New Delhi: The Finance Ministry has clarified that food packages of items like pulses, cereals, rice and flour of less than 25 kg would be considered 'pre-packaged and labelled' and attract 5 per cent GST while packs of more than 25 kg would not attract the levy.
In line with the decisions of the 47th GST Council meeting chaired by Finance Minister Nirmala Sitharaman, a 5 per cent GST has been imposed on a wide range of ‘pre-packaged and labelled’ food items starting July 18.
Accordingly, items such as curd, lassi, puffed rice etc. when “prepackaged and labelled” would also attract GST at the rate of 5 per cent.
For the applicability of 5 per cent GST, the Ministry said that food packets will be considered 'pre-packaged and labelled' in accordance with the provisions of Legal Metrology Act.
"Accordingly, GST would apply on such specified goods where the pre-packaged commodity is supplied in packages containing quantity of less than or equal to 25 kilogram," the Ministry said.
Giving an example, the Ministry said that supply of pre-packed atta meant for retail sale to ultimate consumer of 25 kg shall be liable to GST. However, supply of such a 30 kg pack thereof shall be exempt from levy of GST.
"Thus, it is clarified that a 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," it clarified.
It may be noted that earlier only branded and packed food items like rice and flour attracted GST while unbranded items were out of the ambit of new indirect tax.
In order to be exempted from the GST, many small firms that earlier sold 'branded and packed' items removed their brands. Now, with the change in GST rule, unbranded items would not be exempted from GST. This will lead to higher prices of many essential items for consumers.
While the government has done away with exemption to bolster collection, AMRG & Associates Senior Partner Rajat Mohan has apprehensions that collection may actually go down as bigger players selling in bulk would be out of the 5 per cent GST net.
"The government has clarified that food packets of more than 25 kg would be tax free while packs of less than 25 kg would be taxed. Because of this, instead of collection going up, which the government wanted, it may come down as bigger players like Reliance, Adani and Daawat would be exempted as they are into institutional sales. So, only retail packs have been taxed. Wholesale packing is exempted. I believe it was not the intention of the government," said Mohan.