The move by the GST Council has led to companies lining up before the Trade Mark registry offices to deregister their brands.
The commerce and industry ministry worries it may lead to a spurt in counterfeit products.
The finance ministry in July said that the central GST rate on the supply of certain goods, such as paneer, natural honey, wheat, rice and other cereals, pulses, flour of cereals and pulses is nil. However, the supply of such goods, when put up in unit container and bearing a registered brand name would attract 5% GST.
However, in the face of companies deregistering their brands to keep themselves out of GST, the finance ministry sought to plug the loophole by clarifying on 20 September that businesses selling packaged food articles such as cereals, pulses and flour can escape the 5% GST only if they choose to forgo any actionable claim on their brand name by filing an affidavit.
However, the commerce ministry holds that this may lead to an explosion of counterfeit products in the market.
“The move by the GST Council is not consumer-friendly as it is going to promote counterfeit products in the market. Once a brand deregisters itself, anybody can sell counterfeit products with the same name—that could create health hazards. We are going to write to the finance ministry and the GST Council to consider an alternative to the current rules," a commerce and industry ministry official said on condition of anonymity.
India Gate, the country’s largest selling rice brand, is exempt from paying GST because the company did not get the brand name registered under the Trade Marks Act 1999, Mint reported on 7 July.
“This is to further clarify, declare and certify that ‘India Gate, Indian Farm, Lotus and Unity’ brands are owned by KRBL Ltd but since they are not registered in Class 30 under ‘Trade Marks Act, 1999’ hence, ‘NIL’ GST rate is applicable on it," KRBL, which sells India Gate packaged rice, said in an internal communication dated 3 July.
Branded rice was either exempt from tax or carried a 5% value-added tax, depending on the state where it was sold, before GST was implemented.
KRBL’s largest competitors, including the Indian unit of McCormick and Co., which sells Kohinoor packaged rice in India, have to pay GST, making their products more expensive.
On 30 June, KRBL had filed an application with the registrar of Trade Marks seeking cancellation of the name KRBL Ltd from the Trade Marks Registry.
In its application, it said that the company was “not using the trademark KRBL Limited in relation to rice".
The All India Rice Exporters’ Association (AIREA), the industry body that lobbies for rice traders and exporters, has written to finance minister Arun Jaitley, seeking a change in the current GST norms to bring all rice brands under the 5% tax net.
In a letter to Jaitley, dated 6 July, AIREA president Vijay Setia said that only 10% of the rice brands in India have a trademark registration.
The current norm will benefit the “companies with Rs2,000 crore revenue and above as their brands are not registered with Trade Mark Act 1999 due to some legal and technical issues".
Arvind Singhal, chairman of Technopak Advisors Pvt. Ltd, a retail consulting firm, said the government needs to promote modern organized retail irrespective of ownership which is the best way to tackle counterfeit products.
“This is in the best interest of both consumers and producers," he said.