The GST Council is set to deliberate on a proposal to insert a new Rule 31D in the CGST Rules, 2017, to provide for retail sale price (RSP)-based valuation of Pan Masala, Gutkha, Cigarettes, and Chewing Tobacco. The move aims to curb large-scale tax evasion in these evasion-prone commodities.
Currently, under Section 15(1) of the CGST Act, taxable supplies are valued on the basis of “transaction value,” i.e., the actual price paid where the buyer and seller are unrelated, and the price is the sole consideration. However, Section 15(5) empowers the Government to prescribe special methods of valuation for specified goods, notwithstanding the general rule.
The Fitment Committee, which is a panel of officials from both the Centre and the states, recommended that the valuation of Pan Masala, Gutkha, Cigarettes, and Chewing Tobacco be linked to their RSP printed on the package, instead of transaction value. This is in line with provisions under the GST (Compensation to States) Act, 2017, which already allows cess to be levied on the basis of value, quantity, or RSP.
The shift to RSP-based valuation is expected to tighten tax compliance but may also push up prices of Pan Masala, Gutkha, Cigarettes, and Chewing Tobacco. At present, many manufacturers under-report transaction values to reduce their tax liability. With taxes now linked to the maximum retail price printed on packets, the effective tax burden will rise. While companies may choose to absorb part of this cost, it is likely that the increased tax will be passed on to consumers, making these products more expensive in the retail market, according to a few analysts.
