The Goods and Services Tax (GST) is an indirect taxation used in India to provide goods and services. As a multileg tax, GST is levied at each stage of production. Still, it is intended to be recouped to all individuals in the various stages of production other than the final consumer. As a destination-based tax, it is collected from the consumption stage rather than the inception stage as previous taxes were. GST was implemented to avoid tax cascading.
The tax slabs for aggregation of tax under GST are as follows: 0%, 5%, 12%, 18%, and 28%. However, alcoholic beverages, electricity, and petroleum items are exempt from GST and are taxed separately by each state government.
Finally, the ‘One Nation, One Tax’ program became a reality as the long-awaited tax went into effect on July 1, 2017. As a result, the whole tax structure for the provision of goods and services was overhauled. All indirect taxes came together to form one tax, presently called GST. However, many manufacturers and dealers still need to be convinced about the computation of GST on MRP items. Sellers are still deciding whether or not to tax GST on MRP merchandise.
As a result, understanding the concept of MRP and how GST applies to various items is crucial. This page seeks to educate readers on all aspects of MRP to minimize misunderstanding. So, let’s start with MRP.
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What exactly is MRP?
When we go shopping for packaged goods these days, after catching a look at the product and perhaps considering purchasing it, our eyes are drawn to its Maximum Retail Price (MRP). Two good arguments summarise the entire situation.
First and foremost, it informs us of the amount we will need to pay so we can purchase adequately. Furthermore, it is the superior signalling medium in that it communicates the commodity’s expected, assigned price and how it compares to other homogeneous things accessible in the market, which aids us in making a selection.
The Maximum Retail Price (MRP) is the maximum price that the manufacturers of any product to be sold in India can charge. However, manufacturers can sell items at a lower price than the MRP if drawing more people to their businesses is necessary. According to the Consumer Goods Act of 2006, the retailer/seller may not impose any additional costs over the MRP displayed on the package of the goods. This signifies that GST is already factored into the MRP.
Why is MRP required?
In 1990, the notion of mandatory printing and making available a Maximum Retail Price on all packaged commodities was proposed. Only the producer or the original importer of the product may print it on the package.
To combat tax evasion, mandatory MRP printing was implemented. Previously, manufacturers would put a Maximum Retail Price plus Local Taxes Extra. However, many businesses used this system in such a manner that they collected far more in the name of ‘local taxes’ than was required.
As a result, the concept of MRP was born. MRP now includes raw material costs, production expenditures, franchise margin, retailer margin, manufacturer’s margin, cost of freight, and other charges. GST is the most recent to be added. A standard established as MRP is also a guarantee for a product’s price, akin to quality assurance.
Why would MRP not be required?
There are several reasons why India has to abandon the present MRP system and embrace more sophisticated product pricing techniques-
Having a Maximum Retail Price for all retail items invariably leads to crime in the event of non-compliance, unlike other comparable tactics employed worldwide. This, in turn, results in massive enforcement expenses, increases the price of running a firm and raises the overall cost of items.
MRP is only vital for packaged items and not everyday necessities such as fruits, vegetables, pulses, and so on, an area that accounts for an increasing portion of India’s economic output. Vegetables, grains, and vibrations are usually offered unbranded and in bulk. Thus, the merchant can choose the price based on his costs and the demand and supply for such items.
Even branded, packaged goods are rarely sold at the manufacturer’s suggested retail price. It is not commonplace to spend significantly more than the MRP in movie theatres, expensive restaurants, tourist hotspots, airports, and train stations since stores in these locations charge a price over the MRP for the services they give along with the goods. They range from the cost of making that product available in that specific location to the implied cooling charges levied on bottled drinks and beverages, for example.
Another ridiculous characteristic of MRPs is how companies generally print an MRP that is ridiculously higher than the actual manufacturing cost so that the goods may be offered at a 90 per cent discount. Fireworks and vehicle replacement components are two prominent examples.
In the pre-GST era, it was clear that India was a confederation of states, and each state could levy its discrete rates of particular taxes. Manufacturers used to examine the highest tax rate paid on a product by any state in India and then extrapolate it for all other states. As a result, even if the tax rates in one state were formerly low, we had to pay a more excellent price since the tax rates in other places were outrageously high.
