GST Council Exempts Certain Food Items from GST: Key Takeaways

GST Council Decision on Food Items: Understanding the Exemptions and Regulations

The GST Council has successfully exempted certain items from GST when they are sold loose and not pre-packed or pre-labeled. This exemption indicates that these items will not incur any GST charges. It is important to note that this decision was made collectively by the GST Council and not by an individual member.

Context of the Decision

In the wake of the 47th GST Council meeting, a reconsideration of the GST imposed on specific food items such as pulses, cereals, and flour was deemed necessary. Prior to this meeting, several misconceptions regarding the taxation of these items circulated widely. To clarify:

• Prior to the implementation of GST, states collected substantial revenue from food grains. For instance, Punjab generated over ₹2,000 crores through a purchase tax on food grains, while Uttar Pradesh collected ₹700 crores.

Initial GST Implementation

Upon the rollout of GST:

• A 5% GST rate was initially applied to branded cereals, pulses, and flour.
• This was later modified to apply GST solely to products sold under a registered brand or where the supplier had not forfeited their brand rights.

However, it was observed that some manufacturers and brand owners misused this provision, resulting in a notable decline in GST revenue from these items.

Industry Concerns

The misuse of GST exemptions led to dissatisfaction among suppliers and industry associations who were compliant in paying taxes on branded goods. To mitigate tax evasion, these groups urged the government to implement uniform GST rates on all packaged products. States highlighted the same issues regarding tax evasion.

Examination by the Fitment Committee

The Fitment Committee, comprising representatives from states including Rajasthan, West Bengal, Tamil Nadu, Bihar, Uttar Pradesh, Karnataka, Maharashtra, Haryana, and Gujarat, conducted several meetings to evaluate this issue and proposed recommendations to amend the approach to enforce GST effectively.

Key Changes Post-Decision

During the 47th GST Council meeting, held on June 28, 2022, it was unanimously decided that:

• Starting from July 18, 2022, GST would only be applicable to "pre-packaged and labeled" goods, which comply with the provisions of the Legal Metrology Act.
• Items such as pulses and cereals, which previously incurred a 5% GST when branded and packaged in unit containers, will attract GST only when pre-packaged and labeled.

Significantly, items listed below will not be subject to any GST when sold loose and not pre-packed or pre-labeled.

Consensus Among States

The GST Council's decision was achieved with the unanimous backing of all states, including those not affiliated with the ruling party, such as Punjab, Chhattisgarh, Rajasthan, Tamil Nadu, West Bengal, Andhra Pradesh, Telangana, and Kerala. This demonstrates a broad consensus.

The Group of Ministers (GoM), which presented these recommendations, included members from West Bengal, Rajasthan, Kerala, Uttar Pradesh, Goa, and Bihar and was chaired by the Chief Minister of Karnataka. They thoroughly examined the proposal against the backdrop of potential tax leakage.

Conclusion

In summary, the GST Council’s decision to modify the application of GST on certain food items was essential to address tax leakage concerns. This resolution underwent careful consideration at multiple levels, including inquiries from officers and discussions within the Group of Ministers, before achieving consensus among all council members.