Dilemma over levy of GST on pre-packaged commodities above 25kgs/ltrs w.e.f. 18-7-2022

1. Currently, GST is leviable on wheat, meslin, rye, barley, oats, maize, rice, millets, wheat flour, cheese, natural honey, curd, lassi, butter milk, dried leguminous vegetables, shelled, etc. which are put up in unit containers and bears a registered brand name or bears a brand name on which actionable claim or enforceable right in a court of law is available.

2. In latter case, exemption is available subject to the condition that such claim or right on brand name has to be foregone. It is important to note that there are many taxpayers who had foregone such rights/claim by filing the declaration before the jurisdictional GST Office as well as giving the disclaimers on such unit-containers/packages, to seek exemption meaning thereby their brand name were open for usage by any other person.

3. However, the litigation continued to remain as even the name of the entity were construed to be the brand name, even though it was a mandate to mention on the packages as per the provisions of Legal Metrology Act and corresponding rules. Though the amendment will halt the ongoing litigation and significantly contribute to revenue but would impact the end-consumers.

4. Now, it has been amended to levy GST on “pre-packaged commodity” which 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. GST effective from 18-7-2022 explains that such “pre-packaged and labelled” means a ‘pre-packaged commodity’ as defined in section 2(l) of 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, 2009 and the rules made thereunder.

5. In simple words, where the commodity on which declaration is required under the provisions of the Legal Metrology Act, 2009 and the rules made thereunder, if the same is either pre-packed or a label is securely affixed. “Label” is defined in section 2(f) of LMA, 2009 which means any written, marked, stamped, printed or graphic matter affixed to, or appearing upon any pre-packaged commodity.

6. The Legal Metrology (Packaged Commodities) Rules, 2011 deals with both retail packages as well as wholesale packages in Chapter II and Chapter III of the said rules respectively and in both types of packages, declaration is required to be given as per rule 6 and rule 24 respectively.

7. Press Release of 47th GST Council Meeting revised the scope of the current exemption with the intent to exclude from it pre-packaged and pre-labelled retail pack in terms of Legal Metrology Act, 2009. “Retail package” is defined in rule 2(k) of the said rules which means the packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of the commodity therein and includes the imported packages. “Retail sale” is defined in rule 2(l) of the said rules which in relation to a commodity, means the sale, distribution o 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. It is further important to note that rules of Chapter II which deals with retail sale applies only on packages of commodities containing quantity of upto 25 kilogram or 25 litre. However, the way in which the “pre-packaged and labelled” has been defined in the notification issued on which GST is effective from 18-7-2022 seems to levy GST even on the packages above 25 kgs or litres which seems to put the trade and industry in dilemma over the applicability of GST on wholesale packages.

8. The amendment will bring at par all the units irrespective of the fact whether the supply is made under the banner of registered brand, brand name having exclusive rights, well known trade mark, or in form of pre-packaged and pre-labelled packages in unbranded form as the only criteria will be whether it is prepackaged or pre-labelled pack or not.

9. Besides it needs to be seen how the rights exercisable in the court of law or actionable claim that has been forgone in respect of the brand name by the taxpayers in order to claim exemptions from GST will be reinstated after the amendment is made to lift up the said exemption.

10. If packages above 25 kgs is kept exempted then ideally it would not pinch much to the end-consumers who procures from grocery shops who in turn purchases packages of above 25 kgs and thereafter supply in loose quantity as the entire chain will remain free from GST. Besides, it wouldn’t make much impact on the restaurant services also as restaurants usually prefers bulk buying.

11. Needless to say, once the exemption is lifted up, taxable persons have to register themselves under GST and do necessary compliance of filing returns including e-waybill.