REGARDING 61

[FARIDUDDIN AHMAD]

My client received intimation u/s 61 for the period 2018-19 requiring to provide the details of purchase of packing material from registered/unregistered dealear used for supply of wheats. my client purchase jute bags from unregisterd dealear and used it for packing of wheats. as wheat are exempted in GST , tax invoices are issued without charging GST. my query is whether i have to charge GST on sale of jute bags used for packing of wheat.

[FARIDUDDIN AHMAD]

let me clarify jute bags are not sold sepreatly it has been used as packing material and sold along with wheat.

[KASTURI SETHI]

Sh.Fariduddin Ahmad Ji,

(i) Pre-packaged and labelled wheat is NOT exempted. This attracts GST @5% vide Notification No. 01/17-CT(R) dated 28.6.17 as amended from time to time up to 29.9.23 (serial No.46). So the cost of jute bag should be included in the transaction value of packaged wheat.

(ii) That is why information has been called for. The department wants to ascertain whether you have availed exemption correctly as per GST laws or not.

(iii) I am talking about packaged and labelled and NOT packing.

(iv) Examine the difference between packing and packaging (including labelling). What practice is actually going on now ?

(v) So while filing reply to the notice above aspects should be kept in mind.

[FARIDUDDIN AHMAD]

let me again clearify the wheat has been supplied to flour mills and U.P.government(PDS). it has not been sold to consumers.

[KASTURI SETHI]

If your client considers wheat as exempted, why is he issuing tax invoice ? Why does he not issue 'bill of supply' ?

In this context, there is conditional exemption. Are you 100 % sure that your client has availed exemption correctly ? Wheat is exempted only if it is sold without package and label. In other words, in loose form.

From the query, it appears to me that your client has sold wheat in packaged form with label. Hence not eligible for exemption.

HYPOTHETICAL SITUATION (In the absence of full facts of the issue)

If exemption for both types of sale has been availed correctly, then this issue (the sale of jute bag) will be covered under composite supply under Section 8(a) of CGST Act. Principal supply is wheat.

So first step is to ensure about the correctness of exemption availed for the supply of wheat.

Disclaimer : These are my personal views and are meant for education purposes and not meant for any court proceedings.

[KASTURI SETHI]

Sh.Fariduddin Ahmad Ji,

In case you are cock-sure that your client has availed exemption correctly, please peruse the following contents which are in favour of the assessee and these have to be examined critically :-

Section 15(2) of GST : Value of Supply shall include:

(C) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.

As per above, when the value of supply of goods (here exempted) is inclusive of packing material, the supply of exempted goods cannot considered as taxable goods based on packing.

The issue of composite supply:

As per Section 2(30) of CGST Act- “composite supply” means a supply made by a taxable person to a recipient consisting of two or more “taxable supplies” of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration : Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

As per Section 8 of CGST Act, “the tax liability on a composite or a mixed supply shall be determined in the following manner, namely:

(a) a composite supply comprising two or more supplies, one of which is a principal supply, “shall be treated as a supply of such principal supply;”

As per Section 2(90) of CGST Act “principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;

If we read the above conjointly, every supply of goods with packing material is a composite supply and the principal supply is goods. Hence the packing being an integral party of supply of exempted goods, is not taxable.

In all my replies, I have posted both aspects. The decision is yours.

Disclaimer : These are my personal views and meant for only enlarging the horizon of knowledge on the issue and not meant for any court proceedings.

[Madhusudan Mishra]

Details of the purchase of packing material cannot be 'called for' u/s 61. Simply challenge the jurisdiction of such intimation. DON'T provide any "information" ever u/s 61 notice.

[Padmanathan KV]

The intimation under section 61 is limited to scrutiny of returns and discrepancies thereof. so, whether this issue is arising out of any discrepancy between returns? If not, then the details need not be provided as it maybe beyond the scope of section 61.

To answer the query, GST is not chargeable on packing materials used in packing goods which are exempted. However, if packing materials are sold as such, then it will be taxable.

The onus is on department to prove that packing materials are sold as such and it cannot be merely based on any presumption or assumption based on your purchase register.

[KASTURI SETHI]

(i) Any tax payer should not forget to peruse Sections 70 71, 72 & 73 of the CGST Act in his or her own interest.

(ii) One must not jump to a conclusion.

(iii) One should not create such a situation so as to invite the above Sections in one's own interest.

Disclaimer : These are my personal views meant for education purposes only and in the interest of the visitors of TMI website and not meant for any court proceedings.

[Padmanathan KV]

There are guidelines duly issued by Board for Summons. One may refer to Instruction No. 3/2022-23 in this regard.

Similarly, the officers authorised for search/inspection/audit are different from scrutiny of return. Moreover, section 67 requires reason to believe and Courts have time and again held what forms reason to believe.

The Dept ought to follow the procedures eatablished by law and not bypass the same as per their whims and fancies. In my humble view, the assessee will be only inviting more trouble by providing details which are not required to be provided in the first place.

[Amit Agrawal]

With regards to limited scope of scrutiny u/s 61 and practical aspects to be considered before ignoring an invalid notice, one may refer to an elaborate discussion we had under Issue-ID:- 118428 bearing subject-line - SCN RECEIVED Notice Under Sec 61-FY 2017.18

As explained therein, one needs to keep in mind Dept's other powers like Section 65 to Section 71 as well as to take into account to your own mindset and legal capacity to deal with adversarial consequences (if any), which may not be predictable in every situation, before deciding to ignore even an invalid notice.

Best legal minds knows how to make best out of every such situation. And I also believe that there cannot be straight-jacket formula to deal with every invalid notice u/s 61 and there are multiple facets to be considered (including what is the issue involved and best legal strategy to deal with it). In many situations, best legal strategy will be to ignore an invalid notice u/s 61, but same need not be so for every situation.

For more perspective, one may also refer to the discussions we had under Issue-ID: 118494 bearing subject-line as 'Validity of Improper ASMT 10 & Section 61 of CGST'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Composite supply principle: packing included in principal supply may not attract GST where the principal goods are exempt.
Whether GST applies to jute bags used for packing wheat depends on whether wheat was sold as exempt loose goods or as taxable packaged and labelled goods. Packing costs are included in transaction value under the valuation provision when charged by the supplier. Where packing is incidental to an exempt principal supply, the packing may form part of a composite supply treated as the principal (wheat) and thus not independently taxable; if packing is sold separately or the wheat is taxable as packaged, packing forms part of the taxable value.