GST on Branded/ Unbranded Vs. Pre-Packaged and Labelled Commodities || CA Bimal Jain

Summary

This video discusses recent changes to GST laws affecting pre-packaged and branded goods in India, with a focus on packaging, labelling, and taxation rules. Key points include when GST applies to different types of goods, the exemptions for certain package sizes, and the need for legal declarations under the Legal Metrology Act. The video also explains how GST impacts the supply chain, particularly in terms of credit and packaging material, while highlighting new benefits for businesses and consumers alike. Viewers will gain clarity on GST registration, pricing strategies, and handling pre-packaged commodities post-July 2022.

Takeaways

• 😀 The GST exemption on branded and unbranded commodities changed on July 18, 2022. Now, GST applies to both types if they are pre-packaged and labeled.
• 😀 The term 'pre-packaged commodities' refers to goods that are packaged before being sold and must include specific declarations like the manufacturer’s details, quantity, and retail price.
• 😀 GST applies to pre-packaged commodities when sold in retail packages, with clear labeling of content and quantity, as outlined by the Legal Metrology Act.
• 😀 GST is not applicable to bulk packaging (e.g., 25kg or larger). However, GST may apply if the packaging is repackaged or sold in smaller quantities.
• 😀 If a wholesaler packs retail-sized packages within a larger bulk package, GST will be applicable on the smaller retail packs if they are sold separately.
• 😀 GST credits are available now for manufacturers and distributors, even if the goods are sold in bulk or larger wholesale quantities. This was not the case before the change in July 2022.
• 😀 Industrial and institutional buyers (such as hospitals or railways) can buy goods in bulk (over 25kg) without incurring GST. However, retail buyers are subject to GST based on quantity.
• 😀 Retailers must register for GST if their turnover exceeds a certain threshold (20 lakhs for intra-state sales, 40 lakhs for inter-state sales). They can also opt for the composition scheme if their turnover is below 1.5 crores.
• 😀 GST on packaging material is applicable under the current GST structure, which affects industries involved in packaging goods for resale.
• 😀 There is a concern about 'profiteering' (unjustified price hikes) following the GST changes. Retailers are expected to pass on the benefits of GST credits to consumers to avoid scrutiny from authorities.

Q & A

What is the main change in the GST treatment for branded and unbranded goods after July 18, 2022?

After July 18, 2022, GST is applicable to both branded and unbranded goods if they are pre-packaged and labeled commodities. GST will not apply if the goods are sold without packaging or labeling.

What defines a 'pre-packaged commodity' under GST?

A 'pre-packaged commodity' is defined as a commodity that is packed before it reaches the consumer and is labeled with specific information such as the manufacturer’s details, quantity, and retail price.

When will GST not apply to pre-packaged commodities?

GST will not apply to pre-packaged commodities if the package exceeds 25 kg or 25 liters. Additionally, GST will not be charged on goods sold directly by a retailer if the goods are repacked into smaller quantities.

What is the significance of legal metrology in determining GST applicability?

Legal metrology ensures that pre-packaged commodities are correctly labeled and declare important details like quantity, manufacturer, and retail price. This legal framework is crucial for determining whether GST applies.

How does the GST treatment differ between wholesale and retail packaging?

For wholesale packaging, GST is charged when the package contains multiple retail packs and exceeds 25 kg. For retail packaging, if the product is under 25 kg, GST may apply depending on whether it is pre-packaged and labeled.

What happens when a retailer sells bulk goods in smaller quantities?

If a retailer repackages bulk goods into smaller quantities, GST will not apply to the sale of those smaller units, but the retailer will not be able to claim input tax credit on the bulk purchase.

What is the impact of GST on manufacturers, distributors, and dealers?

Manufacturers, distributors, and dealers must charge GST based on the packaging size and whether the product is pre-packaged and labeled. However, retailers purchasing bulk quantities from distributors will not face GST on the smaller repacked quantities.

Are there GST exemptions for industrial and institutional buyers?

Yes, industrial and institutional buyers, such as hospitals and railway organizations, are exempt from GST for goods purchased in bulk, even if the package exceeds 25 kg.

How does the GST registration limit vary for different sellers?

GST registration is required for businesses with annual turnover above Rs. 20 lakh for intra-state sales and Rs. 40 lakh for inter-state sales. Additionally, businesses can opt for the composition scheme if their turnover does not exceed Rs. 1.5 crore.

What does the 'profiterring' issue discussed in the video refer to?

Profiterring refers to the concern that some businesses might artificially inflate prices or manipulate pricing strategies due to the introduction of GST on previously exempt products, which could result in higher profits without justifiable cost increases.