Earlier, the GST Council had announced "nil" duty on loose and "registered but without trademark" branded packs, which prompted many registered trademark brands to surrender their licenses to come out of the tax net. These mills have neither registered their brand with the local or national authorities nor received any "trademark" to recognise their brands. However, they continued to sell their product under a brand that they claim to be the local one.
To arrest this trend of flour mills surrendering their licensed brands to avoid tax payment, the GST Council on September 9 clarified that "brands registered as on May 15, 2017, will be considered for five per cent of GST irrespective of whether or not such brand is subsequently deregistered". The GST Council further clarified that even brands registered under the Copyright Act, 2017, would attract five per cent GST.
"The clarification in September brings all brands under the GST levy of five per cent with retrospective effect from July 1, the date of the implementation of the GST. Since flour mills have already sold their product with "nil" duty, it is difficult to collect GST on the product they have already sold to consumers. They would have to pay GST from their pocket, which would force at least three-fourths of flour mills to shut down," said D Manikchand Gadiya, managing director of North Karnataka Roller Flour Mills, which sells besan (gram flour), atta (flour), and maida (wheat flour) under the "Diamond" brand.
Approximately 1,400 flour mills across the country are processing wheat for selling in loose with some private label. Since the Food Safety Standard Authority of India (Fssai) has mandated to print details of ingredients along with contact details of the manufacturers and distributors on the packet, printing of these details is treated as "actionable claim". This means consumers can approach the manufacturers and distributors for claiming damages in case of any quality deterioration resulting in an effect on their health.
"We are not sure whether the applicability of GST rate is with retrospective effect from July 1. We would await a clarification on the same. If the GST is made effective from July 1, it would be very difficult for mills to sustain their businesses. The industry wants a clear definition of branded and unbranded products," said Veena Sharma, the secretary of Roller Flour Millers Federation of India.
Industry sources estimate around 2,000 roller flour mills working across the country, of which around 600 may have a registered trademark. The remaining 1,400 roller flour mills are engaged in the production of atta, maida, and besan for selling in loose for bread and other processed food manufacturers.
In a letter addressed to Prime Minister Narendra Modi, Manikchand said, "It is impossible to survive with five per cent of GST as these local brands do not carry any premium over loose products. These are sold under small packets, which become easier for transport and handling for both producers and consumers. The name contained on the packet is just an identification of the packet. Hence, a clarification is needed whether a trademark holder can also produce non-registered brand."
Many flour mills have shut down their factories due to concerns over business viability. They claim margins of two-three per cent for processing wheat to manufacture flour. Industry sources said that a large multinational company with nationwide brand presence has written to the GST Council and also the finance minister over the fear of massive tax evasion due to the sale of packaged flour, maida, and besan without GST.
"It is very difficult to survive with five per cent of GST levy. It will have a massive impact on flour mills," said Gopal Lal Seth Mohata, the president of the Maharashtra Roller Flour Mills Association.
