The Central Board of Indirect taxes and Customs (CBIC) is taking steps to address the classification issues that have led to litigation in the fast-moving consumer goods (FMCG) sector under the Goods and Services Tax (GST) regime. The FMCG sector has been grappling with classification issues, where minor changes in composition result in different tax slabs, leading to confusion in tax liability. This has created a grey area and has been a major cause of litigation for many FMCG companies. The CBIC’s plan is to identify the specific products that fall into this category and reclassify them to provide clarity on their tax liability.
The fitment committee, a part of the CBIC, is tasked with examining the items where there is a discrepancy in tax slabs due to classification issues. This committee will prepare a detailed list of products that have attracted maximum litigation and require reclassification for GST clarity. The list will then be referred to the group of ministers on the rate rationalisation committee during the next GST Council meeting.
According to a senior official, there are approximately 25-30 goods and services in the FMCG sector where there is overlapping categorization, leading to confusion in tax liability. The CBIC aims to address these grey areas and provide a clear classification for these items to avoid unnecessary litigation and notices.
Finance Minister Nirmala Sitharaman has also highlighted the need to address classification-related issues on a priority basis during her meeting with enforcement officials of central and state goods and services tax. This further emphasises the importance of resolving these issues to ensure a more streamlined and transparent tax structure in the FMCG sector.
One of the immediate triggers for this plan was the tax notices received by FMCG companies last year. Many companies producing chips and namkeens using the “extruded” method were asked to pay 18% GST instead of 12%. This led to confusion and additional tax demands for traditional bhujia makers, who now face the challenge of reducing fat content through the extrusion method. The FMCG industry has sought clarity from the government to avoid unnecessary litigation and notices.
RTM Watch’s Take
The plan to reclassify items for GST clarity in the FMCG sector is a significant step towards resolving the classification-related issues that have plagued the industry. By addressing the overlapping categorization and providing clear tax slabs, this plan aims to streamline the tax structure and reduce confusion for FMCG companies. It is crucial for the CBIC to work closely with the industry and ensure that the reclassification process is carried out efficiently and effectively. This move will not only provide clarity on tax liability but also contribute to a more conducive business environment for the FMCG sector.
