[Opinion] GST on Supply of Pre-packaged and Labelled Goods

Dr. Sanjay R Bhargave – [2022] 140 taxmann.com 458 (Article)

Prior to 18th July 2022, GST was levied on branded goods where rights over such goods was not foregone. GST was not leviable on packaged but unbranded goods. However, w.e.f. 18th July 2022, GST has been made applicable on supply of such “pre packaged and labelled” commodities attracting provisions of Legal Metrology Act, 2009. This is a major change in applicability of GST on packaged goods. Now whether the goods are branded or not has no relevance on applicability of GST.

The expression “pre packaged and labelled” means a “pre packaged commodity” as defined in clause (l) of Section 2 of the Legal Metrology Act, 2009 (1 of 2010) where, the package in which the commodity is pre packed or a label securely affixed thereto is required to bear the declarations under the provisions of the Legal Metrology Act 2009 (1 of 2010) and the rules made thereunder.

As per Sec 2(1)(l) of the Legal Metrology Act 2009, pre-packaged commodity means a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre determined quantity.

As per Section 2(f) of the Legal Metrology Act 2009, “label means any written, marked, stamped, printed or graphic matter affixed to, or appearing upon any pre packaged commodity.” Thus, the scope of label is very wide. The label need not be always printed, even a stamp, marking, written matter also would be treated as label.

Thus the supply of goods satisfying following both the conditions would attract GST.

(i) The goods are supplied in pre packaged condition.
(ii) The goods in packaged condition require to bear the declarations under the provisions of the Legal Metrology Act,2009 and the rules made thereunder. However, if such specified commodities are supplied in a package that do not require declaration under Legal Metrology Act, the same would not be treated as pre packaged and labelled for the purpose of GST levy.

As per Rule 3 of the Legal Metrology (Packaged Commodities) Rules, 2011, the provisions applicable to packages intended for retail sale shall not apply to following cases.

(a) Packages of commodities containing quantity of more than 25 kilogram or 25 Litre.
(b) Cement Fertilizer and agricultural farm produce sold in bags above 50 kilogram
(c) Packaged commodities meant for industrial consumers or institutional consumers.

As per Rule 2 (bb) of Legal Metrology (Packaged Commodities) Rules, 2011, industrial consumer means the consumer who buys packaged commodities directly from the manufacturer or from an importer or from wholesale dealer for use by that industry and the package shall have declaration ‘ not for retail sale’.

As per Rule 2 (bc) of Legal Metrology (Packaged Commodities) Rules, 2011, institutional consumer means the institution which buys packaged commodities bearing a declaration ‘not for retail sale’ directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and not for commercial or trade purposes.

Further, as per Rule 26 of Legal Metrology (Packaged Commodities) Rules, 2011, nothing contained in these rules shall apply to any package containing a commodity, if –

(a) The net weight or measure of the commodity is ten gram or ten millilitre or less, if sold by weight or measure.
Provided that the provisions of this clause shall not be applicable for tobacco and tobacco products.
(b) Any package containing fast food items packed by restaurant or hotel and the like.
(c) It contains scheduled formulations and non scheduled formulations covered under the Drugs (Price Control) Order 2013 made under section 3 of the Essential Commodities Act, 1955 (10 of 1955).
Provided that no exemption shall be applicable to medical devices declared as drugs.
(d) Any thread which is sold in coil to handloom weavers.

From the above, it can be seen that GST would not be applicable on supply of pre packaged and labelled goods in the case of types of supply of goods to industrial , institutional consumers and where the package contains more than 25 Kg / 50 Kg in specific cases. Thus GST would apply on supply made by manufacturer to distributor, wholesaler, dealer, and from them to retailer and retailer to consumer at every stage. It is pertinent to note that manufacturer, dealer, distributor, retailer would be entitled to input tax credit on GST charged by their supplier, if they are registered under GST and not availing composition scheme.

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