Representation Letter to CBIC seeking clarification on GST on per-packaged labelled food items

Date: July 16, 2022

To,
The Chairman,
Central Board of Indirect Taxes & Customs, New Delhi

Respected Sir,

Sub: Clarification required for GST on 'pre-packaged & labelled' goods

The 47th GST Council meeting was held on 28th/29th June, 2022 at Chandigarh, coinciding with the 5th anniversary of the introduction of GST in India. Among several decisions taken, an important decision was taken regarding withdrawal of exemptions on specified food items, grains etc.

Currently, the specified food items like wheat, rice, cereals, meslin, rye, barley, oats, maize, certain flours, cheese, paneer, natural honey, certain meat, certain fish, etc. are exempt from GST if they are not supplied under any 'registered brand name' or are supplied under a brand name on which the actionable claim or enforceable right in the court of law is foregone by filing an affidavit and printing disclaimer on unit container to that effect.

The relevant part of the Press Release (ID: 1838020) dated 28/06/2022 for withdrawal of exemptions is extracted below:

"C Withdrawal of exemptions [Approval of recommendations made by GoM on rate rationalization]

C1.     Hitherto, GST was exempted on specified food items, grains etc when not branded, or right on the brand has been foregone. It has been recommended to revise the scope of exemption to exclude from it pre-packaged and pre-labelled retail pack in terms of Legal Metrology Act, including pre-packed, pre-labelled curd, lassi and butter milk."

The intension of the GST Council is very clear to bring to tax only retail pack in terms of Legal Metrology Act and to exempt the large packs.  To give effect to the above decision, the Government of India has issued Notification No. 6 & 7/2022-Central Tax (Rate) dated 13/07/2022 (making amendments in the Notification No. 1 & 2/2017-Central Tax (Rate) dated 28/06/2017 respectively) wherein the specified food items other than pre-packaged and labelled is exempted from GST. The new rates are coming into effect from 18th July, 2022.

As per the notifications, the erstwhile concept of branded/unbranded and registered/unregistered  brand of food items has been replaced with the expression 'Pre-packaged and labelled'. From the effective date, i.e. 18/07/2022 onwards, GST is payable on the specified food items if 'pre-packaged and labelled' and exempted from tax if other than 'pre-packaged and labelled'. Therefore, the expression 'pre-packaged and labelled' is of utmost importance to know if GST is exigible on such goods. This expression is defined in the Explanation to the notification as:

The expression 'pre-packaged and labelled' means a 'pre-packaged commodity' as defined in clause (l) of section 2 of the Legal Metrology Act, 2009 (1 of 2010) 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 (1 of 2010) and the rules made thereunder.'.

Section 2(l) of the Legal Metrology Act, 2009 (hereinafter referred as LMA) defines pre-packaged commodity as ""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."

In simple words, GSTsathi is of the view that the taxability or exemption is dependent on the following conditions:

1. The commodity is placed in a package without the presence of the purchaser in a pre-determined quantity, and
2. The package can be of whatever nature, either retail pack or wholesale pack, and
3. The package may or may not be sealed, and
4. 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 LMA or rules thereunder;

Now it is imperative for us to understand the requirement of declarations in the pre-package commodity under LMA. Section 18(1) of the Legal Metrology Act, 2009 deals with the said declarations which is self-explanatory and is reproduced below:

"18. Declarations on pre-packaged commodities.-

(1) No person shall manufacture, pack, sell, import, distribute, deliver, offer, expose or possess for sale any pre-packaged commodity unless such package is in such standard quantities or number and bears thereon such declarations and particulars in such manner as may be prescribed."

It is important to note that the requirement for mandatory declaration is applicable to both retail & wholesale package.  The rules for declarations and other related matters are prescribed under Legal Metrology (Packaged Commodities) Rules, 2011 (hereinafter referred as LMPCR or simply Rules). The Rules are divided in various chapters and Chapter II is applicable for Retail Package whereas Chapter III is applicable for Wholesale Package. Declaration for retail packages is given under Rule 6 and declaration for wholesale packages is given as per Rule 24 of the Rules.

Now let us discuss the Rules for Retail Package & Wholesale Package and declaration thereon.

What is Retail Package?

Retail Package is defined in Rule 2(k) as the packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of the commodity contained therein and includes the imported packages. In other words, any package which is bought by an ultimate consumer for consumption is a retail package. Chapter II of the Rules deals with Retail packages. Rule 3 of the LMPCR has excluded few packages from the applicability and is reproduced below:

"CHAPTER – II

Provisions Applicable To Packages Intended For Retail Sale

3. Application of Chapter. – The provisions of this chapter shall not apply to-

(a) packages of commodities containing quantity of more than 25 kilogram or 25 litre;

(b) cement, fertilizer and agricultural farm produce sold in bags above 50 kilogram; and

(c) packaged commodities meant for industrial consumers or institutional consumers"

In simple words, the provisions of Chapter II of the Rules relating to retail package are not applicable to packages exceeding 25Kg or 25 Litre, and in case of cement, fertilizer and agricultural farm produce sold in bags exceeding 50Kg, and when the retail packages are meant for industrial consumers or institutional consumers.

