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Firms not passing on ITC in prepacked Dairy may face profiteering charges

Companies not passing on the benefit of Input Tax Credit (ITC) on pre-packaged dairy and agro items may face profiteering charges. Experts say prices of such products need not go up by a flat 5 per cent because of ITC.

One of the responses in an FAQ (Frequently Asked Questions) issued by the Central Board of Indirect Taxes and Customs (CBIC) on taxing pre-packaged and pre-labelled goods says the manufacturer, wholesaler and the retailer would be entitled to ITC on the 5 per cent GST charged by the supplier in accordance with the law.

While some companies have hiked prices of dairy products by a flat 5 per cent and also rounded it of, some are in the process of doing so. “With the impact of the GST on certain product categories, we are revising the MRP of select pack sizes coming under the ambit of this new compliance,” said Manish Bandlish, MD of Mother Dairy Fruit and Vegetable Pvt Ltd.

Earlier, a report by ICICI Securities said most dairy companies would be able to get ITC on the costs incurred, such as packaging material, freight and transportation and ad-spend. This means the effective impact of the GST levy will be 2-3 per cent. Experts, too, agree with the view.

Anti-profiteering provisions

Section 171 of the Central Goods and Services Tax (CGST) prescribes two situations when anti-profiteering measures can be triggered. First, there is no commensurate reduction in prices after a cut in the tax rate. Second, the ITC benefit is not passed on to the recipient by way of a commensurate reduction in prices. In the context of the new taxation regime, the first measure will be applicable for pre-packaged and labelled products exceeding 25 kg or litre and the second for re-packaged and labelled products exceeding 25 kg or litre.

Chartered Accountant Priyanka Sachdeva, Partner (GST) with AMRG & Associates, said most businesses will attract the anti-profiteering provisions. The Directorate-General of Anti Profiteering is expected to monitor all businesses closely, fearing a price increase would leads to further intensify food inflation.

“Such businesses, on the contrary, would see a swift swelling of ITC owing to a range of input goods and services used. The task of computing profiteering benefits may be a big challenge irrespective of the scale of operation, in the absence of machinery provisions,” she said.

Harpreet Singh, Partner in KPMG, said to avoid scrutiny by anti-profiteering authorities, suppliers need to revisit their product cost-sheet to ensure the benefit of additional input credits, if any, is factored in before devising the new pricing policy.

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