 "FMCG")
Following industry representations, the September 9 circular, which mandated manufacturers and importers to change maximum retail prices (MRPs) of unsold stocks in accordance with cuts in rates of goods and services tax (GST), is being reviewed, people familiar with the matter told Business Standard.
Businesses say they may find it difficult to reduce prices to the full extent of GST reduction because they may have paid higher input taxes on stocks lying with them. For that they won’t be refunded.
According to a government official, the Union Ministry of Finance and the Department of Consumer Affairs have received inputs from industry regarding the circular, and they are examining how to address the matter of accumulated input tax credit (ITC) for distributors and dealers. According to sources, the government may consider adjusting this cost to the revised price till December 31.
In addition, the government may clarify how the circular will apply to products sold in small sachets such as shampoos and sauces at fixed prices of, say, ₹1, ₹5, etc, where price revisions are difficult, and to items already being sold at discounts and where the effective price is lower than the level after the rate cuts.
An email sent to the Ministry of Finance remained unanswered till the time of going to press.
“The reduction may have created a double whammy for businesses. The rate cut would have led to an accumulation of ITC on unsold stocks, on the one hand, and no inverted duty refund would have even been available, on the other,” said Vivek Jalan, partner, Tax Connect Advisory Services.
“A revision will give relief to businesses. Some flexibility in reducing the prices of goods, factoring in the accumulated ITC impact to an extent, is expected to help businesses to some extent at least during the transition period,” Jalan added.
Officials said the finance ministry was separately examining options to let companies factor in potential losses arising from the inverted duty structure after the cuts.
The broad two-tier structure — 5 per cent and 18 per cent — has in a major way addressed the inverted duty structure across several items.
However, shifting items from 12 per cent to 5 per cent without moving the corresponding raw materials to a lower rate has created a fresh inverted duty structure in certain sectors like fast-moving consumer goods (FMCGs) and packaging.
Contractors, hoteliers push for GST fixes, ITC clarity
During a meeting with the CBIC on Thursday, the construction and hospitality industries raised issues ranging from the need for a special mechanism for payment of GST on government-related contract works to clarification on ITC.
Pharma, medtech bodies ask for transition time, simpler refunds
Price puzzle
- Businesses struggle to cut prices fully due to accumulated ITC on unsold stock
- Shift from 12% to 5% slabs creates fresh duty inversion in FMCG, packaging sectors
- Focus on products sold in small sachets such as shampoos and sauces
- Products being sold at discounts complicate
- MRP revision process under new rules
