Skip to main content

Coffee-Toffee, the GST Debate Continues

Hundreds of crores of rupees in the form of taxes ride on the exact categorisation of products
Is Parachute hair oil or edible oil? Is KitKat a chocolate or a biscuit? Is a Vicks tablet medicament or confectionery? For the taxpayer and the tax collector, this is much more than an exercise in semantics -hundreds of crores of rupees ride on the exact categorisation.
As the government moves closer to rolling out the goods and services tax (GST) on July 1, many such distinctions are being debated so that no ambiguity remains. Not just that, the government is revisiting old tax cases that were lost over product categorisation, according to people with knowledge of the matter, presumably with a view to making sure that revenue collections can be maximised.
“In the past, several tax officers had challenged some of the product categorisations, including those in the retail segment, but lost out in court or at appellate level,“ said one of the persons. “Now we have a chance to go ahead with specifying the products in a way based on the old cases so that similar situations don't arise.“
It is understood that the product categorisation exercise, which was expected to have been completed last year, is taking much longer because of this process. The rates have already been decided -nil, 5%, 12%, 18% and 28% --but product categorisation is yet to be finalised.
“The GST rates for each and every item are not yet decided as the government is categorising products and what rates can be applied on each category of goods,“ said MS Mani, senior director, Deloitte Haskins & Sells. “There is a chance that some of the old issues raised by the tax department regarding category of certain goods may come back to haunt some companies or products as GST is a new law and can redefine rates and what goods would fall under its preview.“
Some states have also raised issues on this front, Kerala being a case in point. During a re cent closed-door meeting on product categorisation, finance minister TM Thomas Isaac brought up a point highly pertinent to people of that state.
Coconut oil shouldn't be categorised as hair oil but as edible oil, he is reported to have said. The reason? Edible oil and hair oil are taxed differently as the latter is not an essential commodity. But coconut oil is an essential ingredient of Kerala cuisine, making its categorisation a matter of keen public interest for the state's people.
Key past cases are being researched by the GST committee before it decides on the exact tax rates for each category , said the people cited above. This could mean disputes that many companies thought had been resolved coming back to life. Whether such moves will be challenged or not y the companies is yet to be seen. However, ex by the companies is yet to be seen. However, experts said this may be difficult since GST is a new tax regime altogether and old rulings may not have the force of precedent. Some of the old cases being examined involve Marico, P&G, Nestle, Paras Pharmaceuticals and Dabur, according to the people with knowledge of the matter.
For the record: KitKat is a biscuit and Vicks a medicament. In the KitKat case -Nestle (India) Ltd vs Commissioner of Central Excise, Mumbai, 1999 -it was ruled that the product was a biscuit and not a chocolate, which is taxed at a higher rate.
Meanwhile, companies are lobbying the government to categorise biscuits as essential products under GST, which would mean their being taxed at a lower 5%.
Economic Times New Delhi,25th March 2017

Comments

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...

Luxury carmakers urge clarity on GST rates to boost festive season sales

  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...

Sebi proposes tighter norms for green bond third-party reviewers

  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...