GST impact: Fake brands of packaged food flood market

INDIA – With the packaged food industry taking a hit because of the GST burden, businesses from across India applied for deregistration in a bid to escape the tax.

Popular trademarks went off the shelf overnight and manufacturers began selling products under new, unregistered trademarks.

The GST Council in September issued a clarification saying registered brands as on May 15, 2017 would attract tax even if they are deregistered later and be spared the levy only if manufacturers forgo actionable claims on their brand names.

The council’s move has disarrayed the packaged food industry. Brand owners withdrew applications for deregistration and gave up claim over brand names. The brand logos on the packages gave way to the announcement:

“We have voluntarily forgone actionable claim or enforceable right on this brand.”

A 1kg pack of original Shivaling tur dal costs Rs 70, while its duplicate is being sold at Rs 60.

“We have lost over 50% of our business to this fake brand. We were sending 60 truckloads (each with 16 metric tonnes) of tur dal a month to Karnataka. Now, it has come down to 25,” said Jayesh Mehta, director of Gujarat-based Shivaling Marketing, which sells tur dal, urad and gram dal under Shivaling brand name.

“There is now an indirect licence to culprits to duplicate reputed brands.

Gullible consumers may be happy their favourite brands are available at cheaper prices, but they don’t know they are fake ones. Consumers can’t seek relief in case of any issues with their purchases,” said Rameshchandra Lahoti, chairman of Wholesale Food Grains and Pulses Traders Association.

According to him, very few players and big corporates who are sure of their brand equity, have retained their trademarks and stayed in the GST net.

Vishaldas Tapadiaya, managing director of Kalaburagi-based Mysore Industries selling pulses and dal under Nandi trademark, said his company has forgone the rights over the brand it had nurtured since 1974 and the disclaimer is being printed on the package.

“It was painful to forgo the brand we had built over decades. But we could not afford losses for the sake of the brand.

Our product had become expensive after the Centre classified the branded packaged food under 5% GST slab,” Tapadiya said.

“Duplication of brands was a menace earlier too; it has become more rampant under GST. The law now is so designed that perpetrators can easily escape punishment,” Mehta added.

“The rationale of taxing branded food was that manufacturers were selling them at higher cost when compared to unbranded commodities.

Unfortunately, duplicate brands are now thriving; the GST Council is expected to discuss this issue at its meeting later this month,” said D P Nagendra Kumar, chief commissioner of GST, customs and central excise.

“The best thing would be to exempt all kinds of food commodities from the tax, as it was in VAT regime.

If the government wants differential tax rates for branded and unbranded food, then it can put branded food under the special 1% slab.

We have sent a representation to this effect to the Council,” said B T Manohar, chairman of state taxation committee of FKCCI and member of the GST advisory committee to the government of Karnataka.

ET Retail

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