Important Changes in GST w.r.t Foods industry w.e.f July 18, 2022

Earlier, there was exemption from GST on Unbranded or Branded Commodities where right on the brand has been foregone which has been done away w.e.f July 18, 2022, and now GST exempted only when it is not a pre-package and labelled commodities.

Now, GST leviable on pre-package and labelled commodities, on which declaration is required under Legal Metrology Act, 2009 and rules made there under and the concept of branded or unbranded has been done away with.

For example, items like pulses, cereals like rice, wheat, and flour (aata), etc., earlier attracted GST at the rate of 5% when branded and packed in unit container. W.e.f. July 18, 2022, these items would attract GST when “pre-packaged and labelled”. Additionally, certain other items such as Curd, Lassi, puffed rice etc., when “pre-packaged and labelled” would attract GST @ 5% with effect from July 18, 2022.

The expression ‘pre-packaged and labelled’ has been defined as:

“a ‘pre-packaged commodity’ as defined in clauses (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.”

Thus, supply of such specified commodity having the following two attributes would attract GST:

i. It is pre-packaged; and

ii. It is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder.

However, if such specified commodities are supplied in a package that do not require declaration(s)/compliance(s) under the Legal Metrology Act, 2009, and the rules made thereunder, the same would not be treated as pre-packaged and labelled for the purposes of GST levy.

It is to be noted that Section 2(l) of the Legal Metrology Act, 2009 defines ‘pre-packed commodity’ as under:

“(l) “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;”

Further, the definition of retail package and wholesale package is defined in the chapter II (retail sale) and III (wholesale) of the Legal Metrology (Packaged Commodities) Rules, 2011:

2(k) “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 purpose of “retail food package”, the definition of the same contained in the rules or regulations made under the Food Safety and Standards Act, 2006 (34 of 2006) shall apply

2(l) “retail sale”, in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales shops, agencies or other instrumentalities for consumption by an individual or a group of individuals or any other consumer

(r) “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 similar quantities; or

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

Specific Exclusion from levy of GST when:

• Packages of commodities containing quantity of more than 25 kilogram or 25 litre;
• Cement, fertilizer, and agricultural farm produce sold in bags above 50 kilograms; and
• Packaged commodities meant for industrial consumers or institutional consumers

Certain important clarifications and illustrations:

• Supply of pre-packed atta meant for retail sale to ultimate consumer of 25 Kg shall be liable to GST. However, supply of such pack of 30 Kg thereof shall be exempt from levy of GST.
• 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.
• 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.
• 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.
• X’ is a rice miller who sells packages containing 20 kg rice but not making the required declaration under legal metrology Act and the Rules made thereunder (although the said Act and the rules requires him/her to make a declaration), such packages would be considered as pre-packaged and labelled commodity for the purposes of GST as it requires making a declaration under the Legal Metrology (Packaged Commodities) Rules, 2011 (rule 6 thereof). Hence, miller ‘X’ would be required to pay GST on supply of such package(s).

At what stage, GST would apply on such supplies:

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.

Important Notification for effecting changes in GST:

Changes particularly in respect of food items like pulses, flour, cereals, etc. (specified items falling under the Chapters 1 to 21 of the Tariff), as has been notified vide Notification No. 6/2022-Central Tax (Rate), dated July 13, 2022 by amending Notification No. 01/2017- CGST Rate Schedule Central Tax (Rate) dated June 28, 2017 (“the Goods Rate Notification”) and the corresponding notifications issued for SGST/ UTGST and IGST.

Schedule I – 5%

Schedule II – 12%

Further, the CBIC vide Notification No. 07/2022-Central Tax (Rate) dated July 13, 2022 has issued amendments in the Goods Exemption Notification No. 02/2017-Central Tax (Rate) so as to withdraw exemption on certain specified food items, grains etc., in the following manner:

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