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Ahead of GST Council meet, biscuit makers hope for rate cut

Ahead of GST Council meet, biscuit makers hope for rate cut

Biscuit makers are hoping for a lowered tax rate on widely consumed mass biscuits priced below ₹100 a kilo as an increased instance of GST has put additional burden on manufacturers.

The GST Council is expected to meet on 20 September and could consider tax revisions on various goods. Auto and biscuit manufacturers are hoping for a reduced tax burden amid a slump in consumer demand.

Mayank Shah, category head, Parle Products, and vice president, Biscuit Manufacturers Welfare Association said biscuit manufacturers are hoping for a reduced tax burden on lower-priced biscuits or those priced below ₹100 per kilo from the current 18% to 5%.

“Our request is to continue the distinction between two categories of biscuits ie those below and above ₹100 per kilo because the sub ₹100 per kilo biscuits are targeted at the middle class and lower strata of the society—the consumption is huge there,” Shah told Mint. “We are okay paying 18% GST on biscuits priced above ₹100 per kilo,” Shah added.

Biscuits priced below ₹100 per kilo include largely affordable biscuits such as glucose, and milk and account for 25% of all biscuit sales in India; these are typically priced under ₹10. Earlier in September, the Biscuit Manufacturers Welfare Association, which represents close to 40 biscuit makers, including Parle Products, made fresh petition to the government seeking a reduction on tax slabs.

To be sure, biscuit makers have been seeking a reduction in taxes on biscuits in the mass market segment since 2017, after the government clubbed them in the same tax bracket as premium cookies or those priced above ₹100 per kilo, thus doing away with a varied tax structure under the new GST regime.

This, companies added, has prompted manufacturers to reduce the size of biscuits offered per pack amid growing cost pressures and even take price hikes leading to a slump in demand. Shah added that in the first quarter of the current year premium biscuits or cookies grew between 7% to 8%; while mass biscuits or those priced below ₹100 per kilo declined by 8%, he said citing industry figures.

India’s biscuit market is estimated at over ₹31,200 crore and sees the participation of large companies such as Britannia Industries, Parle Products, ITC, Mondelez India, among others. It is among the largest categories of packaged foods sold in India.

But an increased instance of tax has burdened manufacturers who complain that they have had to resort to price hikes or cut the grammage of biscuits priced under ₹10 to ensure consumer demand is intact. Shah added that last December the company took measures to control costs and has since reduced the number of biscuits sold in its ₹2 to ₹5 packs, including Parle-G —India’s largest selling biscuit.

“We had absorbed the costs for a while, but then last December we started to reduce the quantity offered so that we don’t pass on the prices to consumers,” Shah said. He added that the company had to rule out price increase in ceratin packs as shoppers are “extremely value-conscious, they notice things like this and easily switch to cheaper alternatives.” For Parle, biscuits priced under ₹100 a kilo account for 40% of its sales.

Anmol Industries, which sells namkeen, butter and cream biscuits priced between ₹5 to ₹20, said it has been gradually reducing the size of some of its biscuit packs over the last two years as raw material prices, especially wheat, continue to climb. “Earlier we used to have a 60 gram pack at ₹5, today it has been brought down to 45 grams and if this continues we could soon be selling 40 grams,” said Gobind Ram Choudhary, managing director at the company.

Choudhary who is also part of the India Biscuit Manufacturers Association, an industry body of ten biscuit companies in the North, made representation to the government to reduce the GST on biscuits are priced below ₹150 per kilo to 12% about two months ago. “For us these account for 90% of our sales,” he added.

The move to push to lowered tax rates comes amid a slowdown in consumer demand largely aggravated by a slump in rural consumption where consumers are holding back on purchases of essentials such as household products and staples. This has spooked FMCG companies, which draw over 35% of sales from the hinterland.

In its quarterly update on the FMCG sector for the April-June quarter, research firm Nielsen said that categories such as salty snacks, biscuits, spices, soaps and packaged tea led the slowdown during the quarter. Nielsen also lowered its guidance for the sector for the full year.

