Advance Ruling No. 08/AP/GST/2023 DATED 08/05/2023
Brief Facts:
1. M/s. Sri Seetharamnjaneya Sortex having GSTIN 37ABDFS4641P1ZM under Andhra Pradesh State and under the Jurisdiction of Kakinada Division
2. The applicant has three types of sales
a. Customer Located Abroad (Foreigner):
The applicant states that, foreign buyer provides the specification which has to be printed/labelled on the packages of rice, which are intended for sale to it. Therefore, the applicant procures empty bags from the supplier of packing material and get them printed/ labelled according to the specifications of the foreign buyer. The rice is packed in empty bags having capacity upto 25kg and export them to foreign buyer.
b. Customers located in India who purchase for the purpose of exports on “bill to ship to” basis (Exporter)
The applicant states that, rice is packed in empty bags which are received by the applicant from packing material supplier upon instructions from exporter and the pre-packaged rice is dispatched to customs port (bill to ship to basis) as per the instructions of exporter and the exporter ultimately exports the rice to foreign buyer.
c. Customers located in India who purchase rice from us for the purpose of exports (“Exporter”)
The applicant states that, the supplier of packing material dispatches the printed/labelled empty bags, having capacity upto 25 kgs, to the premises of the applicant on directions of exporter (i.e., on “bill to ship to” basis, bill to exporter and ship to us)
OR
The applicant states that, rice is packed in empty bags which are printed and labelled as per the directions of exporter and the prepackaged rice is sent to exporter. Exporter exports the prepackaged rice to foreign buyer.
Question:
(i) Whether GST would be leviable on export of pre-packaged and labelled rice upto 25 Kgs, to foreign buyer?
(ii) Whether GST would be applicable on supply of pre-packaged and labelled
rice upto 25 Kgs, to exporter on “bill to ship to” basis i.e., bill to exporter
and ship to customs port. Exporter ultimately exports the rice to foreign buyer?
(iii) Whether GST would be applicable on supply of pre-packaged and labelled
rice upto 25 Kgs, to the factory of exporter. Exporter will export the rice?
ACT, RULES, NOTIFICATION AND CIRCULARS:
The relevant notification:
1. The applicant states that, in view of amendment in Entry 51 of Schedule I of notification No 1/2017-Central Tax (Rate) dated 28-6-2017, Central Tax (CG51)
@ 2.5% and State Tax (SGST) @ 2.5% is applicable on supply of pre-packaged
and labelled rice with effect from 18th July 2022. (Refer clause (viii) of sub-Para
B of Para 1 of Notification No 06/2022-Central Tax (Rate) dated 13th July, 2022).
2. The applicant states that, as per explanation (ii) of notification No 1/2017-Central Tax (Rate), The expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (I) of section 2 of the Legal Metrology Act, 2009 (1 of 2010) where, the package in which the commodity is prepacked 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.
3. The applicant submits the relevant extracts of Notification No 06/2022-CentralTax (Rate) dated 13th July, 2022 has been reproduced below:
G.S.R. ……(E).- In exercise of the powers conferred by sub-section (1) of section 9 and sub-section (5) of section 15 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.1/2017-Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 673(E), dated the 28th June, 2017, namely:-
A——————–
B B. in Schedule I – 2.5%,
(i) against S. Nos. 1 and 2, in column (3), for the portion beginning with the words “and put up in” and ending with the words and bracket “as in the ANNEXURE]”, the words “, pre-packaged and labelled” shall be substituted;
(ii) after S. No. 9 and the entries relating thereto, following S. No. and entries shall be inserted, namely: – “9A 0403 Curd, Lassi, Butter milk, pre-packaged and labelled”;
(iii) against S. Nos. 11 and 13, in column (3), for the portion beginning with the words “put up in” and ending with the words and bracket “as in the ANNEXURE]”, the words “, pre-packaged and labelled” shall be substituted;
(iv) against S. No. 16, in column (3), for the portion beginning with the words “and put up in” and ending with the words “as in the ANNEXURE”, the words “, pre-packaged and labelled” shall be substituted;
(v) against S. No. 25, in column (3), for the portion beginning with the words “put up in” and ending with the words and bracket “as in the ANNEXURE]”, the words “, pre-packaged and labelled” shall be substituted;
(vi) against S. No. 26, in column (3), for the portion beginning with the words “put up in” and ending with the words “as in the ANNEXURE”, the words “pre-packaged and labelled” shall be substituted;
(vii) against S. No. 30, in column (3), for the portion beginning with the words “put up in” and ending with the words “as in the ANNEXURE”, the words “, pre-packaged and labelled” shall be substituted;
(viii) against S. Nos. 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 58 and 59, in column (3), for the portion beginning with the words “put up in” and ending with the words and bracket “as in the ANNEXURE]”, the words “, pre-packaged and labelled” shall be substituted;
(ix) after S. No. 91 and the entries relating thereto, following S. No. and entries shall be inserted, namely: – “91A 1701 or 1702 Jaggery of all types including Cane Jaggery (gur), Palmyra Jaggery, lire-packaged and labelled; Khandsari Sugar, pre-packaged and labelled”;
(x) after S. No. 98 and the entries relating thereto, following S. No. and entries shall be inserted, namely: – “98A 1904 Puffed rice, commonly known as Mari, flattened or beaten rice, commonly known as Chira, parched rice., commonly known as kiwi, parched paddy or rice coated with sugar or gur, commonly known as Murki, pre-packaged and labelled”;
(xi) against S. No. 101A, in column (3), for the portion beginning with the words “other than those put up in” and ending with the words and bracket “as in the ANNEXURE”, the words “, other that: those pre-packaged and labelled” shall be substituted;
G. after the Schedule VII, in the Explanation, for clause (ii) and the entries relating thereto, the following clause shall be substituted, namely: –
(ii) The expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (1) 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.’
