70% flour mills face closure threat
About 1,400 mills across the country are processing wheat for selling in loose with some private label
About 1,400 of the 2,000 registered flour mills in the country are facing the prospect of closure after the expansion of the goods and services tax (GST) ambit to all branded food products.
Earlier, the GST Council had announced “nil” duty on “loose and registered but without trademark” branded packs, which prompted many registered trademark brands to surrender their licences to escape the tax net. These mills neither registered their brands with the local or national authorities, nor received any trademark. They, however, continued to sell their products under a brand, which they claim to be a local one.
Seeking to curb the surrender of licensed brands by flour mills, the GST Council clarified on September 9 that “brands registered as of May 15, will be considered for a 5 per cent GST irrespective of whether or not such brands are subsequently deregistered”. The Council further clarified that even brands registered under the Copyright Act, 2017, would attract a 5 per cent tax.
“The clarification brings all brands under the GST levy of 5 per cent with the retrospective effect from July 1, the date of implementation of the GST. Since flour mills have already sold their product with ‘nil’ duty, it is difficult to collect the GST on the products they have already sold to consumers. If not, then they would have to pay the GST from their pocket, forcing at least three-fourths of flour mills to shut down,” said D Manikchand Gadiya, managing director, North Karnataka Roller Four Mills, which sells besan (gram flour), atta (flour) and maida (wheat flour) under “Diamond” brand.
About 1,400 mills across the country are processing wheat for selling in loose with some private label. Since the Food Safety and Standards Authority of India (FSSAI) has mandated to print details of ingredients along with contact details of the manufacturers and distributors on the packet, printing these details is treated as “actionable claim”. This means consumers can approach the manufacturers and distributors for claiming damages in case of any quality deterioration.
“We are not sure whether the applicability of the GST rate is with the retrospective effect from July 1. We would await a clarification on the same. If the GST is made effective from July 1, it would be very difficult for mills to sustain. The industry wants a clear definition of branded and unbranded products,” said Veena Sharma, secretary, Roller Flour Millers Federation of India.
Industry sources estimate around 2,000 roller flour mills working across the country, of which 600 may have registered trademarks. The remaining 1,400 roller flour mills are engaged in the production of atta, maida, and besan for selling in loose for bread and other processed food manufacturers.
In a letter addressed to Prime Minister Narendra Modi, Manikchand said ,“It is impossible to survive with a 5 per cent GST as these local brands do not carry any premium over loose products. These are sold in small packets, which are easier for transport and handling for both producers and consumers. The name on the packet is just an identification of the packet. Hence, a clarification is needed whether a trademark holder can also produce non-registered brand.” Many flour mills have shut down due to the viability issue, he added.