APPLICABILITY OF GST ON PACKAGED GROCERY ITEMS – by NIDHI GUPTA, Advocate

2016-11-03-21-01-38-304

APPLICABILITY OF GST ON PACKAGED GROCERY ITEMS

With the introduction of GST, a tax of 5% was imposed on majority of Grocery Products like Wheat Flour, Gram Flour, Rice and Pulses etc., when sold in packaged form under a registered brand name.  Therefore, a number of persons owning well established brands surrendered registration in respect of such brand names.  But, they continued to use the said brand names.  As, such brand names were no more covered under the definition of registered brand name and therefore, GST was not payable on the edible items sold under such brand names.  To check this loophole, an amending Notification No. 28/2017-Central Tax (Rate),dt. 22-09-2017, has been issued.  This Article is an attempt to understand the various issues involved with respect to use of brand name in light of the said amending notification.

Legal Provisions.

Period upto 22.09.2017

Almost all raw edible products like Wheat Flour, Gram Flour, Rice and Pulses etc. (other than those put up in unit container and bearing a registered brand name) were fully exempted from GST vide Notification No. 02/2017 – Central Tax (Rate).  Some of the entries in the said Notification are as under:

73. 1101 Wheat or meslin flour [other than those put up in unit container and bearing a registered brand name].
74. 1102 Cereal flours other than of wheat or meslin, [maize (corn) flour, Rye flour, etc.] [other than those put up in unit container and bearing a registered brand name]
75. 1103 Cereal groats, meal and pellets [other than those put up in unit container and bearing a registered brand name]
78. 1106 Flour, of the dried leguminous vegetables of heading 0713 (pulses) [other than guar meal 1106 10 10 and guar gum refined split 1106 10 90], of sago or of roots or tubers of heading 0714 or of the products of Chapter 8 i.e. of tamarind, of singoda, mango flour, etc. [other than those put up in unit container and bearing a registered brand name]

 In the said notification the phrase ‘unit container’ and ‘registered brand name’ were defined as under:

(i)         The phrase “unit container” means a package, whether large or small (for example, tin, can, box, jar, bottle, bag, or carton, drum, barrel, or canister) designed to hold a predetermined quantity or number, which is indicated on such package.

(ii)        The phrase “registered brand name” means brand name or trade name, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person, and which is registered under the Trade Marks Act, 1999.

Period from 23.09.2017

The aforesaid Notification No. 02/2017 Central Tax (Rate) was amended by Notification No. 28/2017-Central Tax (Rate) ,dt. 22-09-2017 and the aforesaid entries were amended as under:

(iii) against serial numbers 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 77 8 and 78, in column (3), for the words “other than those put up in unit container and bearing a registered brand name”, the words, brackets and letters “other than those put up in unit container and,-

(a) bearing a registered brand name; or

(b) bearing a brand name on which an actionable claim or enforceable right in a  court of law is available [other than those where any actionable claim or  enforceable right in respect of such brand name has been foregone voluntarily, subject to the conditions as in the ANNEXURE I]”, shall be substituted

 

ANNEXURE I

For foregoing an actionable claim or enforceable right on a brand name,-

(a) the person undertaking packing of such goods in unit containers which bears a brand name shall file an affidavit to that effect with the jurisdictional commissioner of Central tax that he is voluntarily foregoing his actionable claim or enforceable right on such brand name as defined in Explanation (ii)(a); and

(b) the person undertaking packing of such goods in unit containers which bear a brand  name shall, on each such unit containers, clearly print in indelible ink, both in English and the local language, that in respect of the brand name as defined in Explanation (ii)(a) printed on the unit containers he has foregone his actionable claim or enforceable right voluntarily.

In the said amending Notification No. 28/2017-Central Tax (Rate) ,dt. 22-09-2017, the definition of ‘registered brand name’ was also substituted by the following definition:

In the Explanation, for clause (ii), the following shall be substituted, namely: –

“(ii)(a) The phrase “brand name” means brand name or trade name, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or Writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person.

(b) The phrase “registered brand name” means,-

(A) a brand registered as on the 15th May 2017 under the Trade Marks Act, 1999 irrespective of whether or not the brand is subsequently deregistered;

(B) a brand registered as on the 15th May2017 under the Copyright Act, 1957(14 of 1957);

(C) a brand registered as on the 15th May2017 under any law for the time being in force in any other country.

The impact of aforesaid amending Notification No. 28/2017-Central Tax (Rate) ,dt. 22-09-2017 can be understood by categorising the products as under:

  1. Packaged item containing a registered brand name.
  2. Packaged item containing a brand name but not a registered brand name.
  3. Packaged item containing neither registered nor unregistered brand name.

Packaged Item containing a registered brand name.

As, per the amended definition registered brand name means a brand name registered on 15th May, 2015 under the Trademarks Act or Copyright Act or in any other country.  For the purpose of the said notification such brand name will be covered under the definition of registered brand name even if it was deregistered on or after 15th May, 2017.  The packaged commodities containing such brand names are ineligible for exemption under the said notification.  For example, if a brand owner whose brand was registered under the Trademark Act, 1999 got it deregistered on or after 15th May, 2017. Then the goods bearing such brand name will not be eligible for exemption.

