CBIC clarifies ambiguity on GST on prepackaged goods

According to the new rule, such prepackaged and labelled items up to 25 kg will attract a GST of 5 percent whereas such specified unbranded pre-packed or labelled food items weighing above 25 kilograms from 5 percent Goods and Services Tax (GST).

On Sunday, the Central Board of Indirect Taxes and Customs (CBIC) on Sunday to clear doubts on GST applicability.

GST applies when such goods are sold in pre-packaged and labelled packs. Therefore, GST would apply when pre-packaged and labelled package is sold by a distributor/ manufacturer to such retailer.

However, if for any reason, retailers supply these items in loose quantity from such packs, such supply by retailers is not a supply of packed commodity for the purpose of GST levy, the FAQ said. Hence, items from the 25-kg pack sold loose to customers will not attract 5 percent GST.

If several packages intended for retail sale to the ultimate consumer, say 10 packages of 10 Kg each, are sold in a larger pack, then GST would apply to such supply. Such a package may be sold by a manufacturer through a distributor.

“Those who come under the purview of this tax will get input credit of the given tax, while there will be no tax on giving loose goods. Therefore, the implication of the tax remains on a section of the traders,” CAIT said in a statement.

For instance a package of rice containing 50 Kg would not be considered a pre-packaged and labelled commodity for the purposes of GST levy, even if rule 24 of Legal Metrology (Packaged Commodities) Rules, 2011, mandates certain declarations to be made on such wholesale items.

The CBIC also clarified that packaged commodities supplied for consumption by industrial consumers or institutional consumers are excluded from the purview of the Legal Metrology Act. Therefore no GST will be attracted to this.

In case a manufacturer is supplying to distributor, to dealer and to retailer then GST will be applicable to it but the manufacturer/wholesaler/retailer would be entitled to input tax credit on GST charged by his supplier in accordance with the Input Tax Credit provisions in GST.

The clarification came after many businesses said that the notification issued by the CBIC has left much ambiguity and may be subject to multiple interpretations.

The Finance Ministry has notified GST rates for various goods sold as pre-packaged and pre-labelled beside others, which was decided by the 47th GST council meeting held in Chandigarh.

The notification, said that “expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (l) of section 2 of the Legal Metrology Act, 2009.

Under the Legal Metrology Act “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.

The changes made by the government are in “modalities of imposition of GST on branded specified goods to “pre-packaged and labelled” specified goods,” CBIC noted.

The expression ‘pre- packaged and labelled’ means the pack in which the food item is packed or carries a label is required to bear the declarations under the provisions of the Legal Metrology Act.