For sake of brevity, let's say that any retail package exceeding 25kg/25L and in case of agricultural farm produce like wheat, maize, etc sold in bag exceeding 50Kg is called 'Large Retail Package.' Please note that package above 25 Kg/L is still a retail package but only exempted from making mandatory declaration on the package.

In other words, a large retail package is excluded from mandatory declaration on such package by virtue of Rule 3 and apparently fails to satisfy condition for 'pre-packaged and labelled'. Therefore, the same is apparently exempted from tax. But before reaching the conclusion, we should analyse about wholesale package and declaration regarding the same.

Wholesale Package is defined in Rule 2(r) of LMPCR as

"wholesale package means a package containing- (i) a number of retail packages, where such first mentioned package is intended for sale, distribution or delivery to an intermediary and is not intended for sale direct to a single consumer; or

(ii) a commodity sold to an intermediary in bulk to enable such intermediary to sell, distribute or deliver such commodity to the consumer in similar quantities; or

(iii) packages containing ten or more than ten retail packages provided that the retail packages are labeled as required under the rules."

The provisions regarding declarations as applicable to wholesale packages is extracted below:

"CHAPTER III:

Provisions Applicable To Wholesale Packages

24. Declarations applicable to be made on every wholesale package. – Every wholesale package shall bear thereon a legible, definite, plain and conspicuous declaration as to –

(a) The name and address of the manufacturer or importer or where the manufacturer or importer is not the packer, of the packer;

(b) the identity of the commodity contained in the package; and

(c) the total number of retail package contained in such wholesale package or the net quantity in terms of standard units of weights, measures or number of the commodity contained in wholesale package;

Provided that nothing in this rule shall apply in relation to a wholesale package if a declaration Similar to the declarations specified in this rule, is required to be made on such wholesale packages by or under any other law for the time being in force."

Therefore, from the combined reading of rules for both types of packages, it is possible to interpret that even though Large Retail Package is excluded from making declaration under Rule 6 for retail pack, it is still getting covered for mandatory declaration under Rule 24 as applicable to wholesale package. The question is can the same package be simultaneously considered as retail package as well as wholesale package?

In other words, though the intention of the government is to bring to tax only food items in retail pack of up to 25Kg/L, but the Large Retail Pack is also getting taxable and needs immediate clarification.

Further, Rule 26 has exempted from declaration, any package wherein the net weight or measure of the commodity is 10 gram or 10 millilitre or less and any package containing fast food items packed by restaurant or hotel and the like. So, if any package (whether retail or wholesale)

In this background, you are requested to clarify the points as mentioned below:

1. 'A' is a manufacturer of specified goods liable to tax if 'pre-packaged and labelled'. The retail packing is done by 'A' in above 25Kg packs (say 30Kg) and sold in the market through supply chain of distributor, dealer/retailer to final consumer. Whether GST is exempted?
2. In the above example, whether exemption is available at every stage of supply from manufacturer to distributor, distributor to dealer/retailer and then from dealer/retailer to final consumer?
3. In the example 1, what if the packing is done in bag of 100Kg?
4. In the above all examples, will it make any difference if the said commodity is sold to an intermediary in bulk to enable such intermediary to sell, distribute or deliver such commodity to the consumer in similar quantities?
5. In above examples, whether exemption is available if the goods are supplied under registered brand name?
6. 'X' a rice miller sells packages containing 20 kg rice but nothing has been printed on the package (although the LM Act mandatorily requires him to make declaration), would it still be considered as pre-packaged and labelled and therefore liable to GST? What if the package contains 'wheat; instead of rice?
7. In the above example 6, what if the packing is in bags of 50Kg or 100Kg?
8. If the packaging contains a declaration 'not for retail sale' and the goods are purchased by industrial or institutional consumer for self-use, whether exemption is available? What are the conditions to be followed, if any?
9. Whether exemption is available if the goods are packed in each 10gm/10ml or less pack? What if the said packs are contained in say cartoon of 100 each packs?
10. Any other clarification which the Board thinks fit and necessary.

It is suggested that besides issuing a circular, it would be more beneficial if the definition of 'pre-packaged and labelled' is delinked to the Legal Metrology Act, 2009 and the intention is reflected in simple terms in the GST notification itself. It will help reduce litigations.