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Source: Live-Mint.
No Consensus On Why Consumer Goods Demand Rose After GST

No Consensus On Why Consumer Goods Demand Rose After GST

Consumer goods makers’ volumes jumped as the supply-chain emerged from the initial disruption of goods and services tax. There’s no consensus on why. Makers of soaps to biscuits say lower GST tax rates drove higher demand. But distributors and retailers aren’t sure if that was the trigger and attribute it largely to recovery after the twin disruptions of demonetization and GST.

Wholesale demand had slowed as distributors pared inventory ahead of the July 2017 rollout of GST, fearing losses on leftover stock. Starting three months ended September 2017, sales volumes of consumer goods makers have grown for six straight quarters. The GST Council, the apex decision-making body under the new law, in November 2017 reduced the number of fast-moving consumer goods attracting the highest 28 percent tax rate from 224 to 50.

That brought a host of products including shampoos, soaps and detergents, and deodorants and perfumes in the 18 percent tax bracket. The companies were supposed to pass on the benefit to consumers by lowering prices, not by offering more weight in the same pack.

“If prices come down, people tend to consume more and we have seen a consumption trend in the last one or two years after GST implementation,” Sunil Duggal, chief executive officer at Dabur India Ltd., told BloombergQuint. The consumption has been fairly robust after the instability caused by demonetisation and in the run-up to GST, he said. “We’ve seen around one year of good growth.”

“I don’t think there has been an underlying consumption boom, but the fact that people have to spend less to buy the same product has accelerated consumption.”
Sunil Duggal, CEO, Dabur India

Mayank Shah, category head at Parle Products Pvt Ltd., said lower taxes increased demand for its products by an additional 4-5 percent. Customers have largely been loyal to existing products such as namkeen and rusks, he said.

Distributors See No Such Trend

But distributors and retailers said lower prices didn’t create additional demand. The volumes jumped more on a lower base as the demand had slowed first because of demonetisation and then GST, four distributors and three retailers told BloombergQuint—none wanted to be identified out of business concerns.

A retailer in Maharashtra said consumption has grown organically and not because of rate cuts. A distributor from Mumbai said 2018 was a year of growth, which can’t be attributed to rate cuts. His counterpart from southern India said demand was growing at its historic pace. According to a distributor in Gujarat, prices of goods were down only in the first six months, and now they are higher by 5 percent on average following multiple hikes by companies.

Moreover, distributors said, some consumer goods makers increased grammage instead of lowering prices. Market leader Hindustan Unilever Ltd. and Nestle India Ltd. face anti-profiteering penalty for not lowering prices. While HUL got a stay from the Delhi High Court and voluntarily deposited Rs 90 crore, Nestle said it provisionally deposited the amount that it had set aside.

Premiumisation Vs Formalisation?

A distributor in Punjab told BloombergQuint some consumers upgraded to premium products. If a person typically bought four bars of soap, his consumption will not go up, he said, adding that the rate cut made him to buy a more premium brand. But he agreed with his counterparts in other regions that there hasn’t been an overall uptick in consumption because of GST.

A retailer from Nagpur said there are instances of customers buying higher-priced items after GST rate cut. But, he added, fast-moving consumer goods makers have also been pushing premium products in smaller packs.

Dabur’s Duggal agreed that there was a higher demand for smaller packs, citing the example of shampoo sachets selling at Re 1 each. “It is deeper penetration and a higher level of consumption (driving demand),” he said. “I don’t see any premiumisation.”

Instead, there’s a shift from products like tea and biscuits sold loose to packed, branded items, he said. Smaller packs account for 20-30 percent of consumption, and in some categories, lower GST rates has made that formalisation possible. Even in the larger packs, deep discounting after GST rate cuts has improved offtake. “In oral, skin and hair care, it has been quite positive.”

Saugata Gupta, chief executive officer at Marico Ltd., pointed to a similar trend in an investor call. Formalisation of the economy after GST would help increase demand for branded soaps, detergents, household cleaning products, and coconut oil, he said. “Companies will need to ensure direct distribution to compete with smaller regional players.”

