DGGI initiates action on ITC, Prataap Snacks, others for alleged tax evasion

Sources told CNBC-TV18 that the DGGI has escalated its crackdown on nearly 10-12 FMCG companies

In a significant move targeting several major players in the fast-moving consumer goods (FMCG) sector, the Directorate General of GST Intelligence (DGGI) has initiated actions against FMCG companies including ITC, Prataap Snacks, PepsiCo, Balaji Wafers, RP Sanjiv Goenka Group, and others for alleged tax evasion.

Sources told CNBC-TV18 that the DGGI has escalated its crackdown on nearly 10-12 FMCG companies, citing issues related to classification leading to alleged tax evasion. "The DGGI has sent notices and investigation intimation letters to FMCG companies for paying a lower rate of Goods and Services Tax (GST) on products coming under the head of — extruded snacks and fried pellet snacks," sources said.

The government had, in 2023, clarified that any snacks that have been prepared by extrusion process should attract 18% and not 12% as is being paid by the industry currently. Extrusion is a technique to create ready-to-eat puffed snacks.

DGGI's preliminary estimates suggest significant revenue losses due to the alleged GST evasion. "The DGGI has alleged ₹500 crore GST evasion by ITC Ltd, ₹300 crore by Prataap Snacks Ltd., ₹175.89 crore by PepsiCo India, ₹19 crore by Balaji Wafers, ₹39.14 crore by RP Sanjiv Goenka Group's Guiltfree Industries Ltd., and ₹68 crore by Sarveshwar Foods Ltd.," the sources said.
"We are unable to comment as industry-wide enquiries are ongoing," an ITC spokesperson stated in response to CNBC-TV18's query.

Responses from the other companies are awaited as the investigation unfolds.

Noting these investigations and communications from the government, the industry has made a detailed representation to the Finance Ministry seeking clarity on the matter so that future payments of GST can be made accurately to avoid any such future action by DGGI.

Experts say that the issue needs urgent clarification as the government’s view via the August 2023 circular is creating confusion for the sector and industry players.

“The entire controversy is an aftermath of the August 2023 circular, issued after the GST Council meeting, which divides the same food product into different rates based on whether such goods have been manufactured through the process of extrusion," said Abhishek A Rastogi, founder of Rastogi Chambers.

He has been arguing on rate classification issues for diverse sectors. Rastogi said: "The higher rate clarified through a circular will have to cross the test of Constitution validity as arbitrariness and vagueness creep in rather than any valid clarification. Secondly, what amounts to extrusion has not been defined anywhere and, hence, to tax the same product at a higher rate when there is some mechanical process would lead to unwarranted results of a higher tax burden on the consumers."

He said a higher rate of tax on these products would defeat the objectives of the GST Council, which always wanted to keep the rates on basic necessary products in the lower tax category groups.