FMCG Companies Under Scrutiny for GST Evasion

Crackdown on FMCG Companies for Alleged Tax Evasion

The Directorate General of GST Intelligence (DGGI) has launched actions against several major players in the fast-moving consumer goods (FMCG) sector, including ITC, Prataap Snacks, PepsiCo, Balaji Wafers, RP Sanjiv Goenka Group, and others, for alleged tax evasion.

Initiation of Actions by DGGI

The DGGI has escalated its crackdown on nearly 10-12 FMCG companies, citing issues related to classification leading to alleged tax evasion. Specifically, the focus is on products like extruded snacks and fried pellet snacks, where companies are accused of paying a lower rate of Goods and Services Tax (GST) than required.

Government’s Clarification and Allegations

In 2023, the government clarified that snacks prepared by the extrusion process should attract an 18% GST rate, contrary to the 12% rate currently paid by the industry. Preliminary estimates by the DGGI suggest significant revenue losses due to the alleged GST evasion, with specific amounts alleged against each company.

Industry Response and Seeking Clarity

The industry has responded by making a detailed representation to the Finance Ministry, seeking clarity on the matter to ensure accurate GST payments in the future and avoid further actions by the DGGI.

Expert Opinion and Call for Clarification

Experts highlight the need for urgent clarification, as the government’s circular issued in August 2023 has created confusion within the sector and among industry players. They argue that taxing the same food product at a higher rate based on the extrusion process could lead to unintended consequences and higher tax burdens for consumers, contrary to the GST Council’s objective of keeping rates on basic necessary products low.

Conclusion

The situation underscores the complexity and challenges in tax classification, with industry players awaiting responses from the government as the investigation unfolds.