Suresh Narayanan, chairman and managing director of Nestle India Ltd., also doesn’t see premiumisation because it’s more a brand strategy. But he has a more nuanced view on volume growth—it can be attributed to a mix of everything.

“The overall sectoral growth of FMCG has been fairly encouraging,” he said. “The momentum in the market was good in 2018. Not that GST alone pushed it, he said, but it aided that.

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Source: Bloomberg Quint
White goods firms under NAA lens for pocketing GST rate cuts

White goods firms under NAA lens for pocketing GST rate cuts

After imposing fines on restaurants, fast moving consumer goods (FMCG) and pharma companies for not passing the benefits of lower goods and services tax (GST) to consumers, the NAA authorities have turned their attention to makers of home appliances or white goods.

The anti-profit authority is examining whether companies pocketed profits after the government slashed GST rates on washing machines, TVs and other electronic products. While most large consumer durable companies are under the lens, Kolkata based IFBNSE 0.80 % Appliances, which manufactures high-end washing machines and a handful of other products, is the first company that has received notices, said two people with direct knowledge of the matter.

IFB, a BSE-listed company, was asked to furnish details of cost and selling prices on its washing machines a few months ago. “The company did not respond to the first letter and so a second letter was written by NAA (National Anti-profiteering Authority). The company was asked to provide data around cost and selling prices of products before and after GST,” said a person close to the development.

An email sent to IFB on Saturday did not elicit any response. The person added that IFB could face a fine in the coming weeks. Other companies, too, are under scrutiny and the first set of letters is either issued or will be issued in the coming weeks. Industry trackers say that NAA’s focus seems to be on goods that could stoke inflation. One of the impacts of implementing GST globally is that it leads to higher inflation.

“The anti-profiteering authority is scrutinizing every sector that directly impacts inflation and so white goods companies are currently under the lens. However, the question remains that in the absence of any prescribed methodology, it becomes really difficult for a company to compute the quantum of profiteering and pass on the GST rate cut benefits,” said Abhishek A Rastogi, partner at Khaitan & Co.

Insiders point out that for most consumer durables companies, it is extremely tough to even calculate precise price cuts before and after GST implementation. This is mainly because most companies have separate contracts with different retail outlets.

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Source: Economic Times
CBIC clarifies on levy of GST on sales promotion schemes

CBIC clarifies on levy of GST on sales promotion schemes

Promotional schemes such as ‘buy one get one free’ (BOGO) and additional quantity for the same price will be eligible for input tax credit, the government has clarified, bringing huge relief to fast moving consumer goods (FMCG), food, retail, and pharmaceutical companies.

Companies will not have to pay goods and services tax (GST) separately on the additional product unless it is a totally different one facing a higher rate of tax. They will also not have to reverse input tax credit taken for these. “Taxability of such supply will be dependent on whether it is composite or mixed. The rate of tax will be determined as per section 8 of the (GST) Act,” the circular said.

The clarification comes after several representations from the industry. A number of companies in the FMCG and pharma sectors had been served notices by tax authorities, asking them to reverse input tax credit in case of such offers, prompting many to drop such schemes.

The circular has clarified that GST for BOGO offers would be paid on the price recovered from the customer without reversing the input credit. “The supplier shall be entitled to avail input tax credit for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts,” it said. Companies offering schemes such as ‘buy more, save more’ will also be entitled to avail input tax credit.

In respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples, it is clarified that input tax credit shall not be available to the supplier on inputs, input services, and capital goods. There will no GST on gifts and free samples, prevalent among pharma companies.

Tax experts say this is a big relief for the industry. “The ordeal has come to an end due to this clarification and is a welcome move for many industry players to stop preparing for litigation,” said Suresh Nandlal Rohira, partner, Grant Thornton India LLP.

However, experts also feel the government should clarify the issue of subsidy given by companies to dealers or retailers. “A long-awaited clarification has now been issued. Many aspects have been covered, though the one relating to subsidy has not been addressed. It will be good if that too is clarified,” said Anita Rastogi, partner, PwC.

