Individual packages of non-branded pre-packaged and labeled food products such as cereals, pulses and flour weighing more than 25 kg are exempt from the 5% GST tax.
The Central Excise and Customs Board released an FAQ late Sunday night clarifying various doubts and said only pre-packaged items up to 25kg will attract 5% GST, but if a retail trader provides bulk l item purchased from a manufacturer or distributor in a 25 kg package, such sale to consumers will not incur GST.
Last week, the government announced that from July 18, unbranded pre-packaged and labeled food products would be subject to a 5% goods and services tax. So far, only branded items used to attract the levy.
According to the FAQ, prepackaged and labeled food products (such as pulses, cereals such as rice, wheat, flour, etc.) would fall under the definition of “prepackaged goods” under the Metrology Act 2009 legal, if these packages contain a quantity less than or equal to 25 kilograms (or 25 litres).
“It is clarified that a single package of these items (cereals, pulses, flour, etc.) containing a quantity greater than 25 kg/25 liters would not fall under the category of pre-packaged and labeled goods for GST purposes and n would therefore not attract the GST,” he said.
To illustrate, the CBIC has stated that the supply of 25kg prepackaged atta for retail sale to the ultimate consumer will be subject to GST. However, the supply of such a 30 kg package is exempt from the GST levy.
The board also said GST would apply on a package containing multiple retail packages, for example a package containing 10 packets of flour of 10kg each, CBIC said, under the Ministry of Finance.
“If multiple packages intended for retail sale to the ultimate consumer, say 10 packages of 10 kg each, are sold in a larger package, then GST would apply to that supply. Such packaging can be sold by a manufacturer through a distributor. These individual packages of 10 kg each are intended for eventual sale to the retail consumer,” the CBIC said.
However, a package of, say, rice containing 50 kg (in individual packaging) would not be considered a pre-packaged and labeled product for the purposes of the GST levy, he added.
The GST would apply when a pre-packaged and labeled package is sold by a distributor/manufacturer to a retailer who purchases food products in packages weighing up to 25 kg/25 litres.
“However, if for any reason the retailer supplies the item in bulk from this packaging, such supply by the retailer is not a supply of packaged goods for GST tax purposes,” said the CBIC.
For GST purposes, a prepackaged good would mean a good that, without the presence of the purchaser, is placed in a package of any kind, sealed or unsealed, so that the product therein has a quantity predetermined.
Any such supply requiring reporting under the Legal Metrology Act would incur GST, he said.
KPMG’s tax partner in India, Abhishek Jain, said earlier that the GST tax was limited to branded food products packed in unit containers, so this amendment widens the net of the GST.
“Some key clarifications issued include that the terms pre-packaged and labeled will be read in light of the Legal Metrology Act, and as such packaging over 25kg, and supplies to industrial consumers will be exempt from the tax. on the GST,” added Jain. .
Rajat Mohan, senior partner at AMRG & Associates, said the new tax is expected to fuel price inflation for basic consumable foodstuffs like rice and cereals from today.
The GST Council, chaired by the Union Finance Minister and made up of state FMs, decided last month that prepackaged and labeled food products would be subject to 5% GST from 18 July.