Industry Queries Addressed on New GST Rate Structure – Insights from CBIC

Graphic representing industry queries on the new GST rate structure, featuring icons for manufacturing, a GST document, and retail.

1. Relabelling of MRP for Existing Stock

  • For goods already in stock as of 22nd September, supplies must be at the new rate.
  • Since relabelling across the distribution chain is difficult, the Department of Legal Metrology (Consumer Affairs Ministry) has permitted relabelling by stickers, reprinting, or stamping, in addition to the old MRP.
  • New packages manufactured after 22nd September must carry both the original MRP and the revised MRP for customer transparency.
  • This gives flexibility to manufacturers, packers, and importers during transition.

2. Passing on GST Benefits on New Stock

  • For goods manufactured after 22nd September, businesses may decide how to pass on GST benefits:
    • reducing prices, or
    • increasing package size/grammage.
  • This is a commercial choice.

But: For pre-existing stock, increasing grammage is not allowed.

3. Discounts on Pre-packaged Goods

  • For pre-packaged products with MRP, offering discounts is considered non-transparent since only distributors/retailers know of it, not customers.
  • Hence, discounts cannot be used to pass on the tax benefit.
  • Only re-labelling or restamping of MRP is permitted.
  • However, discounts may still work for big-ticket items like automobiles, but not for pre-packaged MRP-based products.

4. Refund of Input Tax Credit (ITC) on Input Services in Inverted Duty Cases

  • Current law allows refund of accumulated ITC only when tax on inputs (goods) exceeds tax on outputs (Section 54 read with Rule 89(5), CGST Rules).
  • Formula under Rule 89(5) considers ITC of goods only, not services.
  • Industry had demanded inclusion of input services (e.g., advertisements taxed at 18% for toothpaste taxed at 5%).
  • The matter reached the Supreme Court, but the GST Council has decided against allowing refunds of ITC on input services.
  • Thus, accumulated input service credits cannot be refunded, though they may be cross-utilised.

Key Legal References:

  • Section 54, CGST Act – Refund provisions.
  • Rule 89(5), CGST Rules – Formula for refund under inverted duty structure (inputs only).
  • Legal Metrology (Packaged Commodities) Rules – Re-labelling of MRPs permitted during tax transitions.

GST Compliance Checklist (Effective 22nd September)

1. Stock Already in Market / Distribution Chain (Pre-22nd Sept)
Re-label MRPs on existing stock using:
Stickers, reprinting, or stamping (per Legal Metrology Rules).
Ensure both old and new MRPs are visible for customer transparency.
Do not increase grammage on existing stock.
Do not pass benefits via discounts for pre-packaged MRP goods (allowed only in bigger items like automobiles).

2. New Stock Manufactured / Imported After 22nd Sept
Print revised MRPs directly on packages.
Decide how to pass on GST benefit:
Lowering price, or
Increasing package size / grammage.

3. Input Tax Credit (ITC) & Refunds
Refund of accumulated ITC is available only for goods (inputs) under inverted duty structure.
No refund available for input services (e.g., advertisement, marketing).
Cross-utilisation of input service ITC is permitted.
Calculate refund strictly as per Rule 89(5), CGST Rules.

4. Invoicing & Documentation
Update tax rate (5% / 18% / 40%) in billing systems and invoices.
Ensure compliance with Section 31, CGST Act (proper tax invoices).
Maintain documentation of re-labelling activity for departmental verification.

5. Industry Coordination
Inform distributors and retailers about revised MRPs and re-labelling.
Issue trade notices internally to ensure uniform pricing.
Train sales and accounts staff on new GST rate applicability.

6. Consumer Transparency
Display notices in retail stores on revised MRPs.
Ensure customers can see both old and new MRPs for packaged goods during transition.

Legal Basis Referenced:
Section 54, CGST Act – Refund of ITC.
Rule 89(5), CGST Rules – Refund formula under inverted duty structure.
Section 31, CGST Act – Tax invoice provisions.
Legal Metrology (Packaged Commodities) Rules – Re-labelling permissions during tax changes.

Next Step for Businesses:
Prepare a transition SOP (Standard Operating Procedure) for accounts, sales, distribution, and compliance teams before 22nd Sept to avoid disputes or anti-profiteering allegations.

Conclusion:

  • For old stock: mandatory relabelling of MRPs, no discounts or grammage increase.
  • For new stock: businesses can choose methods to pass on benefits.
  • Refund of ITC on input services in inverted duty cases remains disallowed.

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