GST on pre-packaged goods and food packets: Blame states claiming revenue loss, says official

It was considered by the Fitment Committee, which includes officers from several states and the federal government. It was also proposed by a group of ministers (GOM) comprised of minister representatives from several states, and lastly by the GST council, according to Revenue Secretary Tarun Bajaj.

Team Newsable

New Delhi, First Published Jul 24, 2022, 4:27 PM IST | Last Updated Jul 24, 2022, 4:27 PM IST

GST on pre-packaged goods/ food packets was levied after some states gave feedback of losing revenues they previously earned from levy of VAT on food items, a top government official said. The GST Council, not the Union government, made the decision to levy the tax, which went into force on July 18.

Overall, the GST Council, the country's new constitutional framework for making GST decisions, reached an agreement on the tax's rate, he added. He stated that the panel, which is chaired by the Union Finance Minister and includes members from all states and union territories, makes decisions when everyone is on board.

Also Read | Pre-packed, labelled flour, pulses less than 25kg to attract 5% GST

However, when sold loose and without pre-packaged or labelled, pulses, wheat, rye, oats, maize, rice, flour, suji, besan, puffed rice, and curd/lassi are exempt from GST. The remarks come after opposition parties headed by the Congress delayed Parliament's functioning in the first week of the monsoon session over the imposition of GST on everyday commodities and other problems.

"This (tax on basics) existed in several states prior to the implementation of GST (on July 1, 2017) during the VAT system." States were making money (from levying VAT on food items). When the new goods and services tax (GST) system was introduced in 2017, it was expected that it would continue, but it was only charged on branded products when regulations and circulars were issued," Bajaj explained.

"I won't mention names, but extremely well-known brands in the nation were not paying taxes because of this particular loophole." And this was causing an arbitrage since 5% is a large margin in an FMCG product like pulses or rice, which are identical," he explained.

Also Read: From curd, rice to hotel booking; know what will get costlier from July 18

"States also told us that before GST, we used to get a lot of money and that we should do something. As a result, people started abusing it. Secondlu, states told us they were losing money on it and not collecting the income they used to earn before the GST regime," he added.

"So the Fitment Committee (made up of central and state authorities) met and solicited opinions. The Group of Ministers (from several states) then met and received input. The Council then deliberated on it. So there was a deliberate choice... it was a unanimous... consensus conclusion," he remarked.

While states run by non-BJP parties were party to the Council's decision to impose the tax last month in Chandigarh, many demonstrations against the levy occurred just before Parliament's monsoon session was to begin.

Also Read | Congress MPs stage protest with curd packets inside Rajya Sabha

On July 19, Union Finance Minister Nirmala Sitharaman claimed that states collected sales tax or VAT on foodgrains prior to the Goods and Services Revenue (GST) system, and that the current levy on cereals, pulses, flour, curd, and lassi is an effort to reduce tax leakage. Officers from Rajasthan, West Bengal, Tamil Nadu, Bihar, Uttar Pradesh, Karnataka, Maharashtra, Haryana, and Gujarat served on the Fitment Committee, which initially investigated the matter. Its proposals were reviewed by a Group of Ministers comprised of representatives from West Bengal, Rajasthan, Kerala, Uttar Pradesh, Goa, and Bihar, and chaired by Karnataka's chief minister.

(With PTI Inputs)

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