Finance Minister Nirmala Sitharaman on Tuesday said the 5% Goods and Services Tax (GST) levied on items such as cereals, pulses and flour was approved by the GST Council after a nod from all states, countering criticism over the new impost on labelled and unbranded pre-packaged foodstuff.
She, however, clarified that 11 items when sold loose, and not pre-packed or pre-labelled, won’t attract GST. Sale of such items may therefore see rise in demand, she said.
The items that will not attract GST when sold loose include pulses, wheat, oats, maize, rice, flour, suji, besan, puffed rice and curd.
“All states, including non-BJP states (Punjab, Chhattisgarh, Rajasthan, Tamil Nadu, West Bengal, Andhra Pradesh, Telangana, Kerala) agreed with the decision. This decision of the GST Council is yet again by consensus,” Sitharaman said in a series of tweets.
Further, the group of ministers that recommended these changes was composed of members from West Bengal, Rajasthan, Kerala, Uttar Pradesh, Goa and Bihar and was headed by the Karnataka chief minister. “It carefully considered this proposal, taking into account the tax leakage,” she said.
When GST was rolled out, a tax rate of 5% was made applicable on branded cereals, pulses, and flour. Later, this was amended to tax only such items which were sold under a registered brand or brand on which enforceable right was not foregone by the supplier. “However, soon rampant misuse of this provision was observed by reputed manufacturers & brand owners and gradually GST revenue from these items fell significantly,” she said.
“Is this the first time such food articles are being taxed? No. States were collecting significant revenue from foodgrain in the pre-GST regime. Punjab alone collected more Rs 2,000 crore on food grain by way of purchase tax. UP collected Rs 700 crore,” she said.
Sitharaman also cited VAT on rice levied before 2017 in Punjab, Telangana, Uttar Pradesh, Andhra Pradesh, Kerala and Bihar.
Till July 17, unbranded food items such as rice, wheat and pulses were exempt from GST. But when branded, they attracted 5% GST, leading to some companies disowning brand names with a disclaimer to avail the tax exemption.
After two days of deliberations on June 28-29, the GST Council decided to bring a large number of such products, including curd, lassi, buttermilk, paneer, honey, makhana, wheat, rice and puffed rice, under the GST net. Unbranded pre-packaged and labelled food items such as cereals, pulses and flour weighing less than 25 kg/litre attract 5% GST from Monday.
Saurabh Agarwal, Tax Partner, EY India, said, “The FAQ makes it explicitly clear that a single package containing a quantity of more than 25 kg would not be considered a pre-packaged and labelled commodity for the purpose of GST levy even if declarations of the wholesale package are made as per Rule 24 of the Legal Metrology Packaged Commodity Rules, 2011. This is a welcome clarification and reduces GST costs in the industry.”