In a recent development, the Directorate General of GST Intelligence (DGGI) has intensified its efforts to combat alleged tax evasion within the fast-moving consumer goods (FMCG) sector. The action targets major players including ITC, Prataap Snacks, PepsiCo, Balaji Wafers, RP Sanjiv Goenka Group, and others, citing issues related to classification and subsequent tax evasion.
The crux of the matter lies in the classification of snacks, particularly those produced through extrusion techniques. The government’s clarification in 2023 stipulated that snack manufactured through extrusion should attract an 18% GST rate, contrary to the 12% being paid by the industry. This disparity has led to significant allegations of tax evasion, with preliminary estimates suggesting substantial revenue losses.
The response from industry players has been mixed, with an ITC spokesperson refraining from comment and responses from other companies awaited as investigations unfold. Notably, the industry has made a detailed representation to the Finance Ministry, seeking clarity on the matter to ensure accurate GST payments and prevent future actions by DGGI.
Experts have highlighted the urgent need for clarification, emphasizing the confusion generated by the government’s circular issued in August 2023. Abhishek A Rastogi, founder of Rastogi Chambers, has raised concerns over the arbitrary classification leading to higher tax burdens on consumers. He argues that such a move contradicts the GST Council’s objective of maintaining lower tax rates on essential products.
This development underscores the complexities surrounding tax classification and enforcement within the FMCG sector. As investigations progress and industry players seek clarity, it remains crucial for authorities to address ambiguities in tax regulations to ensure compliance and fairness in the tax system.
The DGGI’s investigation on alleged tax evasion in the FMCG industry exposes continued issues with tax compliance and categorization. The findings of these investigations, as well as the government’s subsequent explanations, are expected to have far-reaching ramifications for industry participants and consumers alike, influencing the future landscape of GST laws in the FMCG area.