5% GST Likely on Pack­aged Food Await­ing Trade­mark

Ap­pli­ca­tion for ap­proval to be treated akin to branded prod­uct; coun­cil to take up is­sue on Sept 9

The Economic Times - - Economy: Macro, Micro & More -

Deepshikha Sikar­war & Mad­hvi Sally

New Delhi: Pack­aged food prod­ucts sold un­der names that are yet to re­ceive trade­mark con­fir­ma­tion could at­tract a goods and ser­vices tax (GST) rate of 5%, ending the ex­emp­tion they en­joy now.

The GST Coun­cil is likely to treat brands for which a com­pany has al­ready made an ap­pli­ca­tion for a trade­mark akin to a branded prod­uct to plug mis­use of the pro­vi­sion by com­pa­nies to stay ex­empt.

“We are look­ing at op­tions... Ap­plied for trade­marks could be treated as trade­marks, which face GST rate of 5%," said a gov­ern­ment of­fi­cial. “Those that en­joyed the sta­tus of a regis­tered trade­mark on May 19 would also face the rate of 5%.” The gov­ern­ment will likely take up the is­sue at the next GST Coun­cil meet on Septem­ber 9.

Be­sides, the def­i­ni­tion un­der the ear­lier cen­tral ex­cise regime could be in­cor­po­rated in the new tax. Un­der this def­i­ni­tion, ‘brand name’ or ‘trade name’ means just that, whether regis­tered or not, and goes on to de­tail what constitutes either.

The ex­emp­tion was al­lowed fol­low­ing concerns raised by some state gov­ern­ments that in­clud­ing pack­aged food with logos could cover smaller traders who sell their own pack­aged food ar­ti­cles, hurt­ing their busi­ness.

This prac­tice is also fol­lowed by large re­tail chains that sell in-house pack­aged prod­ucts with­out regis­tered trade­marks and are claim­ing ex­emp­tion from GST.

State and cen­tral gov­ern­ment of­fi­cials tak­ing an­other look at the norms are now think­ing of putting in place a strin­gent frame­work af­ter re­ports that some lead­ing com­pa­nies were pass­ing off hith­erto es­tab­lished brands as un­reg­is­tered trade­marks to claim ex­empt sta­tus. One lead­ing bas­mati com­pany said its pop­u­lar brand of rice fell in the ex­empt bracket as it was not a regis­tered trade­mark and also sought to dereg­is­ter some that were al­ready regis­tered.

Cer­tain goods such as cot­tage cheese or pa­neer, nat­u­ral honey, wheat, rice, other ce­re­als, pulses, flour of ce­re­als and pulses other than those sold in unit con­tain­ers and bear­ing a regis­tered brand name, at­tract zero GST. But they at­tract 5% GST in a unit con­tainer and bear­ing a regis­tered brand name.

“To put th­ese dis­putes at rest, the gov­ern­ment should con­sider us­ing the def­i­ni­tion of 'brand' un­der ex­cise laws for SSI (small-scale in­dus­try) pur­poses, which was not linked with regis­tra­tion un­der trade­mark laws. It is a well-es­tab­lished con­cept which can be used un­der GST laws as well,” said Pratik Jain, in­di­rect tax leader, PwC. Some com­pa­nies sell­ing bas­mati rice are among those look­ing to avoid the 5% GST. One has changed the spell­ing of its brand while an­other has added the owner’s pic­ture to the brand.

The .₹ 6,000-crore bas­mati rice in­dus­try pegs the over­all loss to cen­tral and state gov­ern­ments from such prac­tices at .₹ 250-300 crore.

“We be­came less com­pet­i­tive visa-vis other brands which had ap­pli- ed for regis­tra­tion but not ap­proved due to tech­ni­cal rea­sons like In­dia Gate, Aero­plane, Hello and Unity,” said Ku­nal Dhawan, man­ag­ing di­rec­tor, Amritsar Rice­land. “They didn’t have to pay 5% GST like I did. In July, we were able to sell only 1,000 tonnes rice com­pared with the av­er­age monthly sale of 2,500 tonnes. Hence we had to change our brand name.”

Dhawan said dis­trib­u­tors and whole­salers had told him that his prod­uct was costlier than oth­ers and sales could fall fur­ther. “Only for bulk pack­aged bas­mati rice to be sold to ho­tels and restau­rants who ac­count to 60-70% of our cus­tomer we changed the brand name from Wa­gah to Wagha in mid-July,” he clar­i­fied, ad­ding that he will wel­come any de­ci­sion that pro­vides a level-play­ing field for all.

Kar­nal-based KS Over­seas, which sells un­der the Dou­ble Chabi brand, added the pic­ture of pro­moter Bri­jb­hushan Goyal.

Any rice in printed packs as per Food Safety and Stan­dards Author­ity of In­dia stan­dards will at­tract GST and that sold in plain bags with­out any brand will not, said Vi­jay Se­tia, pres­i­dent, All In­dia Rice Ex­porters As­so­ci­a­tion.

rain­fall re­ceived over the coun­try since June 1

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