47th GST Council meeting held on 28th & 29th June 2022 comes with a new proposal which says GST will be applicable on pre-packed and Labeled Pack of Food Items at the rate of 5% from 18th July 2022. The same has been notified through Notification No. 06/2022-CT (Rate) dated 13th July 2022. This proposal comes after GST Council – the highest decision-making body – accepted most of the decisions made by the Group of Ministers on withdrawing exemptions with a view of rationalizing the levy.
So it is very important for us to know how this is going to impact items purchased through Malls, Kirana Shops, Dal Mills, Wholesale, Retail and other mom-and-pop stores & on Agri products.
Currently GST rate on branded food grains is 5% and will be continued to be taxable at 5% rate. The GST Council in a press release has specified that on unbranded food grains which are pre-packaged and pre-labelled retail packs as per The Legal Metrology Act, 2009 GST will be applicable from 18th July 2022.
As per notification No. 6/2022-CT Rate dated 13th July 2022 whereby a host of these items were eligible for exemption only in case they were other than ‘pre-packaged and labelled’.
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
Considering this, we need to study the Legal Metrology Act,2009 to know what the meaning of pre-pack, pre-labelled & retail packs is.
- Applicability of Legal Metrology Act, 2009
The provisions of Legal metrology applies to:
1. Persons who are using any weight or measure in any transaction or Industrial Production or Protection
2. Manufacturer, Retailer, Wholesaler, trader, Repairer of any weight or measure, Importer and/or Packer of any item related to weight, measure and numbers
This definition is very wide & covers all items which are using weight or measure in any transaction.
- Pre-packed commodity and pre-labelled retail pack as per Legal Metrology Act:
Section 2(1) of The Legal Metrology Act,2009 defines that “pre-packed 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 predetermined quality.
Similarly, Pre-labelled retail pack means on any prepacked article there has been written or any mark, stamp print or graphic material pasted.
- Retail pack as per The Legal Metrology (Packaged Commodities) Rules, 2011:
As per 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. The provisions of this will not apply to:
1. Packages of commodities containing quantities of more than 25 kg or 25 litre.
2. Packaged commodities meant for industrial consumers or institutional consumers
- Non applicability of Legal Metrology (Packaged Commodities) Rules, 2011
1. As per Rule 3 under Chapter II of Legal Metrology (Packaged Commodities) Rules, 2011 (Rules) which lists out the packaged commodities in respect of which the provisions of this chapter would NOT BE applicable. It covers:
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.
2. As per rule 26 provides for exemption in respect of certain packages, wherein it states that nothing contained in these rules shall apply to any package containing a commodity if:
3. the net weight or measure of the commodity is 10g or 10 ml or less, if sold by weight or measure;
CBIC has released FAQ regarding GST applicability on ‘pre-packaged and labelled’ goods which clarified following points.
What is the scope of this coverage taking into account various exclusion(s) provided under the Legal Metrology Act and the rules made thereunder?
For such commodities (food items- pulses, cereals, flour, etc.), rule 3 (a) of Chapter-II of Legal Metrology (Packaged Commodities) Rules, 2011, prescribes that package of commodities containing quantity of more than 25 kg or 25 litre do not require a declaration to be made under rule 6 thereof. Accordingly, GST would apply on such specified goods where the pre-packaged commodity is supplied in packages containing quantity of less than or equal to 25 kilogram.
Illustration: Supply of pre-packed atta meant for retail sale to ultimate consumer of 25 Kg shall be liable to GST. However, supply of such a 30 Kg pack thereof shall be exempt from levy of GST.
Thus, it is clarified that a single package of these items [cereals, pulses, flour etc.] containing a quantity of more than 25 Kg/25 litre would not fall in the category of pre-packaged and labelled commodity for the purposes of GST and would therefore not attract GST.
Whether GST would apply to a package that contains multiple retail packages. For example, a package containing 10 retail packs of flour of 10 Kg each?
Yes, if several packages intended for retail sale to ultimate consumer, say 10 packages of 10 Kg each, are sold in a larger pack, then GST would apply to such supply. Such package may be sold by a manufacturer through distributor. These individual packs of 10 Kg each are meant for eventual sale to retail consumer. However, a package of say rice containing 50 Kg (in one individual package) would not be considered a pre-packaged and labelled commodity for the purposes of GST levy, even if rule 24 of Legal Metrology (Packaged Commodities) Rules, 2011, mandates certain declarations to be made on such wholesale package.
At what stage would GST apply on such supplies, i.e., whether GST would apply on specified goods sold by manufacturer/producer to wholesale dealer who subsequently sells it to a retailer?
GST would apply whenever a supply of such goods is made by any person, i.e. manufacturer supplying to distributor, or distributor/dealer supplying to retailer, or retailer supplying to individual consumer. Further, the manufacturer/wholesaler/retailer would be entitled to input tax credit on GST charged by his supplier in accordance with the Input Tax Credit provisions in GST. A supplier availing threshold exemption or composition scheme would be entitled to exemption or composition rate, as the case may be, in usual manner
Whether tax is payable if such goods are purchased in packages of up to 25 kg/25liters by a retailer, but the retailer sells it in loose quantities in his shop for any reason?
GST applies when such goods are sold in pre-packaged and labelled packs. Therefore, GST would apply when pre-packaged and labelled package is sold by a distributor/ manufacturer to such retailer. However, if for any reason, retailer supplies the item in loose quantity from such package, such supply by retailer is not a supply of packaged commodity for the purpose of GST levy.
Whether tax is payable if such packaged commodities are supplied for consumption by industrial consumers or institutional consumers?
Supply of packaged commodity for consumption by industrial consumer or institutional consumer is excluded from the purview of the Legal Metrology Act by virtue of rule 3 (c) of Chapter-II of Legal Metrology (Packaged Commodities) Rules, 2011. Therefore, if supplied in such manner as to attract exclusion provided under the said rule 3(c),it will not be considered as pre-packaged and labelled for the purposes of GST levy.
Considering various clarification issued by CBIC, following food grains are exempted under the amendment
1. Food items, grains, etc. that are sold loosely
2. Food items, grains, etc. which don’t have any mark on the pack.
3. Food grains are packed and sold in front of the consumer according to the quantity ordered by him.
4. Unregistered branded food grains not falling under the pre-packed & pre-labelled retail pack terms as specified under the Legal Metrology Act.
5. Food items, grains etc. of more than 25 kg of packing on which seller has forgone the actionable claim of brand.
6. Packages more than 50kg in case of agricultural farm produce.
7. Packages of 10g/ 10ml or less
Finance Minister Nirmala Sitharaman said that the call to impose 5% on pre-packaged and non-branded items was taken after rampant misuse of this exemption by many reputed manufacturers and brand owners, leading to significant fall in revenue collection on these items. The government was receiving complaints from suppliers and industry bodies and they wrote to the government to impose GST uniformly on all packaged commodities to stop such misuse. FM also clarified that this was resented by suppliers and industry associations who were paying taxes on branded goods and they wrote to the government recommending uniform GST on all packaged commodities to stop such misuse.
So now if we go to Reliance Smart mall where food grains are sold in pre-packed and pre-labeled retail packs of say 5kg with its own Good Life name, then GST will be applicable on it from 18th July 2022. But if we purchase same quality food grain from local Kirana shops who sell those grains in normal packet without any pre-packed and pre-labelled retail pack, then no GST is applicable.
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