GST applicability on ‘Pre-packaged and labelled commodity’

1. GSTAPPLICABILITYON‘PRE-PACKAGEDANDLABELLED COMMODITY’ AUTHOR:KESHAVMALOOANDASSOCIATES https://taxguru.in/goods-and-service-tax/gst-applicability-pre-packaged-labelled-commodity.html Ontherecommendationsof47thGSTCouncilmeeting,GovernmenthasleviedGSTonPre-packagedand labelledcommodityonvariousspecifiedfooditemscoveringunderChapterHeading1to21ofCustomsTariff byamendingCGSTRateNotificationNo.01/2017(‘RateNotification’)byAmendmentCGST(Rate) NotificationNo.06/2022andand02/2017(‘ExemptionNotification’)dated28.06.2017by07/2022dated 13.07.2022which has been madeapplicable from 18.07.2022. ThiswillhavemajorimpactonhowGSTisleviedinthefoodindustrybychangingthebasiccriteriaof taxability and aligning it with Legal Metrology Law. Let’s look in finer detail the impact on the trade and industry. Erstwhiletaxationschemeonfooditems(upto17.07.2022) Till 17th July, 2022, specified food items (normally used by an end consumer) which were unbranded or on which actionable claim or enforceable right in respect of such brand name has been voluntarily foregone were exemptedfrom GST. Whereas, such food items which were put up in a unit container bearing a registered brand name or on which right to actionable claim or enforceable right in respect of such brand name was available was subject to GST majorly@5% and few@12% for e.g. IndiaGate rice, Aashirwad attaetc. NewSchemeoftaxationw.e.f.18.07.2022 Now, the criteria of taxability based on registered brand name/right to brand has been done away with and now GSTwillapplyonsupplyof‘pre-packagedandlabelledcommodity’(onspecifiedfooditemslistedin Annexure-A of this Note). Further, GST has been introduced on pre-packaged and labelled curd, butter milk, lassi which was earlier exempted even if branded. Further, CBIC has issued FAQ dated 17.07.2022 clarifying variousaspects on taxability. Scopeof‘Pre-packagedandlabelledcommodity’ The“pre-packagedandlabelledcommodity”hasbeendefinedintheRateandExemptionNotificationstomean a “pre-packaged commodity” as defined in clause (l) of section 2 of the Legal Metrology Act, 2009 (1 of 2010) wherethepackageinwhichthecommodityispre-packedoralabelsecurelyattachedtoitisrequiredtobear thedeclarationsundertheprovisionsoftheLegalMetrologyAct,2009(1of2010) andtherulesmadeunderit. The reference needs to be made to The Legal Metrology Act, 2009 (‘LMA’) and Legal Metrology (Packaged Commodities)Rules, 2011 (“LMR”)

2. Section2(l)ofTheLegalMetrologyAct,2009(‘LMA’)definesthetermpre-packagedcommodityasfollows:Section2(l)ofTheLegalMetrologyAct,2009(‘LMA’)definesthetermpre-packagedcommodityasfollows: “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. On a conjoint reading of the above definitions contained in GST law and LMA, a commodity will be treated as pre-packagedand labelledfor the purposesof GSTif it satisfiesthe followingconditions: Commodityisplacedinapackageofwhatevernaturewithapre-determinedquantity Packagingneednotbemandatorilysealed Suchpackagingofcommodityisdonewithoutpurchaserbeingpresent SuchpackageisrequiredtobearthedeclarationsasrequiredundertheprovisionsoftheLMAorLMR Firstly, the product should be pre-packaged i.e. package in loose form or temporary packing without any pre- determinedquantitymentionedonthepackagewillnotbetreatedaspre-packagedcommodityandhence,willbe outor purview of