GST on Food Items: Pre-packed and Labeled Retail Packs of Food Items

The GST or Goods and Services Tax in India has evolved greatly since it was first imposed, especially towards the tax rates applied on food. A significant change made on July 18, 2022, was the criteria on which the GST on pre-packaged and labelled food products got redefined. This article analyses the details of this change and its effects on consumers and businesses and seeks to answer some pertinent questions.

Evolution of GST on Food Items

Taxes were imposed on particular goods whose brand names were registered or sold in unit containers before the 18th of July 2022. GST did not apply to items that were sold loosely or unbranded. Now, however, the amendment has changed that and shifted the focus from branding to the type of packaging and labelling. Goods that fall under “pre-packaged and labelled” as stated in the Legal Metrology Act of 2009 now attract GST. Every amendment made to the system is to make more products acceptable under GST and eliminate confusion over taxation.

Defining 'Pre-Packaged and Labeled'

For GST reasons, the phrase ‘pre-packaged and labelled’ fits with the term ‘pre-packaged commodity’ in the Legal Metrology Act of 2009. Section 2(l) of the Act defines a pre-packaged commodity as one that is packed in advance of the sale and contains a specified amount of the product. Additionally, such packages must contain specific declarations as required under the Legal Metrology (Packaged Commodities) Rules, 2011. These regulations broadly interpret pre-packaged and labelled to mean food products that are packed in advance in specific amounts and labelled for sale, thus subject to GST.

Scope and Exclusions

There are requirements regarding the availability of GST for food items that come pre-packaged or labelled:

Quantity Exemption: There is no GST applied for packages that exceed a pound of 25 kilograms or 25 litres. This means there is no GST for bulk supplies that are typically for institutional or industrial consumers. As an example, a sack of rice weighing 30 kg sold to a restaurant would not have an added tax, while a 10 kg bag sold to a household would have GST.

Retail Packs: GST is charged if the further breakdown of a larger package into multiple retail packs is done for individual sales. For instance, a taxable wholesale pack that includes flour will be taxed if it contains 10 1 kg packets.

Targeted Consumers: The Rule 3 sub-clause of the Legal Metrology (Packaged Commodities) Rules, 2011, stipulates that supplies that are directed and intended towards industrial or institutional consumers are not taxable. These consumers shop for further processing or use and not for retail sale, hence, they do buy in bulk.

Implications for Businesses

Businesses involved with food products should evaluate their stock levels and packaging strategies:

Repackaging Strategies: To serve both exempt and liable GST categories, companies may consider selling bulk packs greater than 25 kg for large buyers and smaller packages for retail customers.

Compliance with Labelling Norms: All pre-packaged goods must conform to the labelling provisions of the Legal Metrology Act. Any breaches of this law would incur strict penalties and GST liabilities.

Input Tax Credit (ITC): All businesses registered under the GST provision receive ITC for taxes paid for inputs, thus facilitating a reduction in the overall tax burden.

Implications for Consumers

For the average consumer, this change is likely to affect them in the following ways:

Changes to Price: There may be a small price increase on picked food goods that include GST.

People who buy in bulk (over 25 kg/litre) might save money as these packages are not taxed.

Clarity: Accurate labelling protects the consumer by clearly stating how much is product is offered, who produced the item, and the price for the item, thus helping them make the right choices.

Conclusion

The shift of GST over food items from branded to packaged goods is an attempt towards creating a more unified system of taxation. Both businesses and consumers need to remain vigilant and responsive to these changes to meet their regulatory obligations and enhance their financial positioning. It is good to check official notifications for GST and updates in the Legal Metrology Act for more information.

FAQs

1. What constitutes a 'pre-packaged and labelled' commodity?

A product is classified as a commodity when it’s offered for sale in a pre-determined form, quantity, and packaging, and it is accompanied by all necessary labels required by the Legal Metrology Act.

2. Are all prepackaged food items subject to GST?

No, only the packages which weigh less than 25 kilograms in weight and litres in volume that are specified for retail sales are taxable. If the packages are more than that or are meant to be used by industries or institutions, then they are not taxable.

3. Does GST apply if a retailer repackages bulk items into smaller packets?

Sure, once a bulk package is opened and repackaged into smaller units for sale, these smaller packets, if pre-packaged and labelled, attract GST.

4. How does this affect small businesses and local Kirana stores?

Small companies should ensure that they comply with the rules regarding packaging and labelling. Businesses that go above the set turnover limit must register for GST, but those that fall under that limit can continue business operations but must follow the new packaging norms to steer clear of penalties.

5. Are there any exemptions for certain food items?

The GST Council holds meetings regularly to make changes to exempt items. As always, be sure to check the newest updates or reach out to a suitable professional for granular details on particular items.