GST Rate Cut makes Consumers happy, but Leaves Industry and Trade worried over Stocks

GST Rate Cut makes Consumers happy, but Leaves Industry and Trade worried over Stocks

Introduction

The GST Council’s 56th meeting on September 3, 2025, announced a landmark set of reforms dubbed “GST 2.” The reforms, which came into effect on September 22, simplify India’s indirect tax system by reducing multiple tax slabs to just two — 5% and 18%.

While consumers have obviously welcomed the move, businesses and traders are grappling with a pressing question: What happens to stocks manufactured or sold before the new rates came into force?

Industry estimates suggest that unsold inventory produced before September 22, 2025 — carrying Maximum Retail Prices (MRPs) calculated at higher GST rates — is worth nearly ₹1.5 lakh crore. With consumers now expecting lower prices, traders are under pressure to sell at revised rates. But for many, the GST on that stock has already been paid to the government at higher rates.

Traders either wait for credit notes from manufacturers and distributors for higher GST attributable to the stocks or they sell at a loss from their  own pockets. A difficult situation for sellers.

Government Circulars Offer Relief about MRP but do nothing yet, for GST paid on Stocks

On September 18, the Department of Legal Metrology issued a circular (No. I-10/14/2020-W&M) easing rules for printing revised MRP on labels of packaged goods.  Manufacturers, packers, and importers are no longer mandated to paste fresh MRP stickers on old stock; the decision has been left to businesses. If stickers are used, however, the original MRP cannot be concealed. The requirement of publishing notices in newspapers has also been waived  — manufacturers need only inform wholesalers, retailers, and state authorities directly.

For packing material with pre-printed MRPs, use has been permitted until March 31, 2026, provided revised stickers or stamps are affixed.

In pharmaceuticals, the National Pharmaceutical Pricing Authority (NPPA) has made it mandatory for companies to pass on the reduced GST benefit to consumers, either through revised price lists or by ensuring effective price cuts.

Expectations about Relief for higher GST paid on Stocks remains unfulfilled as yet

As said earlier, for consumers, GST reduction is highly welcome, as it means lower prices on many packaged goods used in daily life. However, for traders and businesses, the real challenge lies in handling stocks that were already in circulation on the date the new rates took effect.

The problem arises because the MRPs printed on goods manufactured or sold before September 22 were calculated under the old, higher GST rates. Now, when these goods are sold after the new rates have come into force, consumers expect the reduced GST benefit to reflect in the retail price. Government circulars also mandate that traders must pass on this benefit to buyers. In a lighter note, one may say this is like robbing Peter to pay Paul, like situation.

The big question, however, is: how can traders extend this benefit when the higher GST has already been deposited with the government? Unless they receive refunds or credit adjustments, their only alternative would be to sell existing stock at lower prices out of their own pockets — a burden that many businesses argue is unfair and unsustainable.

As a result, the issue of “what to do with existing stock” has emerged as a major point of concern across the trading community.

Understandably, traders expect that the burden should not fall on them and that manufacturers or distributors should issue credit notes to offset the excess GST already paid. This would allow retailers to sell at lower prices without suffering direct losses, while also fulfilling the government’s mandate that consumers benefit from reduced rates.

Pitfalls in Current Legal Framework

However, the legal framework for such credit notes is far from straightforward. The CGST Act has long imposed restrictions on post-sale discounts:

The legal complications stem primarily from Sections 15 and 34 of the Central Goods and Services Tax (CGST) Act, 2017:

• Section 15: Governs valuation of taxable supplies. Sub-section 15(3)(b)(i) currently requires that any post-sale discount must be agreed upon at or before the time of supply to qualify for deduction.
• Section 34: Deals with credit notes and their impact on input tax credit (ITC).

Long Wait for Promised Relief

The GST Council, in its 56th meeting, proposed an amendment to Section 15 to remove the condition that post-sale discounts must be pre-agreed. Additionally, changes to Section 34 were also suggested to allow issuance of credit notes, provided the buyer reverses the ITC claimed. However, these amendments are yet to be notified, leaving traders in legal limbo.

Input Tax Credit Challenges

Another complication arises from what experts call the ‘inverted duty structure.’ When input materials are taxed at a higher rate (say 18%) but finished goods are taxed at a lower rate (5%), businesses end up with unutilized credits. For instance, if raw materials worth ₹60 attract 18% GST, the input tax credit is ₹10.80. But if the finished product sells for ₹100 with only 5% GST (₹5), then ₹5.80 per unit remains blocked as unusable credit. This is called the Inverted Duty Structure

The Council has recommended a simplified refund mechanism — promising a 90% refund of such blocked credits upfront. Yet, the relevant notifications remain pending.

Expectations of Trade and Industry

Traders and entrepreneurs are now looking to the government for urgent clarity and relief. Without concrete measures, they fear significant losses and blocakage of working capital.

The reforms are progressive, but without supporting rules, traders are left stranded. Immediate notifications on credit notes and refunds are necessary to ensure that the benefits of GST 2 truly reach both consumers and businesses.