A legally binding, set MRP plan is necessary to maintain the supply of commodities in rural India and keep our rural marketplaces undeveloped. Retailers in rural areas and villages sometimes face significant shipping and storage expenses, which cannot be passed on to customers since they are not legally permitted to offer a price higher than the MRP. As a result, they chose to store only a few commodities to avoid incurring losses. This, in turn, limits the options accessible to customers.
After implementing GST, the effective prices of numerous products and items were replaced from their previous values, new ones. In addition to GST rates, the government revised the MRP guidelines for manufacturers and retailers.
The government has decreased tax rates from 18% to 12% on commodities such as condensed milk, diabetic food, refined sugar, medical oxygen, and others and from 12% to 5% on other items. Washing powder, detergents, custard powder, chocolate, wristwatches, goggles, blades, razors, watches, and other products have reduced GST rates from 28% to 18%.
MRP Rules Following GST Rate Changes and Enforcement:
When the GST rate changes, the MRP on the finished product sitting in the premises as closing stock at the end of the day must be modified as of the day of imposition or change in the rates. Manufacturers/retailers must publish the revised MRP via online printing, stamping, or stickers. To be fulfilled, the following standards must be met:
The original MRP should be visible on the objects. Furthermore, the revised MRP must make the previous one clear.
People who want to redesign the MRP must place two advertisements in one or more newspapers, one of which must be in a vernacular language, a language used in the city/town/state where they live. Furthermore, the same should be informed to the state’s Director of Legal Metrology and Controllers of Legal Metrology.
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If the GST rate decreases after its implementation, there is no need to advertise it in the newspaper.
In all cases, the maker is required to include a sticker with the new MRP alongside the old one.
According to Section 140(3) of the CGST Act, 2017, the difference between the original and modified MRP shall not exceed the net price rise due to the excess availability of ITC (Input Tax Credit) and the tax incidence.
It has also been said that when an invoice is sent to a client, the MRP should not include GST as a separate computation. Instead, there is an option to display the tax collection and selling price split while paying taxes to the government.
Whether MRP would rise or fall after GST:
GST is an indirect tax system with varying slab rates for different categories of goods and services. MRP consists of the base price plus GST. When the tax rate changes, the MRP of the product changes, either by increasing or decreasing in price.
The availability of Input Tax Credits is another aspect that influences MRP under GST. In some instances of the Act, Input Tax Credit is not available under GST (blocked credit), implying that the MRP of such items will rise. However, the MRP of other goods, such as FMCG products, has been reduced due to a decrease in the tax rate.
GST valuation on MRP products:
Avinash K. Srivastava, Secretary of the Department of Consumer Affairs, has often answered questions about the MRP of goods subject to GST. It has been said that every manufacturer and distributor is required to print the exact details of both the revised and original MRP on the product. Aside from the criterion mentioned above, it has also been stated that if there is a price increase, another notification will be sent out.
Furthermore, merchants registered under the Composition Plan (a basic scheme for small taxpayers to avoid onerous procedures and pay GST at a fixed turnover percentage) are excluded from declaring tax. Still, other registered dealers must say the expenditure is broken up.
Since commodities are exempt from cessation, cars travelling to suburbs will continue to be taxed unless they hold a national license. So far, 22 states have evicted checkpoints. The cost of vehicles is incurred at the convergence border, not on the commodities being moved. As a result, it must be paid. Following the implementation of GST, a Central Monitoring Committee was formed to assess the situation of goods pricing and supply.
In reality, GST is levied on the agreed value, the amount paid for the delivery of goods and services. As a result, the supply value under GST includes all taxes, tariffs, cess, and other charges imposed by any legislation.
The formula for the calculation of MRP is as follows:
Maximum Retail Price= Manufacturing cost + Packaging/ Presentation cost + Profit Margin + CnF Margin + GST + Dealer Margin + Retailer Margin + GST + Transportation + Marketing/ Advertisement expenses + Other Expenses.