Apparently and as claimed, the aforesaid amendments have been brought in effect to cover those brand owners who have got their well-established brands de-registered to avail benefit of exemption.  However, as usual, while drafting another interesting anomaly have taken place.  As per the new definition, the brands registered post 15th May, 2017 are not covered under the definition of registered brand name.

Packaged items containing a brand name but not a registered brand name.

The packaged commodities containing brand name though not a registered brand name as indicated above will also be ineligible for exemption under the said notification.  However, exemption in respect of such goods can be claimed if conditions as contained in Annexure A are fulfilled.  For example, goods bearing unregistered brand name can be cleared without payment of GST if an affidavit forgoing actionable claim or enforceable right is filed with the Jurisdictional Commissioner and also such packages also contained an endorsement to the effect that actionable claim or enforceable right in respect of such brand name have been forgone voluntarily.

It is to be noted that an exemption under the notification cannot be claimed in respect of a registered brand name even by filing aforesaid affidavit and making endorsement of the packages.  The GST at the applicable rate is payable on the packages containing registered brand name, as the said facility is available only in respect of those brand names which are not covered under the definition of registered brand name in terms of the said notification.  However, as the brand names registered post 15th May, 2017 are not covered under definition of “registered brand name”, therefore, they will be eligible for exemption, if conditions contained in Annexure 1 are complied with.

Packaged items containing neither registered nor unregistered brand name.

The third category is of those packages which do not contain any brand name whether registered or not.  However, such packages will continue to bear name and address of manufacturer and/or packer of such goods being a legal requirement under Legal Metrology Act, Food Safety Act etc.  The question here is whether such name and address of manufacturer/packer can be considered as brand name to render such goods ineligible for the said exemption.  The definition of brand name as contained in the aforesaid notification is reproduced below:

The phrase “brand name” means brand name or trade name, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or Writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person.

The Hon’ble Supreme Court explained meaning of the following identically worded definition of ‘brand name’ as contained in Chapter 20 of the Central Excise Tariff in Tarai Food Ltd. Vs. Commissioner, 2006 (198) E.L.T. 323 (S.C.)

“Brand name” means a brand name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.”

A reading of the aforesaid two definitions reveal that both are absolutely in pari-materia and therefore, the interpretation expounded by the Hon’ble Supreme Court in this case is squarely applicable in respect of the instant notification.  In Tarai Food (Supra) case the Hon’ble Supreme Court found as under:

7. The words brand name connotes such a mark, symbol, design or name which is unique to the particular manufacturer which when used on a particular product would establish a connection between the product and the manufacturer.

8. The phrase “New Improved Quick Frozen French Fries” is not a phrase which is unique nor does it indicate a relation with the appellant. It merely describes the contents of the packet. The phrase ‘French Fries’ is in fact used in Americas to describe particular kinds of potato chips. These descriptive words could not be treated as the brand name as the Asstt. Commissioner has purported to do. The submission of learned counsel appearing before us is that it is the manufacturer’s name which is sufficient to place the second type of packets within the tariff entry 2001.10 is also unacceptable. The two tariff entries draw a distinction between unbranded and branded unit containers. This assumes that it is possible for unit containers to be sold without bearing a brand name. Under the Standard Weights and Measures (Packets Commodities) Act, 1977 every packet is required to bear thereon or on a label squarely affixed thereto a definite, plain and conspicuous declaration as to, inter alia, the name and address of the manufacturer (see Rule 6 & 10). In other words, unit containers would have to bear the name of the manufacturer. If the name of the manufacturer were to be a brand name then this would mean, that there would be no unbranded unit container at all in law and the distinctiveness of T.H. 2001.10 would be meaningless.

9. Furthermore the definition of the words ‘brand name’ shows that it has to be a name or a mark or a monogram etc. which is used in relation to a particular product and which establishes a connection between the product and the person. This name or mark etc. cannot, therefore, be the identity of a person itself. It has to be something else which is appended to the product and which establishes the link.

10. A similar phrase was considered by this Court in Astra Pharmaceutical Pvt. Ltd. (supra), wherein the question was whether certain medicines were patent or proprietary medicines under tariff item 14E to Schedule-I of the Central Excise and Salt Act, 1944 as it stood earlier. The explanation to tariff item 14E insofar as it is relevant defined a patent or proprietary medicine inter alia as a medicine or which has a brand name, that is a name or a registered trade mark under the Trade and Merchandise Marks Act, 1958 or any other mark such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to that medicine for the purpose of indicating or so as to indicate a connection in the course of trade between the medicine and some person, having the right either as proprietor or otherwise to use the name or mark with or without any indication of the identity of that person. In construing what a brand name meant, the court relied upon Narayan’s book on Trade Marks and Passing- off where a brand name was described as a product mark or a mark by which the product is identified and asked for.

11. There is a value attached to the brand name, a value which has been recognized in the tariff entry by providing for levy of excise duty on goods bearing a brand name. It may be that the appellant had deliberately omitted the brand name in selling the ‘French Fries’ to avail of the nil rate of tariff. This cannot detract from the consequences which would follow in law. If the assessee opts not to take advantage of the brand name in its trade, it could at least have the benefit of the rate of duty applicable to unbranded product.

From the above judgement of Hon’ble Supreme Court it is clear that merely name and address of a manufacturer/packer cannot be considered as brand name to deny exemption under the said notification.

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