA in Practice
Company: Sunil Rajpurohit & Associates
Location: PUNE, Maharashtra, India
Member Since: 11 Apr 2018 | Total Posts: 4

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