GST. Ifapre-packagedcommodityasdefinedinLMAisrequiredtomentiondeclarationsasperLMAorLMR,then it will fall under the scope of ‘pre-packaged and labelled commodity’ for GST purposes and GST will apply on specifiedfood items at applicable rate. D.DeclarationsonpackagesunderLMAandLMR According to Section 18 of the LMA, any pre-packaged commodity that is sold, manufactured, distributed, delivered etc. must be in the prescribed standard quantities and have the prescribed declarations and particulars onthe package. Rule6ofChapterIIofLegalMetrology(PackagedCommodities)Rules,2011(“LMR”)prescribethe declarationsrequiredtobementionedonvariouspackagesintendedforretailsalealongwithcertainexclusions. Rule2(k)ofLMRdefines‘retailpackage’as meansapackagewhichareintendedforretailsaletotheultimateconsumerforthepurposeof consumptionof thecommodity containedtherein andincludes theimported packages. Chapter-III-Rule24providesfordeclarationstobemadeoneverywhole-salepackage. Rule2(r) ofLMR defines‘wholesale package’a packagecontaining- anumberofretailpackages,wheresuchfirstmentionedpackageisintendedforsale,distributionor deliveryto anintermediary andis not intendedfor saledirect toa single consumer;or Acommoditysoldtoanintermediaryinbulktoenablesuchintermediarytosell,distributeordeliver suchcommodity to the consumerin smaller quantities; or, Packagescontainingtenormorethantenretailpackagesprovidedthattheretailpackagesare labeledas required under the rules.

3. Accordingly,wholesalepackageismeantforsaletointermediaryandeithermayhavemultipleretailpackages insideit or singlepackage which may besold by retailerin smaller quantities. • Non-applicabilityofdeclarationsandhence,notsubjecttoGST • AsperRule3ofLMR,requirementsofdeclarationarenotapplicableonfollowingpackages: • packagesofcommoditiescontainingquantityofmorethan25kilogramor25litre; • Cement,fertilizerandagriculturalfarmproducesoldinbagsabove50kilogram;and • Packagedcommoditiesmeantforindustrialconsumersorinstitutionalconsumers. • Rule26providesforexemptioninrespectoffollowingpackages: • ifthenetweightormeasureofthecommodityis10gor10mlorless,ifsoldbyweightormeasure(Not applicableto tobacco and tobacco products) • Packagecontainingfastfooditemspackedbyrestaurantorhotel • Ifapre-packagedcommodityfallsunderaboveexclusions,itshallnotbetreatedas‘pre- packagedandlabelledcommodity’forGSTpurposesandhence,outofpurviewofGST. • AnalysisandImpact • ImpactonsaletoInstitutionalandindustrialbuyers • If sale is made by a manufacturer or wholesaler to Institutional (e.g. Hotels, railways, Airlines, Hospitals ) and industrial buyers (for e.g. factory buying flour for use in canteen) for their own consumption and for not further trading purposes, it is not a prepackaged and labelled commodity for GST, even if packed in small retail quantities,and exempted from GST. • However, as per LMA/LMR, such packages should contain declaration ‘Not for Retail Sale’. So if, retail packs arepurchasedbyInstitutionalandindustrialbuyersnotbearingsuchdeclarationthen,GSTwillbeapplicable. • Impactonagriculturalfarmproduce • The agricultural farm produce sold in bags above 50 Kg is not required to mention declarations and hence, exempted from GST. The term agricultural farm produce is not defined in LMA and definition contained in GST law cannot be borrowed here as term under consideration is mentioned in LMR, hence, general meaning is