The Directorate General of GST Intelligence ( DGGI ) has taken action against aimed at various major players in the fast-moving consumer goods companies, including ITC, Prataap Snacks, PepsiCo, Balaji Wafers, RP Sanjiv Goenka Group, and others, over alleged tax evasion.
It was reported by CNBC-TV18 that the DGGI has intensified its crackdown on nearly 10-12 FMCG companies, citing issues related to product classification leading to suspected tax evasion. According to the sources, the DGGI has issued notices and investigation intimation letters to FMCG companies for allegedly paying a lower rate of Goods and Services Tax ( GST ) on products categorized as extruded snacks and fried pellet snacks.
In 2023, the government clarified that snacks prepared by the extrusion process should attract an 18% GST rate, not the current 12% being paid by the industry. Extrusion is a technique used to create ready-to-eat puffed snacks.
Preliminary estimates from the DGGI suggest substantial revenue losses due to the alleged GST evasion. The sources claim that the DGGI alleges ₹500 crore GST evasion by ITC Ltd, ₹300 crore by Prataap Snacks Ltd., ₹175.89 crore by PepsiCo India, ₹19 crore by Balaji Wafers, ₹39.14 crore by RP Sanjiv Goenka Group’s Guiltfree Industries Ltd., and ₹68 crore by Sarveshwar Foods Ltd.
An ITC spokesperson responded to the query of CNBC-TV18, stating that, “We are unable to comment as industry-wide inquiries are ongoing.” Responses from other companies are awaited as the investigation unfolds.
In light of these investigations and communications from the government, the industry has presented a detailed representation to the Finance Ministry, seeking clarity on the matter to ensure accurate future payments of GST and avoid potential actions by the DGGI.
Experts emphasize the urgent need for clarification, asserting that the government’s stance, as outlined in the August 2023 circular, is causing confusion within the sector and among industry players.
“The entire controversy stems from the August 2023 circular, issued after the GST Council meeting, which classifies the same food product into different rates based on whether such goods have been manufactured through the process of extrusion,” explained an expert who has been addressing rate classification issues across various sectors.
Stakeholders expressed concerns about the higher tax rate specified in the circular, highlighting potential constitutional validity challenges due to arbitrariness and vagueness. Additionally, he argued that the lack of a clear definition for extrusion could result in unwarranted higher tax burdens on consumers, contradicting the GST Council’s objective of keeping rates on essential products in lower tax categories.
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