Finance minister Nirmala Sitharaman on Tuesday clarified that items like rice, pulses, wheat, flour, oats, maize and curd won't attract any Goods and Service Tax (GST) when sold loose.

After an uproar by the Opposition on GST hike on essential items, Sitharaman, in a series of tweets, says a lot of misconceptions have been spread on the imposition of GST on specified food items like pulses, cereals, flour, etc.

"Is this the first time such food articles are being taxed? No. States were collecting significant revenue from food grain in the pre-GST regime. Punjab alone collected more ₹2,000 crore on food grain by way of purchase tax. UP collected ₹700 crore," the finance minister says.

Taking this into account, when GST was rolled out, a GST rate of 5% was made applicable on branded cereals, pulses, flour, Sitharaman says. Later this was amended to tax only such items which were sold under registered brand or brand on which enforceable right was not foregone by the supplier.

However, soon rampant misuse of this provision was observed by reputed manufacturers and brand owners and gradually GST revenue from these items fell significantly.

This, according to Sitharaman, was resented by suppliers and industry associations who were paying taxes on branded goods. They wrote to the government to impose GST uniformly on all packaged commodities to stop such misuse. This rampant evasion in tax was also observed by states.

The Fitment Committee—consisting of officers from Rajasthan, West Bengal, Tamil Nadu, Bihar, Uttar Pradesh, Karnataka, Maharashtra, Haryana and Gujarat—had also examined this issue over several meetings and made its recommendations for changing the modalities to curb misuse.

"It is in this context that the GST Council in its 47th meeting took the decision. With effect from July 18, 2022, only the modalities of imposition of GST on these goods was changed with no change in coverage of GST except 2-3 items," the finance minister says, adding that it has been prescribed that GST on these goods shall apply when supplied in "pre-packaged and labelled" commodities attracting the provisions of Legal Metrology Act.

For example, items like pulses, cereals like rice, wheat, and flour, etc, earlier attracted GST at 5% when branded and packed in a unit container. From July 18, these items would attract GST when pre-packaged and labelled.

"This was a unanimous decision by the GST Council. All states were present in GST Council when this issue was presented by the Group of Ministers on rate rationalisation in the 47th meeting held in Chandigarh on Jun 28, 2022," Sitharaman says.

All states, including non-BJP states (Punjab, Chhattisgarh, Rajasthan, Tamil Nadu, West Bengal, Andhra Pradesh, Telangana, Kerala) agreed with the decision, she adds. "This decision of the GST Council is yet again by consensus."

The GoM that recommended these changes was composed of members from West Bengal, Rajasthan, Kerala, Uttar Pradesh, Goa and Bihar and was headed by the chief minister of Karnataka. It carefully considered this proposal, taking into account the tax leakage.

"This decision was a much-needed one to curb tax leakage. It was considered at various levels including by officers, the Group of Ministers, and was finally recommended by the GST Council with the complete consensus of all members," Sitharaman adds.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.