Industry trackers say that the low cost pens have high price elasticity and slightest increase in the cost results in disproportionate reduction in sales.

Pen manufacturers have reached out to the government seeking a reduction in Goods and Services Tax as higher taxes have escalated costs and hit sales after the government recently clubbed all pens under the 18% GST bracket.

Earlier, only fountain pens and stylograph pens fell under the 18% GST category, while ball point pens were taxed at 12%.

Industry trackers say that the low cost pens have high price elasticity and slightest increase in the cost results in disproportionate reduction in sales.

"Pen industry has been badly hit during the pandemic and has not recovered as schools and offices are not yet fully operational. This additional tax burden will give further irreversible pain to the Indian manufacturers," said Rajesh Rathod, President, Writing Instruments Manufacturing Organisation (India).

Two associations—Tamil Nadu Pen Manufacturers and Vidarbha Pen and Stationers Associations—have written to the finance ministry in this regard.

The government recently said that beginning October this year all pens will be taxed at 18%.

All pens including ballpoint pen, felt tip, other porous tip pens, markers, pen holders, pencil holder, similar holders including caps and clips now fall under 18%.

Tax experts say that the rate increase could also lead to litigation going ahead.

"While rate rationalisation and fixing the tax rate is a policy issue, the constitutional validity of the change of tax in the instant case cannot be ruled out due to various principles related to cooperative federalism and right to education in the constitution" said Abhishek A Rastogi, partner at Khaitan & Co, a law firm.

The government has been trying for rate rationalisation under GST, say industry trackers.

This means that from currently four GST rates the government hopes to move towards lesser tax brackets in a hope to reduce litigation.

Most of the litigation or confusion in the indirect tax ruling is mainly due to product categorisation and which tax bracket—5%, 12%, 18% or 28%-- the goods or service should fall under.

This exercise seems to have impacted the low end pen manufacturers.

"It is hoped that the GST council brings the rate on pens at par with pencils (12 percent) which will relieve the pain of both manufacturers and students," said Rathod.