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Valuation of GST on MRP products

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| Updated: Apr 12, 2019 | Category: GST

Eventually, the aim of ‘One Nation, One Tax’ regime turned into reality when GST, the much-anticipated tax, came into effect on 1st July 2017. As a result, the whole tax structure on the supply of goods and services got revised. All indirect taxes combined to become one tax currently known as GST .i.e., Goods and Services Tax. However, there are still many traders and manufacturers who are quite sceptical about the valuation of GST on MRP products.  People don’t know whether to charge GST on MRP products or not.

Thus, it’s highly crucial to understand the significance of MRP and how GST applies to several products.  Through this blog, we have aimed to enlighten you all with every aspect of MRP so that for the next time when you buy or sell, you won’t be in doubt whether GST is included in MRP or not. Therefore, let’s first start with MRP full form and MRP meaning.

What is MRP?

MRP stands for Maximum Retail Price which is labelled on every product. As the name suggests, the maximum retail price is the highest calculated price charged by the manufacturers for a specific product to be sold in India. According to Consumer Goods Act, 2006, the seller or retailer cannot levy any other charges over MRP as printed on the packaging of the products.

GST on MRP products

After the GST was implemented, the actual prices of several products and items changed from the earlier value. Along with the GST rates, the Government also revised the MRP rules for the manufacturers and retailers.

MRP rules after changes in GST rate and implementation in GST

Whenever GST rate changes, the MRP on every unsold product is supposed to revise as on the day of imposition or change in GST rates. Under such circumstances, the retailers or manufacturers need to imprint the revised MRP either through stamping or stickers or online printing. Besides, one must satisfy the following criteria:

  • The original MRP should appear clearly on the items. Further, the revised MRP must not overwrite the original MRP.
  • Under the provisions of Section 140 (3) of the CGST Act, 2017, the difference in original and revised MRP can’t exceed the net price increase on account of excess availability of ITC (input tax credit) and considering the tax incidence. Further, one also needs to consider he deemed credit present for traders.
  • People who wish to revise the MRP need to advertise two ads in one or more newspapers. Moreover, they must initiate the same to the Director of Legal Metrology and Controllers of Legal Metrology in the states.
  • If there’s a decrease in GST rate after GST implementation, then manufacturers don’t need to publish it in the newspaper.
  • Whatever be the case, in both the circumstances, the manufacturer is supposed to put a sticker of the revised MRP along with the old one.

Valuation of GST on MRP products

Avinash K. Srivastava, Secretary-Department of Consumer Affairs, responded to the queries raised on the MRP of commodities under the GST and clarified that every manufacturer and distributor must print the full details of the revised as well as original MRP on the product. Further, he said that if there’s an increase in price, then another notification will be sent out, besides printing both rates on the product packaging.

Apart from this, dealers enrolled under the GST Composition Scheme don’t need to show tax, while other enrolled vendors should obviously demonstrate the expense split up. Since commodities don’t draw in any cess, yet, vehicles crossing state outskirts will keep on being charged, except if they have a national license. “22 states have evacuated check posts up until now. The expense on vehicles is on intersection fringes, and not on the merchandise being transported. Hence, that should be paid.

For assessing the pricing condition and supply of commodities, a Central Monitoring Committee was formed after GST came into existence. The Revenue Secretary, Dr. Hasmukh Adhia at a press conference in Delhi addressed the following-

“A committee has been constituted comprising 15 secretaries from departments that are in direct contact with consumers, to monitor commodity pricing and client groups. Although no field work is involved, officials will have to monitor four to five districts along with the assigned Link officer.”

The GST is actually levied on the transaction value which is the actual price paid for the supply of products and/or services. Now, the value of supply under GST includes duties, cess, fees, and other charges levied under any act.

MRP calculation

To find or calculate the Maximum Retail Price on any product, one can follow the formula as mentioned:

MRP calculation formula:

Maximum Retail Price = Manufacturing Cost + Packaging/Presentation Cost + CnF Margin + Profit Margin + Stockist Margin + GST + Stockist Margin + Retailer Margin + Transportation + Marketing/Advertisement expenses + Other expenses.

 

Example of MRP calculation

Suppose a company is producing a product/service at a cost of Rs. 100/- per piece. Then, MRP for that particular product should be fixed on the basis of the above formula.

  • Manufacturing cost (MC) = Rs. 100/-
  • Packaging or presentation cost (PC) = Rs. 5/-
  • Margin (M) 30%= 100*30/100 = Rs. 30/-
  • Total cost = Rs. 100+5+30 = Rs. 135/-
  • GST= 5/-
  • CnF Margin 7% = 20.08
  • Stockiest Margin 12% (SM) = 58.21/-
  • Retailer Margin 25% (RM) = 30/-
  • Transportation cost (TC) = Rs. 2/-
  • Advertisement or Marketing Expenses (AE) = Rs. 15.50/-
  • Other expenses (O)= Rs. 10/-

Therefore, Maximum Retail Price (MRP) = Rs. 100 (MC) + 5 (PC) + 30 (M) + 5 (GST) + 20.08 (CnF) + 58.21 (SM) + 30 (RM) + 2 (TC) + 15.50 (AE) + 10 (O) =   Rs. 275.79.

Hence, the MRP of Rs. 275.79 could be fixed on the sale of that particular product.

Complaints against the seller in case he charges more than MRP on items

As per the guidelines of CBEC (Central Board of Excise & Customs), if any retailer charges GST over the MRP of the product, then consumers can file a complaint against him. The complaint can be lodged at the ministry or several anti-profiteering commissions set-up in India.

Since MRP consists of all the taxes, therefore, retailers cannot charge more than the price displayed on the products. Sellers and manufacturers can only sell the items at a price lower than MRP. Besides, they can offer discounts on MRP for certain things.

Therefore, if any retailer has imposed GST or any other tax along with the MRP after a discount or without a discount, then being a consumer you must raise your voice.

Penalties for charging GST on MRP products

If the shopkeepers sell products above the maximum retail price, then a strict penalty of Rs. 1 lakh or jail for one year would be applicable.

Conclusion

Hence, MRP on any product is the maximum retail price which is the highest price calculated and charged by the manufacturer for a particular product to be sold in India. Retailers can sell the items on the prices below MRP but can’t sell it above the maximum retail price. In the case, retailer charge GST along with the MRP, then consumers can raise a complaint against him. Moreover, the seller found guilty would be subject to severe penalties as described above.

In case, you have any doubts regarding the GST on MRP products, you can leave a comment below. Our expert will respond to you sooner.

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Khushboo Priya is an experienced Legal content writer with a prodigious proof-reading and research & development skill.

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1 Comment

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Jennifer Vaz    May 25, 2019 at 3:38 pm

When a manufacturer declares a MRP for a product and also has a selling price to his distributors, on what price is the GST calculated? Is there an abatement like how we had under excise rule? For examples MRP for a product is RS 1250/- and my selling rice to the distributor is 750/- please let us know how the GST is calculated on this.

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