More than a dozen bakery and chocolate companies have been served notices by the Directorate General of Goods and Services Tax Intelligence (DGGI) for allegedly underpaying Goods and Services Tax (GST) from July 2017 to March 2023, according to a report.
These notices by the DGGI have raised concern in the industry. The problem is the tax rate concerning these businesses under the GST. The companies in question are said to have paid a 5% GST which is the usual rate charged at restaurants. However, the DGGI contends that these establishments do not qualify as restaurants and should instead be subject to the standard 18% GST rate.
DGGI offices in Mumbai and Ahmedabad have served these notices to several well-known brands, and sources suggest that more notices may be issued as the investigation continues. While individual tax liabilities for the companies under scrutiny may not be substantial, the cumulative liability for the industry could surpass Rs 1,000 crore, excluding potential penalties and interest.
This issue is reminiscent of past classification disputes, such as those involving ice cream parlours, which were also required by the DGGI to pay an 18 per cent GST rate instead of the lower rate they had been applying.
The ongoing crackdown by the DGGI highlights the challenges within the GST framework, particularly regarding the classification of goods and services. If the notices lead to adverse rulings, the companies involved could face significant financial impacts, including additional GST payments, penalties, and interest.
This situation serves as a reminder of the importance of proper GST classification and the potential repercussions of non-compliance. As the investigation progresses, the industry will be closely watching for any further developments.
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