Though GST was ushered in with a bang on Friday midnight, tax experts say that there are several items which straddle two categotries, making their classification difficult and litigation almost inevitable.
To begin with, confusion over tax rates on fast-moving consumer items such as beverages and chocolates have added to the mess over the GST rollout.
Carbonated drinks are under 28 per cent GST rate plus 12 per cent cess, totalling 40 per cent. On the other hand, fruit-based drinks have been classified under 18 per cent. But there are items like Appy Fizz, which are carbonated and fruit-based, and so can’t easily be put in either of the two tax slabs.
Similarly, biscuits are at the lower rate of 18 per cent while chocolates are under 28 per cent. But then there are products like KitKat, which have both elements: wafer coated with chocolate.
It may be noted it took many years to categorise the soft-cone sold by McDonald’s as ice-cream. The case went on for almost four years with the retailer and tax authorities locked in a tussle in tribunals and courts.
“There are many areas where there will be confusion. Even in the GST law there are areas where more clarity is required,” said Amit Bhagat, a tax partner at global consultancy PwC.
Some retailers noted that similar confusion could arise even in case of readymade garments and other merchandise. As decided by the all-powerful GST Council, readymade garments below Rs 1,000 MRP will attract five per cent GST, while for garments priced above Rs 1,000, the rate was fixed at 12 per cent. Experts expect a situation where a retailer goes in for a “dhamaka” offer, where a dress marked Rs 1,099 MRP is actually sold for Rs 799. “There is confusion on what rate will apply in this case,” said Amit Kumar Sarkar, partner and indirect tax head at BDO India, Mumbai.
Besides the doubts, there are also some bizarre items in the GST law. The GST Council cleared nil rate on live asses, mules and hinnies while placing live horses under the 12 per cent bracket.
Tax experts said since rich and influential people are generally involved in the business of horse-breeding and racing, a higher rate was fixed for horses. Against this, asses are mostly used by poor people in the rural areas for carrying goods, so a lower tax slab was set.