4. The applicant further submits clarifications given by Ministry of Finance regarding the GST levy on ‘pre-packaged and labelled’ goods vide Press Release dated 18th July 2022.
a) if such specified commodities are supplied in a package that do not require declaration(s)/compliance(s) under the Legal Metrology Act, 2009 (1 of 2010), and the rules made thereunder, the same would not be treated as pre-packaged and labelled for the purposes of GST levy
b) In the context of food items (such as pulses, cereals like rice, wheat, flour etc), the supply of specified pre-packaged food articles would fall within the purview of the definition of ‘pre-packaged commodity’ under the Legal Metrology Act, 2009, and the rules made thereunder, if such pre-packaged and labelled packages contained a quantity upto 25 kilogram [or 25 liter] in terms of rule 3(a) of Legal Metrology (Packaged Commodities) Rules, 2011, subject to other exclusions provided in the Act and the Rules made thereunder.
FINDINGS AND DISCUSSION:
• The applicant proposes that GST would apply on specified goods where the pre-packaged commodity is supplied in packages containing quantity of less then or equal to 25kg, Pre-packed and labelled commodities manufactured exclusively for export have not been excluded from the Legal Metrology Act 2009 (1 of 2010) and the rules made thereunder. The applicant further submits that, GST would be applicable on the supply of prepackaged and labelled rice upto 25 kgs, irrespective of the fact that it is for domestic sale or for the purpose of export. If the said is not agreed then supply of pre-packaged rice upto 25kgs for the purpose of exports will be exempt from GST and then requirement of EWB, E-invoice and Obtaining of LUT will not arise.
• The department finds that in the instant case the ultimate buyer is not present and the commodity is being pre-packed for an unknown buyer. The buyer from the applicant is reselling the same to another buyer be it export or indigenous. The department agrees that GST is applicable on prepacked and labelled irrespective of the fact that it is for domestic sale or for export outside the country
Ruling:
1. GST is applicable on Export of pre-packaged and labelled rice upto 25 Kgs, to foreign buyer .
2. GST would be applicable on supply of pre-packaged and labelled rice upto 25 Kgs, to exporter on “bill to ship to “basis i.e., bill to exporter and ship to customs port. Exporter ultimately exports the rice to foreign buyer
3. GST would be applicable on supply of pre-packaged and labelled rice upto 25 Kgs, to the factory of exporter
Comment:
1. The levy of GST on exports below specified quantity of 25kgs and which has been prepacked will result into tax. It is important to note that tax prescribed against Rice is NIL. ITC in case of exempt commodity is not available in normal cases unless it is for Zero Rated Supply.
2. Further, in 2022 November onwards as per sec 54(3) provision 2 it has also been said refund of ITC will not be available incase the Export Duty is levied. Rice is also one such item on which certain quality of rice is chargeable to Export Duty. This will now create an issue for exporters. In such cases it would always be advisable to Export on payment now so that ITC can be adjusted and working capital is not blocked, otherwise it would have led to accumulation of huge credits
3. We still believe whether or not for zero rated supply or merchant exporter or for indigenous use certain essential commodities like rice cereals pulses should never be brought under the tax net. In order to rectify a small mistake what has got in is a big error and this is resulting into taxing of small and poor while the rich and big traders, consumers and end users are gone benefit with the end result
4. The other moot question that arise if a prepacked package of 1kg each and 30 quantity packed in one big bag and exported will it be below or above 25kg in consideration the FAQ comes to our aid where it says Yes, if several packages intended for retail sale to ultimate consumer, say 10 packages of 10 Kg each, are sold in a larger pack, then GST would apply to such supply. Such package may be sold by a manufacturer through distributor. These individual packs of 10 Kg each are meant for eventual sale to retail consumer.
However, a package of say rice containing 50 Kg (in one individual package) would not be considered a pre-packaged and labelled commodity for the purposes of GST levy, even if rule 24 of Legal Metrology (Packaged Commodities) Rules, 2011, mandates certain declarations to be made on such wholesale package.
