Tax notices leave a bitter taste for several chocolatiers, bakers

The Directorate General of Goods Services Tax Intelligence (DGGI) has issued notices to around a dozen large bakeries and chocolatiers across India for underpayment of tax for the July 2017-March 2023 period, said people familiar with the development.

These companies were paying 5% GST, but the DGGI maintains that they need to be taxed at 18% since they are not restaurants. "These entities are not restaurants and are liable to pay GST at the rate of 18%," said a senior official, who did not wish to be identified.

"Over a dozen notices have been sent to all the popular joints by DGGI Mumbai and Ahmedabad for the pending GST dues," the official said, adding that more notices could be sent in the future.

While individual tax dues of the entities under the scanner may not be very large, the tax liability of the industry, excluding penalty and interest, could add up to more than ₹1,000 crore, according to the people cited earlier.

Experts, however, said that the matter involved a dispute of classification and the DGGI's actions might be challenged in the court of law.

"This classification dispute will have to cross the test of constitutional validity based on the tax cascading aspect because when these outlets pay 18%, input tax credits are eligible," said Abhishek Rastogi, founder, Rastogi Chambers. He said that in some cases, when credit availability option is adjusted, there is negligible or no output tax liability even at a high rate. Similar notices had been sent to some ice-cream joints, with the DGGI saying that these joints would have to pay 18% GST.

The move may have a significant impact on the companies involved, as they may be required to pay additional GST, penalties and interest.

Experts said that most disputes regarding GST were emanating from classification issues.

"Addressing classification ambiguities is vital during rate rationalisation exercise," said Saurabh Agarwal, tax partner, EY.