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Source: Economic Times
Anti-profiteering body in talks with FMCG companies over GST fee cut benefits

Anti-profiteering body in talks with FMCG companies over GST fee cut benefits

The National Anti-Profiteering Authority is calling large fast-moving consumer goods companies to understand if last November’s GST rate cut benefits were passed on to consumers.

Only two FMCG companies, Hindustan Unilever and Nestle, Anti-profiteering body in talks with FMCG companies over GST fee cut benefitshave approached the quasi-judicial body voluntarily. The GST benefits include both rate cuts and input tax credit available. The GST Council had reduced rates for over 200 items of common use on November 10 and the changes came into effect from November 15.

The authority has held hour-long meetings with Reckitt Benckiser, Godrej, P&G, Nirma and Marico among a dozen companies at its Delhi office to understand if they had passed on benefits to consumers and to what extent. Meetings with more companies have been planned. “We are holding informal discussions with firms for their feedback on the GST and to understand if they have passed on entire benefit to consumers,” an official said.

In case the authority is not satisfied with a company’s computation, it may ask GST commissioners to file an anti-profiteering complaint.

The industry is, however, concerned over the lack of clear profiteering guidelines. Also there is no formula to calculate the benefits due.

According to sources, the majority of the FMCG companies that the authority has met so far have failed to agree with it over the quantum of benefits that remains due. The companies blame large inventories based on an older pricing formula for their failure to pass on all the benefits.

Marico and Reckitt Benckiser said they were not in a position to comment at the moment. Queries sent to Nirma, P&G and Godrej remained unanswered.

“Scrutiny of the cost structures of FMCG companies without an approved common methodology to determine whether the benefits were passed on will be a difficult task, “ said M S Mani, partner, Deloitte India. In many cases, stock with trade on the transition date would be difficult to determine from a profiteering perspective, he added.

“Since these meetings could lead to a formal enquiry, industry needs to be prepared with adequate documentation,” said Pratik Jain, partner, PwC India. He added it was important for the authorities to understand industry’s concerns, as no guidelines had been issued by the government on compliance. “One will not be surprised if these meetings extend beyond the FMCG sector in the next few days,” Jain said.

Also Read: How to change or update e-mail, phone number in GST system

An ITC spokesperson said, “We have passed on the benefits of the GST rate cuts to customers and this has been communicated to the relevant authorities.’ The spokesperson declined to elaborate.

The two factors mentioned in the statutory provisions cannot determine profiteering and hence other factors such as the incremental cost of doing business need to be looked into, according to Abhishek A Rastogi, the partner at law firm Khaitan & Co.

Hindustan Unilever and Nestle have offered to pay the profiteered amount. Hindustan Unilever calculated a profiteered amount of Rs 1.60 billion and offered it to the government. Nestle is assessing the final amount. Hindustan Unilever is yet to deposit the money with the government as it awaits instructions related to bank account details.

The anti-profiteering mechanism is a three-stage process. There is a state-level screening committee for local complaints and a standing committee for national-level complaints; then, investigation by the Directorate General of Safeguards and a probe by the National Anti-Profiteering Authority.

The authority is chaired by BN Sharma, is assisted by four officials of the rank of joint secretary and above.

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Source :  Business Standard
HUL offers government third tranche of GST benefits

HUL offers government third tranche of GST benefits

Hindustan Unilever  GST

Hindustan Unilever (HUL) has offered another tranche of GST benefits amounting to Rs 36 crore for the month of January. A significant portion of this amount includes benefits accrued on stocks, which were lying with HUL’s distributors during the time of transition on November 15, 2017. With this third tranche, the total combined (HUL plus distributors) GST benefits offered by the company of its own accord to the government amounts to Rs 155 crore.

A company spokesperson said benefits accruing directly to HUL that needs to be passed on to consumers have come down significantly from that in November and December as most of the company’s revised pricing networks have now landed in the market. “A communication to this effect has been sent to the government. Authorities have commended this pro-active approach taken by HUL,” the spokesperson said.