Example of MRP Calculation:
Assume a company produces a product or service, charging Rs.500/- per piece. Then, the computation for the same will be as follows:
- Manufacturing cost = Rs.500/-
- Packaging cost = Rs.10/-
- Margin = 40% = Rs.40/-
- Total cost = Rs.500 +10 + 40 = Rs.550/-
- GST = Rs.10/-
- CnF Margin = 7% = Rs.20.08/-
- Dealer’s Margin = 12% = Rs.58.21/-
- Retailer’s Margin = 25% = Rs.30/-
- Transportation Cost = Rs.40/-
- Marketing/ Advertisement Expenses = Rs.25/-
- Other Expenses = Rs. 15/-
Consequently, Maximum Retail Price (MRP) = Rs.500 + Rs.10 + Rs.40 + Rs.10 + Rs.20.08 + Rs.58.21 + Rs.30 + Rs.40 +Rs.25 + Rs.15 = Rs.748.29. Therefore, the product cannot be sold at a price higher than Rs.748.29.
Objections in case of merchant levying a price higher than MRP on items:
Consumers have the right to file a complaint against any shop that charges GST over the MRP of goods, according to the Central Board of Excise and Customs (CBEC). Objections can be lodged at the Consumer Disputes Redressal Forums (i.e., Consumer Courts), at the numerous anti-profiteering commissions formed under the GST Act, 2017, or at the CBEC MITRA support desk, or at any other local body, if accessible.
Because MRP includes all taxes, merchants cannot charge a single penny more than the price imposed on the commodity. However, they have the power to sell the goods at a lower price than the MRP. In the above scenario, the merchant might sell his merchandise for Rs.700. However, a product can be offered through MRP reductions. Let’s break down the notion with the assistance of one graphic.
Rohit visits a well-known retail establishment in Delhi to buy a pair of shoes with an 18% GST and an MRP of Rs.2000/- (inclusive of all taxes). The retail business provided a 50% discount on the pair of shoes Rohit chose. On the invoice, however, Rohit was charged Rs.1180 rather than Rs.1000. The invoice is divided as follows:
- Particulars Amount
- MRP Rs.2000/-
- Discount 50% Rs.1000/-
- Net MRP Rs.1000/-
- GST 18% Rs.180/-
- Total Rs.1180/-
In the above scenario, levying a GST of Rs.180/- needs to be better understood because a discount of Rs.1000/- is provided on the MRP of the shoes, which includes all taxes and includes GST. The net MRP calculated after the discount consists of GST. As a result, imposing GST on the net MRP will be illegal.
The following is an example of how garment businesses charge GST on discounted products:
Assume there is a shirt that costs Rs.1500/-. As a result, it must include GST at 5%, which is Rs.75/-. These clothing labels now provide discounts on the base price (Rs.1500 – Rs.75 = Rs.1425/-) rather than the MRP (Rs.1500/-).
So, if a 50% discount is offered on the base price, the reduced base price is Rs.712.5/-, and the GST at 5% is Rs.35.625/-. As a result, the client pays Rs.748.125 instead of Rs.750 for the garment.
This has also been made clear by the National Consumer Disputes Redressal Commission vide its judgment of Aero Club (Woodland) vs Rakesh Sharma, wherein the court, in similar incidents, held the seller guilty of Deficiency in Service as well as Unfair Trade Practices since the discount offered does not equal to the one received by the consumer and the seller’s such practice resulted in ‘Double Taxation.’
As a result, if any store has charged GST or any other tax above the MRP after or without a discount, you have an obligation as a cautious consumer to speak out.
Penalties for imposing GST on MRP items include:
If a merchant is caught charging a price higher than the Maximum Retail Price, a stiff penalty of Rs.1 lakh or one year in prison will be applied.
Frequently Asked Questions:
1.How is the Maximum Retail Price printed on packets advantageous for you?
The Maximum Retail Price stated on packages is helpful for us as customers since it prevents sellers from selling items at a more excellent price than specified. However, buyers can haggle with the vendor for a lower price than the MRP.
2.Is the marked price and MRP the same?
The marked price is the price at which the commodity is made available to the seller by the manufacturer. As a result, it is the lowest price at which the seller can sell the product. MRP, on the other hand, is the most incredible reckoned sum (including all taxes) that the commodity’s manufacturers can levy.
3.Can a product have 2 MRP?
All vendors must mark the MRP. It is also prohibited from declaring two MRPs for the same product. This step has been done so that consumers are clear while paying the price in areas where items are delivered at higher costs, such as a movie theatre or an airport.