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

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According to sources, the DGGI has expanded its investigation on almost ten to twelve FMCG companies, alleging classification difficulties that contribute 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 — puffed snacks and fried pellet snacks,” the sources said.

In 2023, the government confirmed that any snacks manufactured using the extrusion process should be taxed at 18%, rather than 12%, as the business is already paying. Extrusion is a technique for producing ready-to-eat puffed treats.

The DGGI’s first estimates indicate significant revenue losses as a result of the alleged GST evasion.

“The DGGI has alleged Rs.500 crore GST evasion by ITC Ltd, Rs.300 crore by Prataap Snacks Ltd., Rs.175.89 crore by PepsiCo India, Rs.19 crore by Balaji Wafers, Rs.39.14 crore by RP Sanjiv Goenka Group’s Guiltfree Industries Ltd., and Rs.68 crore by Sarveshwar Foods Ltd.,” sources familiar with the matter said.

“We are unable to comment because industry-wide inquiries are ongoing,” an ITC spokesperson said in response to a question.

Responses from the other companies are sought as the investigation progresses.

Taking note of the government’s investigations and communications, the industry has submitted a detailed representation to the Finance Ministry in order to obtain clarity on the situation so that future GST payments can be done appropriately and avoid any future action by DGGI.

According to experts, the matter requires immediate clarity because the government’s view, as expressed in the August 2023 circular, is confusing the sector and industry players.

Experts said raising the tax rate on these products would contradict the GST Council‘s goals of keeping rates on basic necessities in lower tax brackets.

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