GST on essential items after states seek tax, aimed at controlling evasion: official

NEW DELHI: GST on prepackaged goods/food packets levied after some states commented on loss of revenue they were previously earning from levying VAT on food productssaid a senior government official.
The decision to levy the tax, which came into effect on July 18, is not that of the Union government but that of the GST advice. It was reviewed by the assembly committee which includes officers from some states and the center.
It was also recommended by a Group of Ministers (GOM) made up of representatives of ministers from some states and finally by the GST council, Revenue Secretary Tarun Bajaj told PTI here.
Overall, the GST Board, the country’s new constitutional mechanism for making GST decisions, has taken a consensus position on levying the tax, he said.
The panel, which is headed by the Union finance minister and includes representatives from all states and union territories, makes decisions when everyone is on board, he said.
However, pulses, wheat, rye, oats, maize, rice, flour, suji, besan, puffed rice and curd/lassi, when sold in bulk and not prepackaged or pre-tagged, will not incur GST.
The comments come amid opposition parties led by Congress blocking the functioning of Parliament during the first week of the monsoon session due to the collection of GST on daily use items and d other problems.
While states run by non-BJP parties were party to the decision made on levying the levy at the council meeting in Chandigarh last month, strong protests against the levy came just as the monsoon session of parliament had to start.
“Prior to the coming into force of the GST (on July 1, 2017) during the VAT regime, this (tax on essentials) was there in many states. States received revenue (from the collection of VAT on food products). Once in 2017 this new Goods and Services Tax (GST) regime came into effect, it was envisaged to continue, but it was only levied on branded goods when the rules and regulations flyers came out,” Bajaj said.
The rules provided that GST would not be levied on prepackaged goods if brands waived actionable claims on the brand. This has led to some of the more well-known brands starting to sell these items in branded packs, but without any legal action, and therefore not attracting the 5% GST.
“I don’t want to take names, but very well-known brands in the country were not paying taxes using this particular loophole. And it was creating an arbitrage because in an FMCG product like pulses or rice which is indistinguishable, 5 % is a huge margin,” he said.
Naturally, companies selling branded products complained.
“States have also given us feedback that we used to get a lot of money before the GST came into effect and that we should do something about it,” he said.
However, he did not name the states.
Eliminating the distinction between branded and unbranded products was also an exercise to simplify the tax system and create a level playing field with minimal opportunity for legal challenges. It gives parity to all brands and businesses by removing any disparity, he said.
“So people were misusing it. Second, the states let us know that they were losing revenue there and not getting the revenue that they used to get in the scheme. pre-TPS,” he said.
“So the adjustment committee (consisting of central and state officials) sat down, got feedback. Then the group of ministers (from different states) sat down, got feedback. Then , the Board discussed it. So it was a conscious decision made…it was a unanimous…consensual decision,” he noted.
Bajaj said the GST Council worked with a full understanding of the issues and made decisions that addressed the concerns of a single dissenting state.
“I’ve seen so many decisions that we didn’t bring them forward in a meeting because a state had concerns. The approach is that we will either address the concern or we won’t bring it forward,” did he declare.
Union Finance Minister Nirmala Sitharaman on July 19 said states levy a sales tax or VAT on food grains in the pre-Goods and Services Tax (GST) regime and the current levy on grains, pulses, flour, curds and lassi is an exercise in reducing tax leakage.
The assembly committee, which first considered the matter, included officers from Rajasthan, West Bengal, Tamil Nadu, Bihar, Uttar Pradesh, Karnataka, Maharashtra, Haryana and Gujarat .
Its recommendations were considered by a group of ministers comprising members from West Bengal, Rajasthan, Kerala, Uttar Pradesh, Goa and Bihar and led by the Chief Minister of Karnataka.
The GoM’s recommendation was submitted to the GST Council, the highest decision-making body on the new tax regime, at its meeting in Chandigarh last month.

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