State Finance Minister K N Balagopal told the Kerala Assembly that the decision might lead to issues with the central government but the state was not ready to compromise.

"At any rate, in Kerala we don't intend to tax items which are sold by organisations like Kudumbashree or in small stores in 1 or 2 kg packets or in loose quantities. Even if this will lead to issues with the Centre," Balagopal told the Assembly. "We are not ready to compromise on this. We had already said this there."

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He said the state government has already written to the Centre regarding its stand.

"Yesterday too, the CM wrote to them regarding these things. We don't intend to levy it on small-scale traders and small stores. There can be no argument on this," Balagopal added.

Kerala government's Kudumbashree, a women self-help group, is considered one of the largest women empowerment projects in the country. It's engaged in ventures such as running of small-scale food processing units, and various others.

Balagopal said the branded companies have to pay a tax of 5 per cent on packaged products, but if they mention in the packaging that they are not "claiming the brand" then it is not taxed.

"So they (centre) have brought in the rule to catch such companies... but there is still some confusion prevailing over this," he added.

Kerala Chief Minister Pinarayi Vijayan has sought an urgent intervention of Prime Minister Narendra Modi on the issue of the imposition of GST on essential commodities, arguing the move will severely affect the common people.

Vijayan pointed out that many small shopkeepers and millers pre-pack and keep the items ready for sale so that the customers can readily purchase them off the shelf rather than spend time getting the items weighed and packed.

In the letter, Vijayan said such pre-packing is a common practice in most of the retail shops in Kerala and the present change will have an adverse impact on the large number of ordinary customers who frequent these shops for their essential purchases.

On 19 July, Union Finance Minister Nirmala Sitharaman released a list of items that will not attract any GST, when sold loose, and not pre-packed or pre-labeled.

Defending the imposition of 5% GST on food articles such as cereals, rice, flour and curd, which are pre-packaged and labeled, FM Sitharaman said that it was a unanimous decision of the GST Council last month in which even non-BJP ruled states were present.

Sitharaman further said the council recommended reconsidering the approach for the imposition of GST on specified food items like pulses, cereals, flour etc.

Sitharaman said that certain items including pulses/daal, wheat, rye, oats, maize, rice, aatta/flour, suji/rawa, besan, puffed rice, curd/lassi when sold loose and non pre-packed or pre-labeled, will not attract any GST.