GST on Pan Masala based on Installed Capacity or Actual Production

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GST on pan masala and gutkha could be scrapped because of difficulties in administering the ITC (input tax credit) mechanism. This article discusses the latest information about GST on Pan Masala based on Installed Capacity or Actual Production.

GoM’s Investigation into levying GST

Odisha’s finance minister, Niranjan Pujari, led a group of ministers (GoM) set up by the GST Council in May 2021 to examine the feasibility of levying GST on products such as pan masala and gutkha, based on installed capacity rather than actual production.

This was in response to widespread underreporting of output by the units, which had been discovered to be a source of tax evasion. The Council has not yet received the GoM’s report.

Previous Tax Regime vs GST Regime on Pan Masala

The ‘compensation cess’ and the highest GST rate for assorted tobacco products and pan masala is currently 28 percent. Tobacco products have a cessation rate of 290 percent, while pan masala has a rate of 135 percent.

Excessive machinery capacity, rather than actual production and sales, was used as a basis for excise taxation in the old system. In 2017, some states called for reverting to a capacity-based system of taxation for the tax-evasion-prone sector following the implementation of GST.

The excise system also had its share of issues, as tax officers were required to conduct regular surveys to determine how many machines were in use, and there would frequently be disagreements with industry players regarding the exact number of machines in use at any given time.

Thus, A plan to impose goods and services tax (GST) on pan masala and gutkha on the basis of installed production capacity may be withdrawn due to the challenges in managing the input tax credit (ITC) mechanism

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