The 47th GST Council Meeting was held on June 28 and 29, 2022, with Shrimati Nirmala Sitharaman, India’s Finance Minister, serving as the meeting’s chairman. It was suggested during the discussion to change the pre-packaged and labeled goods exemption. What circumstances are covered by this article’s brief discussion of the GST’s applicability to pre-packaged and labeled goods?
A list of specific food items that are exempt from GST was covered by notification number. 2/2017- Central Tax (Rate), which was issued on June 28, 2017, in accordance with the pre-recommended stance. As a result, certain pre-packaged products like rice, wheat, honey, etc. that are marketed either under a brand name for which enforceable rights or actionable claims are voluntarily foregone or under an unregistered brand name are exempt from GST.
What are pre-packaged and labeled goods?
Pre-packaged and labeled refers to a “pre-packaged commodity” as defined in clause (l) of section 2 of the Legal Metrology Act, 2009, where either the package in which the commodity is pre-packed or a label securely affixed thereto is required to bear the declarations pursuant to the provisions of the Legal Metrology Act, 2009 and rules made thereunder.
Basically, two requirements must be fulfilled:
- The item must be pre-packaged and labeled in accordance with the definitions in clause (l) of section 2 of the Legal Metrology Act of 2009.
- Such a commodity has a label firmly attached to it that bears the statements required by the Legal Metrology Act of 2009.
If the two aforementioned requirements are satisfied, the commodity will be considered pre-packaged, labeled in accordance with the notification, and subject to tax. According to clause (l) of section 2 of the Legal Metrology Act, 2009, a “pre-packaged commodity” is a good that has been put into a package of any kind, whether sealed or not, without the buyer being present such that the product contained within has a pre-determined quantity.
If a product is kept loose in the store and packed in front of the customer, it will not be considered pre-packaged. This is the requirement that must be met for a good to be treated as pre-packaged. The following will not be covered by Rule 3 of The Legal Metrology (Packaged Commodities) Rules, 2011, according to said rules:
a) Packaged commodities intended for industrial or institutional users;
b) Packaged commodities holding a quantity of more than 25 kg or 25 liters, excluding cement and fertilizer sold in bags up to 50 kg.
FAQs on GST applicability on pre-packaged and labeled goods
Following the GST Council’s recommendations from its 47th meeting, the GST rate changes became effective as of today, July 18, 2022. One such shift is the switch from imposing GST on certain goods when they bear a registered brand or a brand for which a claim or enforceable right is available in a court of law to imposing GST on such goods when they are “pre-packaged and labelled.”
The scope of this change, which was announced in notification No. 6/2022-Central Tax (Rate), dated the 13th of July 2022, and the corresponding notifications for SGST and IGST, has drawn some inquiries, particularly in regard to food items like pulses, flour, cereals, etc. (specified items falling under Chapters 1 to 21 of the Tariff).
Here are some frequently asked questions (FAQ) to help clear up some confusion or questions about the GST duty on “pre-packaged and labelled” goods that became effective today, July 18, 2022:
- What modification will take place with regard to packaged and labeled goods as of July 18, 2022?
Prior to July 18, 2022, GST was applicable on certain items that were packaged in a unit container and displayed a registered trademark or a trademark for which a legal claim or enforceable right may be made. GST is now applicable on the supply of such “pre-packaged and labelled” commodities attracting the provisions of the Legal Metrology Act, as described in the questions that follow, as of July 18, 2022, when this provision changes. For instance, when branded and packaged in unit containers, goods like pulses, cereals like rice, wheat, and flour (aata), etc., previously drew GST at the rate of 5%. (as mentioned above). These goods would be subject to GST if they were “prepackaged and branded” as of 18.7.2022. With effect from July 18th, 2022, additional products including curd, lassi, puffed rice, etc. that are “prepackaged and labeled” would also be subject to GST at the rate of 5%.
In essence, this is a shift in how the GST is applied to “pre-packaged and llabeled specified goods instead of branded specified goods. Refer to notification No. 6/2022-Central Tax (Rate) and the related notification under the relevant SGST Act and IGST Act for more information.
- What does “pre-packed and labeled” mean in terms of the GST duty on foods such as grains, flour, and pulses?
The phrase “pre- packaged and labelled” refers, for GST purposes, to a “pre- packaged commodity” as defined in clause (l) of section 2 of the Legal Metrology Act, 2009, 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 and the rules made thereunder.
Section 2 of the Legal Metrology Act’s clause (l) is as follows:
- A “pre-packaged commodity” is one that has been placed in packaging of any kind, whether sealed or not, without the buyer being present so that the quantity of the product within has been pre-determined.
As a result, the availability of the specified commodity with the following two characteristics would
- It has already been packaged; and
- It must include the declarations in accordance with the Legal Metrology Act of 2009 (1 of 2010) and its implementing rules.
However, for the purposes of the GST charge, such specified commodities would not be considered pre-packaged and labeled if they are provided in a package that does not require any declarations or compliances with the Legal Metrology Act, 2009 (1 of 2010), and the rules made there under.
