JUNE 21, 2017

By Shweta Walecha

EVER since the GST rates have been announced, the industry is gearing up to be Goods & Services Tax (GST) -ready not only in terms of analysing the GST implications on their transactions but also studying the financial impact of these transactions.

One such analysis that businessmen have undertaken is whether the introduction of this new regime alongwith the rates would require any change in the sale price charged for goods or services, as the case may be. If the new levy requires an increase in the sale price, this would be required to be communicated to all the parties in the downstream channel so as to make sure that none of the members in the channel suffers a loss due to change in the taxation.

However, this option of increasing the sale price is easier said than done, especially when the product being sold is governed by the Legal Metrology (Packaged Commodities) Rules, 2011. The Rules govern the transactions made with respect to goods sold in packaged form.

The aforesaid Rules require a dealer to ensure that the package sold by him has certain mandatory declarations thereon or a label affixed thereto. One such essential declaration that is required to be made on the package is the Maximum Price at which the product can be sold. These Rules specifically provide that no dealer can make the sales of the packaged commodity at a price higher than the Maximum Retail Price mentioned thereon. However, Rule 18(3) makes an exception to said principle in a case where due to a revision in the tax, the retail sale price needs to be revised. Said sub-rule is extracted hereunder:-

(3) Where, after any commodity has been pre-packed for sale, any tax payable in relation to such commodity is revised, the retail dealer or any other person shall not make any retail sale of such commodity at a price exceeding the revised retail sale price, communicated to him by the manufacturer, or where the manufacturer is not the packer, the packer, and it shall be, the duty of the manufacturer or packer as the case may be, to indicate by not less than two advertisements in one or more newspapers and also by circulation of notices to the dealers and to the Director in the Central Government and Controllers of Legal Metrology in the States and Union Territories, the revised prices of such packages but the difference between the price marked on the package and the revised price shall not, in any case, be higher than the extent of increase in the tax or in the case of imposition of fresh tax higher than the fresh tax so imposed:

Provided that publication in any newspaper, of such revised price shall not be necessary where such revision is due to any increase in, or imposition or, any tax payable under any law made by the State Legislatures:

Provided further that the retail dealer or other person, shall not charge such revised prices in relation to any packages except those packages which bear marking indicating that they were pre-packed in the month in which such tax has been revised or fresh tax has been imposed or in the month immediately following the month aforesaid:

Provided also that where the revised prices are lower than the price marked on the package, the retail dealer or other person shall not charge any price in excess of the revised price, irrespective of the month in which the commodity was pre-packed.

Thus, a bare reading of the aforesaid provision makes it very clear that if due to changes in the tax structure, the price of the product needs to be revised, then the manufacturer or the packer would be required to indicate the revised prices through an advertisement in newspapers and notices to the dealers and the Legal Metrology Department. The subsequent provisos to this provision make certain exceptions to said general principle.

In the present scenario, a new indirect tax subsuming the earlier taxes, i.e. GST is proposed to be introduced w.e.f. 1.7.2017. This new levy may require a revision of the retail sale price mentioned on the product. Assuming that the product's maximum sale price requires an upward revision, then in terms of the aforementioned Rule 18(3) of the Legal Metrology (Packaged Commodities) Rules, 2011, the manufacturer would be required to notify the general public, dealers and Metrology Department of the increased revised price.

However, a perusal of the Provisos mentioned to the aforesaid Rule create confusion on the practical applicability of the main provision i.e. Rule 18(3).

The first proviso eliminates the requirement of giving indication in the newspaper in the situation where the revision is by reason of changes made by the State Legislatures . Now, in the case of GST introduction, the revision of price is on account of changes made by both the Central as well as the State Legislatures. Thus, strictly speaking, this proviso should not be made applicable for the specific situation of revision of prices due to introduction of GST.

However, even if the manufacturer takes this interpretation and wishes to intimate the public through advertisement, the second proviso poses a bigger challenge.

The second proviso restricts the ambit of the main Rule to only those packages which have the declaration that these goods were packed in the month in which the revision in tax or introduction of new levy came into the effect or the month immediately following said month.

One view that can be taken is that said proviso is meant to cater to the situation wherein the manufacturer had procured pre-printed packing material but before exhausting such stock of packing material, the maximum sale price needs revision. However, the language of the proviso does not restrict itself to be a provision to merely enable the manufacturer to utilize the old packing material.

The third proviso is not a new insertion in the Legal Metrology (Packaged Commodities) Rules, 2011 but the draftsmen at the time of its introduction would not have contemplated introduction of completely new tax regime like GST. Thus, even though the language of the provision does not specifically say so, but charging of revised prices due to the advent of the GST regime would also be covered by said proviso only.

Thus, going by the current example wherein GST is proposed to be introduced from 1st July, 2017, the revised price can be charged by the dealers only if the package containing the goods is packed in the month of July or in the month of August.

This interpretation leads to the absurd results that if the revised price can only be charged for the goods which are packed subsequent to the introduction of the new levy, the manufacturer or the packer would in any case mention the revised retail sale prices only on the packages. The manufacturer would have needed this provision only in the situation where he had cleared the goods from his premises with the unrevised retail sale price and such stock is lying unsold at various dealer locations.

Thus, the provision would have made sense and would have benefitted the dealer & the manufacturer (for exhausting its pre-printed packing material)if the proviso would have mentioned that the revised retail price can be charged with respect to such packages which are packed in the month of introduction of new levy, the month following or the month(s) PRECEDING the said month i.e. in the example, goods packed in the month of June would also be eligible for revision of the retail sale price.

However, as the Rule stands today, this provision is bound to create difficulties for the dealers as well as the manufacturers. Though the Legal Metrology (Packaged Commodities) Rules, 2011 were always meant for consumer protection, they were definitely not meant to make the working of the business difficult. Thus, it is high time that the industry files a representation with the Legal Metrology Department to point out the absurdity in the aforesaid Rule or seek clarity on the interpretation of the same.

(The author is Joint Partner, Lakshmi kumaran & Sridharan and the views expressed are strictly personal.)