required to be given. It is a matter of interpretation to understand the scope of ‘agriculture farm produce’ which in common parlance is understood to embrace produce which are cultivated directly from farms with essential activity at Farm like segregating, grading etc. without being required to be processed at Factory/Mills. If such produce is required to be processed at Factory/Mills, in our opinion, it shall be outside the scope of ‘agriculture produce’andgenerallimit ofpackagesof upto25Kgwill applyi.e.taxable toGSTif packagesupto25Kg. • ImpactonRetailpackagesotherthanagricultureproduce • SpecifiedRetailpre-packedcommodityupto25Kg/25Ltr.issubjecttoGST.Suchtaxisapplicableateach pointof supply chain frommanufacturer to wholesaler toretailer. • ImpactonWholesalepackages

4. As per the Press Release issued on recommendations of 47thGST Council meeting, it was mentioned that GST isbeing applied only onpre-packaged and labelled retailpacks. • However,thecurrentamendmentsanddefinitionsuggestthatnoexclusionhasbeengiventowholesalepackages and hence, even wholesale packages upto 25 Kg or 25 Ltr. are taxable. Further, FAQ issued by CBIC dated 17.07.2022 also clarifies that a wholesale package containing say 10 retail packs of flour of 10 Kg each are also taxabletherebylevyingGSTonwholesalepackagesalso.Thisappearslogicaltoensureseamlessinputtax creditchain at each point. • However,ifawholesalepackageof50Kgwhichdoesnotcontainanyretailpackagesinsideitaresoldto retailerwhointurnsellsthecommodityinsmallerquantitiesinlooseform,whetherGSTwillapply?.FAQNo. 4 dated 17.07.2022 cover this situation wherein it has been clarified that even if rule 24 of Legal Metrology (PackagedCommodities)Rules,2011,mandatescertaindeclarationstobemadeonsuchwholesalepackage, thenalso, it wouldnot be consideredas pre-packaged andlabelled commodity. • Even though, FAQ has disregarded the declaration requirements under LMA/LMR on wholesale package to determinetaxability,however,nosuchdistinctionisgivenindefinitionof‘pre-packageandlabelled commodity’therebyleavingroomfordisputeandlitigation.Thiswarrantsasuitableamendmentinthe Notificationiftheintentionistotaxonlypackagesintendedforretailsale(soldasretailpackagesorasapartof awholesalepackage containingsuchretail packages)to avoidmultipleinterpretations andlitigation. • ScenarioswithExamples • TaxableunderGST Sr. Scenario Remarks RetailPre-Packagedcommodityupto25Kg/25Ltr.EveniftheRetailerdoesnotmentiondeclarations (50 Kg in case of agriculture produce) butrequiredunderLMA/LMR,thenalsotaxable 1 WholesalepackagecontainingmultipleRetailpacks ClarifiedbyFAQNo.4dated17.07.2022-Taxable 2 upto25Kg/25Ltr. Wholesalepackageofbulkquantityupto25Kg/25 Ltr. 50 Kg in case of agriculture produce) without Taxable at Wholesaler as well Retailer level. anyretailpackagesinitforresaleinsmallernumbers Clarifiedby FAQNo.6 dated17.07.2022 byRetailerinpre-packagedform Wholesalepackageofbulkquantityupto25Kg/25 Ltr.50Kgincaseofagricultureproduce)without TaxableatWholesalerlevelonly.Exemptedfor anyretailpackagesinitforresaleinsmallernumbers Retailer. byRetailerinlooseform 3 4 WholesalepackagecontainingindividualpackageExemptedatWholesalerlevelbuttaxableatretailer 5 morethan25Kg/25Ltr.(50Kgincaseofagriculturelevel produce)andsoldinpre-packagedformbyRetailer SupplyofPre-packagedpackstoInstitutionalorExempt.Buttaxable,ifnotmarkedas‘Notforretail 6 industrial consumer sale’ F.2ExemptunderGST

