Vide Notification No.6/2022 Central Tax (Rate) dated 13th July 2022 CBIC brought in many changes in the rates of various goods and brining into tax net many exempted goods. The intention of bringing in such changes were to align the rates to avoid inverted duty structure, where the rates of inputs were higher than the rates of output supplies and also aligning the goods sold without distinguishing it as branded and unbranded. The notable change however is the taxability of pre-packaged and labelled goods effective from 18th July 2022. What this notification does is, it brings into tax net the erstwhile exempted goods which were not branded but were pre-packed and labelled at the local kirana store. It replaces the mother notification no.1/2017 dated 28th June 2017 the words brand name to pre-packed and labelled goods, hence bringing in all goods which are pre-packed and labelled which necessarily may not be branded to tax.
What is pre-packaged and labelled?
The Notification gives following explanation namely:
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 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 and rules made thereunder.
Basically, there is two conditions to be met:
1. The commodity should be pre-packed and labelled as defined in clause (l) of section 2 of the Legal Metrology Act, 2009 and
2. Such commodity is securely affixed thereto a label to bear the declarations under the provisions of the Legal Metrology Act, 2009.
If both the above conditions are met, then the commodity will be treated as pre-packaged and labelled as per the notification and the goods will be taxed.
As per clause (l) of section 2 of the Legal Metrology Act, 2009, which defines “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.
The condition to be met for a goods to be treated as pre-packaged, it should be packed without the purchaser be present, if the commodity is kept loose in the store and packed Infront of the customer, then it will not be treated as pre-packaged.
As per Rule 3 of The Legal Metrology (Packaged Commodities) Rules, 2011, the said rules will not be applicable to the following:
(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.
Very important point to note here is pre-packaged commodity will not include packages which are more than 25kgs or 25 litres or packages which are sold to industrial or institutional consumers.
‘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.
“Industrial consumer” means the industrial consumer who buy packaged commodities directly from the manufacturer for use by that industry.
The second condition to be met as per the notification that is “such commodity is securely affixed thereto a label to bear the declarations under the provisions of the Legal Metrology Act, 2009”. As per The Legal Metrology (Packaged Commodities) Rules, 2011, it lays down various conditions and requirements for commodities to have labels and declarations in the packages sold. As per sub rule (1) rule 6 of the said Rules ‘Every package shall bear thereon or on label securely affixed thereto, a definite, plain and conspicuous declaration made in accordance with the provisions of this chapter’.
On 17th July 2022, CBIC issued FAQs on various doubts pertaining to this notification, the abstract of which are given below:
1. The board has clarified that before 18th July 2022 only branded and packed in unit container items like pulses, cereals like rice, wheat and flour (aata) etc were taxed at 5%,whereas from 18th July 2022, even unbranded items if prepacked and labelled will be taxed now.
2. The board has further reiterated that to be classified as ‘pre-packaged and labelled’ following two conditions has to be met:
a) The items are pre-packaged (not in the presence of the customer) and
b) It is required to bear the declarations as per the Legal Metrology Act.
If both the above conditions are met only it will be treated as pre-packaged and labelled goods and liable for tax.
3. Suppose if there are multiple retail packs and aggregate of that exceeds 25 kgs / 25 lts, board has clarified that, since each retail pack is less than the specified limit, it will be covered under pre-packaged and labelled definition and accordingly taxed.
4. What happens if the goods are purchased in bulk quantity less than 25 kgs / 25 lts and later sold in loose quantity? Board has clarified that since the items are sold in loose quantity to the retail customer, it will not be treated as pre-packaged and labelled goods and will be exempted. The question is while purchasing the goods it will be taxed, but while supplying to retail customers it will be exempted and this will lead to cascading effect.
5. If a particular person who is required to make a declaration, but fails to make a declaration as per The Legal Metrology Act, then will he be covered under pre-packaged and labelled definition? The board has clarified he will be covered, as legally he is required to make the declaration.
The taxation under GST is moving in the direction where the exemptions are being pruned and more and more products are being brought into tax net to increase the revenues for the exchequer. This will have an immediate impact on the small traders and businesses, but eventually to increase the tax net, taxing more goods which are in the exempted category now is the only way out. This may have an impact on the inflation, where the cost of food articles may go up and will impact the common man.
Author Bio
