Dear Readers,

Is it a candy, an Ayurvedic tablet, or something in between? While Hajmola has long been known to ease digestive troubles, it now finds itself at the centre of a tax headache. But it's not alone—popcorn, parathas and other edible items have earlier faced the GST microscope. For CFOs across FMCG, retail, and quick commerce, evaluating and analysing GST rates over different sets of same products, and now even packaging, has become a full-time puzzle.


At the heart of the current controversy is Dabur’s popular digestive product, Hajmola, which is under scrutiny by the Directorate General of GST Intelligence (DGGI) for its classification. The debate is centered on whether Hajmola should be taxed as an Ayurvedic medicine at a 12% rate or as a confectionery item at an 18% rate. Dabur argues that Hajmola is a medicinal product, citing its herbal ingredients and traditional use for digestion. This isn’t the first time the classification of Haj mola has been questioned—before GST, the Supreme Court ruled in favour of Dabur, recognising it as an Ayurvedic medicine.

However, with the GST framework, the product now faces fresh scrutiny. If Hajmola is reclassified, it could result in a higher tax burden for Dabur and set a troubling precedent for products with dual uses—medicinal and food-related. This issue underscores a broader problem with GST: unclear and inconsistent product classification guidelines. Without clearer rules, businesses like Dabur face prolonged legal battles, financial uncertainty, and the looming possibility of higher taxes. The ambig uity in classification is a costly issue, not just for the company involved but also for the entire industry.

GST and packaging charges: A grey area

Another area of concern that has arisen this month is the GST treatment of packaging charges levied by restaurants. Since 2022, several eateries, particularly those using third-party platforms like Zomato, have faced scrutiny over their packaging charges. The core question here is whether packaging fees should be considered part of the composite supply of food services and thus taxed under GST. If packaging charges are deemed a separate supply, they might be subject to different rates or exempt ions. This uncertainty has led to inconsistent practices across the restaurant industry, with some establishments charging GST on packaging while others do not.

The lack of clarity on this issue has created confusion for both consumers and businesses. For restaurants, this ambiguity presents a real risk—incorrectly applying GST to packaging charges could expose them to penalties, while not applying it could lead to the same result. As the restaurant industry battles this uncertainty, the inconsistent approach to packaging charges threatens to undermine the credibility of the GST system and increase compliance costs for businesses that must manage var ying interpretations of the law.

A call for clarity and uniformity

The cases of Hajmola and packaging charges serve as reminders of the broader challenges facing the GST system. While GST has simplified the tax landscape in many respects, its implementation remains riddled with complexities that create confusion, compliance difficulties, and legal disputes. These ambiguities stem from two main issues: the multiplicity of tax rates and the inconsistent classification of goods and services.

For businesses, the classification of products under GST is not always straightforward. Goods and services are taxed at different rates—5%, 12%, 18%, and 28%—and this has led to confusion, especially when products like Hajmola blur the lines between categories. It’s not just large corporations that are impacted; small and medium-sized enterprises (SMEs) also grapple with the complexities of the tax system, struggling to navigate these multiple tax slabs.

Moreover, the GST regime has failed to deliver on its promise of simplifying compliance. Instead of reducing administrative burdens, the system has placed significant demands on businesses. Companies must file multiple returns every month, reconcile invoices, and maintain detailed records, all of which require robust accounting systems—resources that many SMEs lack. Even worse, technical glitches on the GST portal have further compounded the difficulties, making it even harder for businesses to comply with the regulations.


The road ahead

To tackle these issues, the GST Council and tax authorities need to adopt more transparent and consistent guidelines. A comprehensive classification framework for products and services, with specific rules on products that fall into grey areas like Hajmola, would significantly reduce ambiguity and prevent prolonged legal battles. Additionally, GST authorities must work closely with industry stakeholders to understand the practical challenges businesses face and incorporate this feedback into th e policy-making process.

The GST system also needs a more efficient mechanism for resolving disputes, particularly in the case of classification issues. Establishing a specialised tribunal to address these disputes would ensure quicker and more cost-effective resolution. Without this, businesses are left with no option but to approach High Courts, leading to delays and escalating legal costs.

Furthermore, the compliance burden on SMEs must be addressed. The government should consider simplifying the process for smaller businesses, perhaps by introducing quarterly returns or other measures that reduce administrative overhead. This will help alleviate some of the strain on small businesses and encourage more companies to stay within the formal economy.

While GST has made commendable strides towards simplifying India’s tax system, issues like the classification of Hajmola and the ambiguity surrounding packaging charges reveal the gaps that still exist. The complexities of multiple tax slabs, unclear guidelines, and burdensome compliance requirements have made it difficult for businesses to navigate the system. To ensure that GST continues to meet its objectives of fostering growth, improving compliance, and simplifying taxation, policymakers must act decisively. Clearer guidelines, streamlined dispute resolution, and a focus on the needs of SMEs are essential to building a more efficient and equitable tax system. Only through these reforms can India unlock the full potential of GST and create a more predictable business environment for all.

Please share your feedback, suggestions if any. You can reach me on amol .dethe@timesinternet.in and follow me on Linkedin at (Click here) target="_blank" rel="nofollow noreferrer" href="https://www.linkedin.com/in/amol-dethe/" data-type="tilCustomLink" target="_blank">

As usual, I am also adding here the top five in-depth articles/copies that we published this week. Trust, you will find them meaningful.

1.Auditors must exercise stronger diligence on related party transactions, say experts
2.Who is liable to pay GST on packaging charges on food ordered via delivery apps?
3.Explainer: What AASB%E2%80%99s draft SA 600 means for LLP audits involving multiple auditors
4.China faces up to 245% tariffs on imports to the US: White House Fact sheet
5.Good time to raise funds via ECBs, trend may continue for next 2-3 years, says UGRO Capital CFO

Happy Reading.

Amol Dethe
Editor
ETCFO

(Editor's note is a column written by Amol Dethe, Editor, ETCFO Click here to read more of his articles exploring several buzzing topics)

We'd love to hear your feedback on this new newsletter.

To become an ETCFO newsletter subscriber and to access newsletter archive, click here.