GST on Pre-Packaged and Labelled Goods – Impact on Farm Produce, fertlisers and other food items.

The GST council, in it’s 47th meeting held in the month of Jun-22 made an important decision to withdraw the exemption on supply of certain farm produce, food items, fertilisers and other similar commodities. This decision much to the dismay of traders and consumers alike marks a paradigm shift in Government’s previously held stance. The council’s decision was notified vide Notification No. 7/2022-CT (Rate) dated. 13th July, 2022 and the notification was brought into effect from 18th July, 2022.

The levy of GST on Pre-Packaged and Labelled Commodities is a shift from erstwhile mechanism of levying tax on branded and unit containers only. The new levy is subject to certain stipulations and conditions which can be understood by conjoined reading of the GST law with the Legal Metrology Act, 2009. This article attempts to present a simplified explanation of the amendment for the benefit of the readers in Q&A format:

Simplified explanation of GST on Pre-Packaged & Labelled Farm Produce, fertlisers & other food items

S. No

Issues

Explanation

1. What is the significance of new notification on sale of commodities? As per the Notifications GST will be applicable on all commodities which are Pre-Packaged and Labelled and covered under Legal Metrology Act (and rules framed thereunder).
2. What is the effective date of Notification? The levy of GST vide the new notification is applicable with effect from 18th July, 2022.
3. Which Commodities are eligible for levy of GST? Items which are Pre-packaged and require declaration under the Legal Metrology Act,2009, namely:

a.  Fertilisers and farm produce sold in bags below 50Kg.

b.  Any Other Commodity sold in quantities of less than 25Kg or 25 liters.

 

4. Which Commodities are excluded or not eligible for levy of GST? a. Items sold by weight or measure and net weight or measure of the quantity being sold is less than 10gm or 10mm.

b. Package containing fast food items packed by restaurants.

c. Packaged commodity meant for industrial or institutional consumer.

d. Threads sold in coil to handloom weavers.

e. Formulations covered under Drug (Price Control) order 2013.

f. Commodities not required to make declarations under Legal Metrology Act,2009.

5. Who are Industrial and Institutional Consumers? a. 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”

 

b. 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.

6. Whether the eligible commodities are required to be Pre-Packaged and Labelled for levy of GST? Yes, the eligible Commodities will be subject to GST only if they are sold in pre-packaged and labelled containers of any form. Commodities sold in loose will not be subject to GST.
7. What is the meaning of Pre-Packaged Commodity? Pre-Packaged Commodity means a commodity which without the purchaser being present is already placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a predetermined quantity.

 

8. What is the meaning of Label?  A label means any written, marked, stamped, printed or graphic matter affixed to, or appearing upon any pre-packaged commodity;
9. Has the Government specified a list of items and rate of tax at which GST will be levied? Yes, a list of items and corresponding rates have been notified by CBIC. All items mentioned in the list if sold as per conditions mentioned above will be subject to levy of GST. The list is given below in Annexure-A.
10. Whether any changes are required to be made in Invoicing? Yes, once an item becomes taxable it can no longer be supplied under a “Bill of Supply”. A “Tax invoice” with mention of GST rate, amount of tax and HSN code amongst other requirements of tax invoice will have to be issued.
11. Whether E-Invoicing needs to done? Yes, in respect of supply of eligible commodities e-Invoice will have to be generated from Government portal.
12. What changes are to be made in accounting software and internal systems ? a.  In respect of eligible commodities, the product master has to be updated with the applicable GST rates and HSN code upto 4 digits or more.

b. Changes in Purchase orders must be initiated to give effect to the amendment.

