The new goods and services tax (GST) rates announced by the GST Council will take effect on September 22.
The GST regime has been simplified to a two-rate structure of 5% and 18% in a bid to boost consumption. However, a special rate of 40% will apply to luxury and sin goods.
The Revenue Department has held meetings with industry chambers to ensure a smooth transition. CNBC-TV18’s Timsy Jaipuria spoke to Sanjay Mangal, Chief Commissioner of Meerut, Central Board of Indirect Taxes & Customs (CBIC), to clear doubts on how businesses will have to adapt to this change.
Below are the excerpts of his interview with CNBC-TV18.
Q: When it comes to relabelling of MRP, which is recommended by the government, the industry feels there will be a lot of feasibility challenges, especially for widely distributed items. Can an alternative, such as offering discounts or increasing grammage, be explored by the industry?
A: There are two part of this question. First, the stocks which are lying with them as on September 22, and which have the MRP of the pre-GST rate cut period. After September 22, when they sell their products or make supplies, it has to be at the new rate. But as this will be very difficult for products which are already in stock and already in the distribution chain, the Department of Legal Metrology, under Ministry of Consumer Affairs, has allowed the industry to re-label the packages. (In) existing packages, the relabelling (can be done) by putting stickers, reprinting or by any such measure, in addition to the existing MRP.
The new packages will contain the original MRP as well as the new MRP, for more transparency for the customer, who will know that the price has been reduced. This will also allow transition flexibility to the manufacturers, packers or importers.
Now, for the packages which are manufactured after September 22, it is for the manufacturer or the business to decide how they are going to pass on the benefit of the reduced GST. Whether it is by way of rate reduction or increasing the package size or the grammage, it is for the industry to decide based on their commercial considerations.
Q: But not on the existing stock? They can’t offer discounts worth the amount of the price cut that they want to pass on to the consumers? Or can they increase the grammage in the existing packages? Is that possible under the GST rules and laws?
A: For pre-packaged products, increasing the grammage on the existing stock is not possible. It can be done only after that (September 22).
Q: What about discounts?
A: About discounts, in case of pre-packaged products which have the MRP, offering discounts, conveying that they are reducing the price through discounts — it is a non-transparent method. The customer does not know about it. Only the retailer or the distributor know that they are passing on these discounts. Therefore, it is required that they have to refix the new MRP through relabelling or restamping or reprinting. I don’t think giving discounts on pre-packaged products is possible. Maybe it is possible on automobiles or bigger items.
Q: Is there any possibility of claiming a refund of input services credit which is accumulated due to the inverted duty structure? That is what the industry is wanting to know. What happens to services in terms of their credit being accumulated due to the inverted duty structure? For example, let’s take toothpaste. A company I spoke to, said that in the cycle of toothpaste manufacturing, the input service of advertisement is much higher at 18% compared to the other inputs, whereas the toothpaste will be taxed at 5%. What will happen in that case?
A: As per the present provisions of refund of accumulated credit on account of the inverted duty structure, this is available only in respect of cases where the rate of inputs is higher than the rate of output supply. Now this refund amount has to be calculated as per a formula which is given in Rule 89(5), which takes into account mainly the input tax credit on goods only, and not on input services.
This has been a demand of industry for a long time — that they should be allowed this refund of accumulated credit on account of input services also. This issue was also raised before honourable Supreme Court. The council has considered it, and it has decided not to allow this refund on account of input services. So the present legal position, as per the clarification given by council, is that a refund of accumulated credit is only allowed in respect of input that is goods, and not in respect of input services.
I understand that in case of manufacturers, at least their main inputs, their main ITC is in respect of inputs and if the industry has got some amount as input services, they will be able to cross-utilise it longer.
