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
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.
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