The company said implementation of the revised GST rates (November 15, 2017) was initiated immediately. However, there was a lag on account of the time required to change artworks on the various products, order packing material, production and ensuring availability in stores between GST rate reduction and the new packs being produced and supplied to the market. “Hence, it was not possible to immediately pass on the benefit of the November 15 GST rate reductions to the end consumers,” said the spokesperson.For the period November 15-November 30, the company estimated the amount at Rs 60 crore and in early December, the company met with government officials of its own accord and offered to deposit this amount into the Consumer Welfare Fund. In the same communication, the company also informed the government that it would deposit monthly the benefits that would be accrued to it, and which would need to be passed on to consumers until the transition would be completed, or until the company is informed by the government of an alternative action.

Accordingly, for the month of December 2017, the company estimated this amount to be Rs 59 crore, and in early January 2018 the company on its own offered to deposit Rs 119 crore for November and December 2017. This amount was not recognised as revenue and was accounted as a liability as on December 31, 2017.

In the absence of clear legal provisions on this subject, the request was forwarded to the Director General of Safeguards. The company said it is awaiting advice from them so that it can deposit the cheques at the earliest.

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Source :  The Times of India
Buying groceries? Make sure to check GST ‘discounts’

Buying groceries? Make sure to check GST ‘discounts’

From Wednesday, consumers would do well to check their shopping bills closely. A host of packaged products such as chocolates, toothpastes, shampoos and shaving creams – with the maximum retail price printed on them – is set to become cheaper following a steep reduction in the goods and services tax.

Some companies manufacturing these products have asked traders to pass on the tax cuts to consumers immediately, without waiting to put revised maximum retail price stickers on them or printing new packs, both of which would take time.

A watch company and a printer maker plan to inform customers about the price reduction through newspaper advertisements. Still, consumers should be aware that not all companies may implement the price cuts right away.

The changes will affect a large number of products that are already in stores or on their way there. Pasting stickers with revised prices can be done only after the government gives the go ahead. Apart from taking time, some companies said pasting stickers costs the same as printing packs with the revised prices.

revised gst

The maximum retail price of a product includes taxes and unless a company increases the base price or raises the margin for distributors and dealers, these products should become cheaper. The government is yet to issue fresh guidelines on pasting stickers with the revised prices.

“A number of products are in the MRP category, so companies will have to put a sticker or print new prices,” a government official said. The GST Council reduced the tax rate on about 200 products, of which 178 were moved to 18 per cent from the 28 per cent slab, at its 23rd meeting on November 10. The new rates are effective from midnight Tuesday, with both the states and the Centre issuing notifications.

“It’s good that the GST Council decided to bring in the changes from a particular date, that is November 15, as in a few cases earlier, different states had issued notifications from different dates,” said Pratik Jain, indirect tax partner, PwC.

“However, given the paucity of time, most companies have not been able to reduce the MRP of products but have communicated to dealers and retailers that prices should be brought down.” Consumers need to be aware about what prices are likely to come down and by how much, irrespective of the MRP printed on the product, he said. Gujarat Cooperative Milk Marketing Federation, which makes Amul, the country’s largest dairy brand, has told distributors to sell its products at the revised prices, managing director RS Sodhi said.

“We have started the process of price revision. But there will be some transition time before which products with new MRPs reach end consumers,” he said. GST slabs on condensed milk and chocolate have been revised downwards, directly impacting the company’s products. Dabur, the maker of Real fruit juices and herbal and ayurvedic products, said it has not informed its trade channels about the revised prices.

“So far we have not communicated anything to our distributors as we are awaiting the notification,” Dabur chief financial officer Lalit Malik said. “We are in the process of evaluating the impact of this announcement and a final decision will be taken post the notification of the rate cut.” Some companies may not cut prices and instead increase pack sizes.

“When the tax slabs went up in July, we did not increase prices. Now that they have been revised downwards, we may not drop prices. We will wait and see how the market dynamics play out before taking a decision,” said the head of a large cosmetics company. Consumers should keep a tab on restaurant bills, too.

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Source :  The Economic Times