GST authorities have issued a demand notice of Rs 6.37 crore to Britannia Industries, one of India’s leading bakery and food companies, citing incorrect classification of goods supplied between FY 2020-21 and FY 2023-24. The notice, issued by the Office of the Commissioner of CGST & Central Excise in Thane, comes under Section 74 of the Goods and Services Tax (GST) Act.

Details of the Notice

The notice was issued on Monday and outlined that the tax and penalty quantified in the order amount to Rs 2,12,40,000 and Rs 4,24,80,000 respectively, totaling to a demand of Rs 6,37,20,000 in addition to applicable interest. The demand is based on alleged non-payment of tax due to improper classification of goods supplied during the specified financial years.

Britannia has acknowledged the notice and stated that it is exploring legal remedies. In a regulatory filing, the company mentioned that this demand will have no material impact on its financials or operations.

Impact on Trade and Compliance

The notice highlights the growing scrutiny on large corporations for adherence to GST regulations. The classification of goods under the correct tax heads is crucial to ensure compliance and avoid penalties. According to a report by the Tax Research and Education Foundation (TREF), incorrect classification leads to approximately 15% of GST disputes in India, costing businesses millions annually.

Britannia, which has a market capitalization of over Rs 20,000 crore, is not the first major company to face such notices. In 2021, ITC Limited was issued a demand notice of Rs 3.4 crore for similar reasons. The current case highlights the importance of accurate tax classification and the potential financial consequences of errors.

Experts suggest that such notices are often the result of audits or data matching exercises conducted by GST authorities. These processes are designed to identify discrepancies and ensure that businesses are paying the correct amount of tax. The notice also reflects the increasing use of technology by the GST Network (GSTN) to flag potential non-compliance issues.

What Analysts Say

According to tax consultant Anil Kumar, such notices are becoming more common as the government intensifies its focus on tax compliance. ‘Companies must ensure that their classification of goods aligns with the GST Council’s guidelines,’ he said. ‘Failure to do so can lead to significant penalties and disrupt cash flow.’

Britannia’s response to the notice will likely involve legal challenges or negotiations with the tax authorities. The company has a history of contesting tax demands, including a notable case in 2019 when it successfully challenged a Rs 1.2 crore demand from the Maharashtra tax department.

The notice also raises questions about the clarity of GST regulations and the support available to companies for accurate classification. While the government has issued guidelines, many businesses, especially those with complex supply chains, find it challenging to interpret them correctly.

Analysts warn that the increasing number of such notices could lead to a rise in litigation and administrative costs for businesses. However, they also emphasize that proactive compliance measures can prevent such issues from arising in the first place.

The next steps for Britannia will likely involve legal proceedings, and the outcome could set a precedent for similar cases. The company has until the end of the year to respond formally to the notice, after which the authorities may proceed with further action.

For ordinary consumers, the impact could be indirect. Companies facing such financial demands might pass on the costs to consumers through higher prices. However, Britannia has stated that the demand will not affect its operations or financials, suggesting that any potential price increase would be minimal.