5. Remarks Exempted.MarkingNotforRetailSalemandatory. Sr. Scenario SupplytoInstitutionalorIndustrialcustomerwhetherSuitableAffidavit/Declarationmaybeobtainedfrom 1 byManufacturerorWholesaler Buyerforintendeduse RetailPre-Packagedcommoditymorethan25Kg/25Exempt.Since,nodeclarationisrequiredasper Ltr. (50 Kg in case of agriculture produce) LMR 2 RetailPre-Packagedcommoditylessthan10gmor10Exempted,Since,nodeclarationisrequiredasper ml LMR 3 PackagesoldinlooseortemporaryformorpackedinNottaxable 4 presenceofconsumer Exempt.Eventhoughdeclarationrequiredunder WholesalepackagecontainingindividualpackageofRule24asitisnotintendedforretailsaleasclarified 5 morethan25Kg/25Ltr.(50Kgincaseofagriculture byFAQNo.4.Thisisnotinlinewithlanguageof the definition of ‘pre-packaged and labelled produce)andsoldinlooseformbyretailer commodity’underGSTasoncedeclarationis required,it istaxable Hypotheticalscenario. 6 Brandedpackbutnotpre-packagedandlabelled G.KeyPoints • TimeofSupplyaspects • IfSupplyismadeupto17.07.2022 • OldtaxationSchemeunlessInvoiceissuedandpaymentreceivedonorafter18.07.2022 • Ifsupplyismadeonorafter18.07.2022 • NewtaxationschemeapplicableunlessInvoice/Billofsupplyissuedandpaymentreceived upto17.07.2022 • InternalcontrolsystemtoapplyGSTorexemptionbasedonvariousscenariosfollowedbyproper recordkeeping and stock records • Ifyourproductwasearlierexemptedbutnowtaxablew.e.f.18thJuly2022,toapplyforGST registrationwithin 30 days • To claimITConstock(Rawmaterial,finishedgoods, semi-finishedgoods)lyingon18thJuly2022and capitalgoods, if registration appliedwithin 30 days • E-waybillstobegeneratedaboveprescribedlimit • ToassesstheimpactofanyAnti–Profiteeringangleonaccountofincreaseinpricewithsimultaneous benefitof ITC on purchases • EvenifGSTisexemptedforWholesaler,independentanalysisoftaxabilityatretailerlevelisrequired incertain situations

6. Annexure-A GSTRateChart HSN Description 0202,0203,0204,0205,0206,0207,Meatandediblemeatoffal 0208,0209,0210 0303,0304,0305,0306,0307,0308,Fishandcrustaceans,molluscsandotheraquaticinvertebrates 0309 0403 0406 0409 Curd;Lassi;Buttermilk Chenaorpaneer Naturalhoney Allgoods[otherthanfreshorchilleGuts,BladdersAndStomachsOf Animals(Other Than Fish), Whole And Pieces Thereof, Fresh, Chilled, Frozen, Salted,In Brine, DriedOr Smoked Driedleguminousvegetables,shelled,whetherornotskinnedorsplit Manioc, arrowroot, salep, Jerusalem artichokes, sweet potatoes and similar rootsandtuberswithhighstarchorinulincontent,frozen,whetherornot slicedor in the formof Pellets Driedmakhana,whetherornotshelledorpeeled Allgoods i.e.cereals Wheatandmeslin,Rye,Barley,Oats,MaizeCorn,Rice,Grainsorghum, 1002,1003,1004,1005,10Buckwheat, millet andcanary seed; [othercerealssuchasJawar,Bajra,Ragi] 0504 0713 0714 08 10 1001, 06,1007,1008 Wheatormeslinflour Cerealfloursotherthanofwheatormeslini.e.maize(corn)flour,Ryeflour, 1101 1102 (i)JaggeryofalltypesincludingCaneJaggery(gur),PalmyraJaggery (ii)KhandsariSugar Puffed rice, commonly known as Muri, flattened or beaten rice, commonly known as Chira, parched rice, commonly known as khoi, parched paddy or rice coatedwith sugaror gur, commonlyknown asMurki Tendercoconutwater Namkeens, bhujia, mixture, chabena and similar edible preparations in ready forconsumptionform,other thanthosepre-packaged andlabelled 1701or1702 1904 20098990 210690