GST rate cuts: CBEC chief tells firms, restaurants to lower prices

GST rate cuts: CBEC chief tells firms, restaurants to lower prices

Central Board of Excise and Customs (CBEC) Chariman Vanaja Sarna has written to 100 major companies including Colgate-Palmolive, Dabur, Nestle, and Hindustan Unilever, and 15 restaurants including McDonald’s, Café Coffee Day, and MTR, to pass on the benefit of reduction in goods and services tax (GST) rates to consumers.

The move comes amid instances of companies and restaurants persisting with high rates, raising profiteering concerns.

In a letter to company heads and associations, Sarna asked them to go for a commensurate reduction in the prices of products and give it wide publicity. “While it is a legal requirement, you will agree that for all citizens this is an important social responsibility. It would be most helpful if the reduced prices are also given wide publicity,” the letter reads.

The letter was sent a week after the GST Council went for a massive trimming of items in the 28 per cent bracket, besides reducing rates on items in the 18 per cent and 12 per cent categories. The Council in the meeting in Guwahati on November 10 reduced the rates of more than 200 items of common use. The rate of 176 items was reduced from 28 per cent to 18 per cent. They include chewing gum, shampoo, detergent, chocolate, beauty products, sanitary ware, leather clothing, cookers, stoves, detergent and washing power, razors and blades, cutlery, storage water heater, batteries, goggles, and mattresses.

The change in rates became effective on November 15. Now only 50 items remain in the 28 per cent category. The rate for six items was reduced from 18 per cent to 5 per cent, for eight items from 12 per cent to 5 per cent, and for six items from 5 per cent to nil. Restaurants saw the steepest reduction to 5 per cent from 18 per cent, but will not get input tax credit. However, there were reports of restaurants hiking the base price while charging 5 per cent. Only restaurants in five-star hotels with tariffs of more than Rs 7,500 a night will have to pay 18 per cent.

“As an industry leader, I appeal to you to join hands with the government in benefitting the common man by passing on the benefit of the reduced GST rates through commensurate reduction in the process of your products,” said Sarna in the letter.

The chairman is planning to write to more companies and restaurants on this.

The government had said that November 15 onwards consumers must be charged the reduced prices even for items in old stocks. The company or wholesalers could claim refunds for the additional tax he may have paid on those. “A wholesaler or company will be able to get a refund of any additional tax he may have paid to the wholesaler or input tax credit,” said a government official.

The government is banking on increases in demand and improved compliance rates after a sharp GST reduction to meet its revenue target for the FY.

“The reduction in GST rates is expected to encourage domestic demand and investment. However, this is incumbent upon the now reduced rates resulting in a reduction in consumer prices or MRPs of the specified items,” said the letter.

However, government officials said that while it might be easy to catch companies not passing on the benefits, that might not be the case for restaurants.

“I can’t stop a restaurant from increasing prices because it may claim that it is not getting the input tax credit benefits anymore. Big restaurants have large machines, mixers, etc, which they used to claim input tax credit,” said an official. He added that profiteering by a restaurant would be difficult to prove.

The Union cabinet last week approved creating the posts of chairman and members of the National Anti-Profiteering Authority (NAA). Union Finance Secretary Hasmukh Adhia had said that a company has to ensure that their entire distribution chain — wholesalers and retailers — pass on this tax cut if they want to escape action by the NAA.

Source: BS