GST reset: FMCG firms want more time to clear old stock

Mumbai|New Delhi: Consumer goods companies are seeking an extension of the September 22 start date for the revamped GST, citing logistical challenges in managing existing stock priced under the outgoing regime. They have also sought clarity on whether price cuts can be passed in the form of increased grammage, especially in low-unit packs.

Companies have made representations to both Ministry of Finance and Department of Consumer Affairs seeking a practical implementation window of at least 30 days, extendable where necessary to allow exhaustion of existing stocks and packaging materials.

Inventory Complications

They argue that this will allow for the GST benefits to be passed on to consumers without waste or disruption. "The challenge will be to manage existing stocks and packaging materials already printed which are in the pipeline," said Mayank Shah, vice president at India's biggest food company Parle Products. "We are also seeking clarity on how price cuts should be passed."

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In addition, distributors are also seeking clarity from fast-moving consumer goods (FMCG) companies on how they plan to handle inventory that remains unsold before the new GST slabs come into effect. Companies said a transition will need more time, as products already in warehouses and on retail shelves are priced under the current GST framework that's to be withdrawn. This could lead to dual inventory complications in pricing, they said. Most companies had also built up higher-than-usual inventory levels ahead of the upcoming festive season, leading to increased manufacturing, particularly for select gifting packs, industry executives said.

"We have written to the government urging them to allow us to either retain prices of popular packs with increased grammage and use packing material which is already printed although benefits will be passed via discounts," said a senior executive at a large multinational home and personal care firm. "We also need more clarity on several categories where the HSN code is the same for different products. For instance, soaps can include both bathing and detergent bars, while talcum powder may also cover deodorants."

Codes under the Harmonised System of Nomenclature codes are used to categorise goods for the purpose of charging GST.

In 2017, several companies had received tax demands raised by the National Anti-Profiteering Authority for allegedly not passing on benefits to the end consumer after the rollout of GST that year. "With these tax reductions, we will respond quickly to support retailers nationwide," said Ahmed Abdel Wahab, general manager at chocolate maker Mars Wrigley India.

Most companies, including Hindustan Unilever, Procter & Gamble and LOreal had typically passed on the benefit of lower taxes by increasing the weight of items since they didn't want to change popular price tags like ₹10 or ₹20. They increased quantity while keeping the price intact.