13. How will reporting change in monthly GST returns?
Situation GSTR-1 reporting GSTR-3B reporting
When Items Exempt Table-9 Table 3.1(c)
When Items Taxable Table-5 or 7 Table 3.1(a)
14. What is the time of Supply of goods due to change in effective rate of tax? The time of supply will be determined as per the provisions of Section 14 of CGST Act,2017  based on date of issue of invoice, date of payment and the date of change in effective rate of tax i.e 18th July, 2022.
15. Can input tax credit attributable to such GST sales be availed? Yes, since eligible commodities are now chargeable to tax under GST, any ITC which is directly attributable to such sales can be availed.
16. Can Input Tax Credit on inputs and capital goods held in stock at the time of change in effective rate of tax be availed? a. Where an exempt supply of goods become a taxable supply, input tax in respect of inputs held in stock, semi-finished goods and finished goods relatable to such exempt supply on the day immediately preceding the date from which such supply becomes taxable can be availed.

b. ITC on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable as reduced by prescribed percentage points can be availed.

Annexure-A: List of Eligible Pre-Packaged and Labelled Items and GST Rates

HSN Code Description

Rate

0202, 0203, 0204, 0205, 0206, 0207, 0208, 0209, 0210 Meat and edible meat offal 5%
0303, 0304, 0305, 0306, 0307, 0308, 0309 Fish and crustaceans, molluscs  and other aquatic invertebrates 5%
0406 Chena or paneer 5%
3101 Animal or vegetable fertilisers, whether or not Mixed together or chemically treated; fertilisers produced by the mixing or chemical treatment of animal or vegetable products and organic manure 5%
0504 Guts, Bladders And Stomachs Of Animals (Other Than Fish), Whole And Pieces Thereof, Fresh, Chilled, Frozen, Salted, In Brine, Dried Or Smoked 5%
1701 or 1702 Jaggery of all types including Cane Jaggery (gur), Palmyra Jaggery; Khandsari Sugar 5%
0403 Curd, Lassi, Butter Milk 5%
0409  Natural Honey 5%
0713 Dried leguminous vegetables,  shelled, whether or not skinned or split 5%
0714 Manioc, arrowroot, salep, Jerusalem artichokes, sweet potatoes and similar roots and tubers with high starch  or inulin content, frozen, whether or not sliced or in the form of pellets 5%
08 Dried makhana, whether or not shelled or peeled 5%
1001 Wheat and meslin 5%
1002 Rye 5%
1003 Barley 5%
1004 Oats 5%
1005 Maize corn 5%
1006 Rice 5%
1007 Grain Sorghum 5%
1008 Buckwheat, millet and canary seed; [other cereals such as Jawar, Bajra, Ragi] 5%
1101 Wheat or meslin flour 5%
1102 Cereal flours other than of wheat or meslin, [maize (corn) flour, Rye flour, etc.] 5%
1103 Cereal groats, meal and pellets 5%
1105 Flour, powder, flakes, granules or pellets of potatoes 5%
1106 Flour, of the dried leguminous vegetables of heading 0713 (pulses) [other than guar meal 1106 10 10 and guar gum refined split 1106 10 90], of sago or of roots or tubers of heading 0714 or of the products of Chapter 8  i.e. of tamarind, of singoda, mango flour,etc. 5%
1904 Puffed rice, commonly known as Muri, flattened or beaten rice, commonly known as Chira, parched rice, commonly known as khoi, parched paddy or rice coated with sugar or gur, commonly known as Murki 5%
2009 89 90 Tender coconut water 12%
53 Coir pith compost 5%

Concluding Remark :

The timing for levying GST on Agriculture produce, Food items and other primary commodities is particularly distressing at a time when inflation is eating into a consumer’s budget. This decision also coincides with record GST collections by the Government much of which can be credited to tightening of ITC availment norms, stricter compliance requirements and uptick in economic activities. This decision signals only the beginning of Government’s intention to expand the tax net into areas which have traditionally remained outside the scope of taxation.

Author Bio

Qualification: CA in Practice
Company: Tapas & Co. Chartered Accountants
Location: Pune, Maharashtra, India
Member Since: 16 Jun 2020 | Total Posts: 4
Practicing Chartered Accountant specializing in Taxation and Business Consulting. Actively advising corporates and multi national clients on matters of Business, Finance and Taxation. View Full Profile

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