New Delhi: Businesses selling packaged food articles like cereals, pulses and flour can escape the 5% goods and service tax (GST) if they choose to forgo any actionable claim on their brand name, under norms on tax rates which will be notified by end of the week, finance ministry said on Wednesday.
The proposed norms, based on the decisions taken on 9 September by the federal indirect tax body, the GST council, will also provide for bringing any brand registered in another country under the 5% tax net, the ministry said.
The council chaired by finance minister Arun Jaitley had decided to plug the loophole of businesses avoiding the 5% GST on branded packaged food items by deregistering the brand name.
The ministry’s Wednesday statement makes it clear that if all actionable claims and enforceable rights by a producer against competitors infringing on its brand name are forsaken, then the 5% GST will not apply. That exemption, however, comes with conditions. The company that abandons its intellectual property rights over the brand name has to file an affidavit about it with the tax department and mention that fact on every unit of the product.
If such rights are retained, 5% GST will apply even if a brand name which was valid as on 15 May is subsequently deregistered. Even a mark or a name that carries an intellectual property right will be sufficient to bring the product to the tax net.
“It seems that the proposed notification might have retrospective application in cases where the brand was registered as on 15 May and was subsequently deregistered. Also, in view of a requirement of a specific declaration regarding forgoing the enforceable right or actionable claim, it is unlikely that large companies will now risk a brand to avoid 5% GST,” said Pratik Jain, partner and leader of indirect tax PwC India.