Some bizarre taxes and confusion over new rates of beverages and chocolates have added to the Goods and Services Tax (GST) roll-out mess as traders rush to guard their cash flows in the new regime.
Carbonated drinks such as Pepsi and Coke are under 28 per cent GST rate plus 12 per cent cess totalling 40 per cent. On the other hand, fruit-based drinks such as Tropicana and Real have been classified under 18 per cent. But there are items such as Appy Fizz, which is both carbonated as well as fruit-based. In this case, it cannot be put in either of the two tax slabs.
While manufacturer would like it to be classified as fruit-based and pay lower GST, tax authorities would want higher rates.
Similarly, biscuits are at lower rate of 18 per cent while chocolates are under 28 per cent slab. But then there are products such as KitKat by Nestle, which has both the two elements — wafer coated with chocolates.
Tax experts said that there are many such cases where classification would be difficult and thus invite litigation. It may noted that it took many years to determine soft-cone sold by McDonald as ice cream. The litigations ensued for almost four years with both the food retailer and tax authorities fighting out in various tribunals and courts.
“There are many areas where there would be confusion. Even in the GST law there are areas where more clarity is required," said Amit Bhagat, tax partner at global consultancy PwC. Some of the retailers pointed out that similar confusion could arise even in case of ready-made garments and other merchandise.
As decided by the GST Council, ready-made garments below the Rs 1,000 MRP would attract 5 per cent tax in the new indirect tax regime. For garments priced above Rs 1,000, the tax rate has been fixed at 12 per cent. The tax would be levied on MRP. Now, experts expect a situation where a retailer gets a shock, when a dress with Rs 1,099 MRP is sold for Rs 799. “There is confusion as to which rate would apply in this case,” said Amit Kumar Sarkar, partner & head (indirect tax) at BDO India.
Apart from possible doubts in these cases, there are also bizarre items under the GST law. The GST Council cleared nil rate on live asses, mules and hinnies while placing live horses under 12 per cent bracket. Tax experts said that since rich are generally involved in the business of horse-breeding and racing higher rate has been fixed for horses.