The Central Board of Indirect Taxes and Customs (CBIC) is planning to make a list of products that end up in litigation because of classification issues.
The fitment committee seems to look into these items in which there is a minor difference in composition but the tax slabs are different, creating confusion in tax obligation, especially in the fast-moving consumer goods (FMCG) sector, which recently drew many tax notices.
The list will be directed to the group of ministers on the rate rationalization committee when the GST Council meets next, as per people aware of the case.
“Classification issue is a problem with some products and the fitment committee is working on the detail list where there is a grey area and which has attracted maximum litigation,” as per a tax expert.
The official stated there are 25-30 goods and services in which there is overlapping of categorization.
Finance Minister Nirmala Sitharaman showed the matter in her meeting with enforcement officials of central and state goods and services tax and seeks for the board to fix the classification-related problems on a “priority” basis.
“The fitment committee is looking into the matter and when the council meets next, the proposal will be referred to the group of ministers on rate rationalisation,” the official expressed.
Immediate Trigger
Numerous FMCG companies in November last year, which were making chips and Namkeens by the “extruded” method were requested to file 18% GST, rather than 12% and obtained tax notices to file the pending amount by March 31, 2024. Extrusion is a food processing technique used to create “puffed” or “expanded” snacks that are ready to eat. Extruded snacks are mainly produced from cereal flour or starches. Being high in calories and fat with low protein, they are deemed harmful.
Any snacks that have been made via the extrusion process must draw an 18% tax, the centre specified in August 2023 and on this clarification, the Directorate General of GST Intelligence (DGGI) notices were found.
As per the FMCG industry there are items like Namkeen, flavoured milk, and other processed food items in which there is overlapping classification and which draw different advance rulings in different states.
“Traditionally bhujia is taxed at 12% GST but now most of the manufacturers are using the extrusion method to reduce fat content. This creates a grey area and many traditional bhujia makers now facing additional tax demand,” a Namkeen manufacturer told, who did not want to be recognized. The industry in the absence of a meaning, seeks clarity from the government, particularly after many firms obtained DGGI notices.
The FMCG industry ahead of the forthcoming due dates incurred a detailed representation to the finance ministry and asked for a solution to prevent unwanted litigation and notices.