Under the Legal Metrology Act, 2009, and the rules made thereunder, the supply of specified pre-packaged food articles would be covered by the definition of “pre-packaged commodity” if such pre-packaged and labeled packages contained a quantity up to 25 kilograms [or 25 liters] in accordance with rule 3(a) of the Legal Metrology (Packaged Commodities) Rules, 2011, subject to other exceptions.
- What is the extent of this coverage, taking numerous exclusions offered by the Legal Metrology Act and the rules adopted thereunder into consideration?
Rule 3(a) of Chapter-II of the Legal Metrology (Packaged Commodities) Rules, 2011, states that packages of such commodities (food products such as pulses, cereals, flour, etc.) do not need to be declared in accordance with rule 6 of the rules. Therefore, where the pre-packaged product is supplied in containers containing a quantity of less than or equal to 25 kilograms, GST would be applicable on such specified commodities.
An example would be the 25 kg supply of pre-packaged Atta intended for retail sale to the final consumer, which would be subject to GST. However, the sale of a pack weighing 30 kg must not be subject to GST.
Therefore, it is made clear that a single package of these commodities [cereals, pulses, flour, etc.] comprising a quantity of more than 25 Kg/25 liters would not fall within the category of a pre-packaged and labeled commodity for GST purposes and would, therefore, not collect GST.
- If a package that comprises multiple retail packages would be subject to GST. Suppose a box included ten retail flour bags, each weighing ten kilograms?
Yes, GST would be applicable to such a supply if many packages offered in a bigger pack are intended for retail sale to the final consumer, such as 10 packages of 10 kg each. A manufacturer might sell this package through a distributor. These 10 Kg individual packets are intended for potential retail consumer sale.
However, even though rule 24 of the Legal Metrology (Packaged Commodities) Rules, 2011, requires specific declarations to be made on such wholesale packages, a package of saying rice containing 50 Kg (in one individual package) would not be considered a pre-packaged and labeled commodity for the purposes of the GST levy.
- When would GST become effective on such supplies, i.e., would GST be applicable to certain items sold by a manufacturer or producer to a wholesaler who then sells them to a retailer?
Any time someone supplies these things, such as a producer supplying a distributor, a distributor/dealer supplying a retailer, or a retailer supplying a single consumer, GST would be applicable. In addition, the producer, wholesaler, or retailer would be eligible for an input tax credit on the GST that his supplier charged in accordance with the GST’s provisions for input tax credits.
A provider who uses a composition or threshold exemption scheme is entitled to the appropriate exemption or composition rate in the normal way.
- If a retailer buys these goods in bundles up to 25 kg/25 liters, is there tax due if the retailer sells them loose in his shop for whatever reason?
When these products are offered in pre-packaged and labeled packs, GST is applicable. So, when a distributor or manufacturer sells a packed and labeled item to such a retailer, GST would be applicable. The item is not a packaged commodity for the purposes of the GST levy if the retailer delivers it in loose quantity from the package for whatever reason.
- Whether tax is due if these packaged goods are sold to institutional or industrial consumers for consumption?
By virtue of rule 3(c) of Chapter II of the Legal Metrology (Packaged Commodities) Rules, 2011, the supply of packaged commodities for consumption by industrial consumers or institutional consumers is not subject to the Legal Metrology Act. Therefore, it will not be regarded as pre-packaged and marked for the purposes of the GST levy if delivered in a way that qualifies for the exclusion specified under the aforementioned rule 3(c).
- Would it still be regarded as pre-packaged and labeled and therefore subject to GST if “X” is a rice miller who sells packages containing 20 kg of rice but does not make the required declaration under the Legal Metrology Act and the Rules made thereunder (despite the fact that the said Act and the rules require him/her to make a declaration)?
According to the Legal Metrology (Packaged Commodities) Rules of 2011, such packages would be regarded as pre-packaged and labeled commodities for GST purposes (rule 6 thereof). Consequently, miller “X” would have to pay GST on the supply of such a package (s).
Other relevant issues:
The criteria for exclusion (as indicated above) are prescribed by the Legal Metrology Act and the rules established thereunder, while certain exemptions are provided under rule 26 of the Legal Metrology (Packaged Commodities) Rules, 2011. Therefore, it is underlined that an item must not be regarded as a pre-packaged commodity for the purposes of the GST levy if it is delivered in a way that qualifies for exclusion or an exemption.
From the foregoing, it is clear that in certain situations, such as when goods are supplied to industrial or institutional users or when the package weighs more than 25 kg or 50 kg, GST is not applicable to the supply of pre-packaged and labeled goods. GST would therefore be applicable to all supplies made by manufacturers to distributors, wholesalers, dealers, retailers, and consumers. It is important to remember that if a manufacturer, dealer, distributor, or retailer is registered for GST and does not use the composition system, they are eligible for an input tax credit on the GST that was charged by their supplier.
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