The Food Ministry has forwarded the edible oil industry's long-standing demand for lifting restrictions on GST refund claims to the Finance Ministry, raising hopes that the GST Council may take up the issue in its next meeting.
"We have sent it to the Ministry of Finance, once this GST committee meets to work on the declaration about reduction in the rates, I am sure they will keep that in mind. Hopefully, it may take up in the next meeting," Food Secretary Sanjeev Chopra notified on Tuesday.
Refund Restrictions Impacting Industry
The edible oil sector has been facing refund restrictions on accumulated Input Tax Credit (ITC) under the inverted duty structure since July 2022, a move that has particularly hit small and medium enterprises as well as domestic manufacturers.
Currently, edible oils attract a 5% GST, while packaging materials, chemicals and processing equipment are taxed at higher rates of 12-18%. Earlier, companies were allowed to claim refunds on accumulated ITC, but the 2022 restrictions have left firms with large unutilised tax credits.
Industry associations, including the Indian Vegetable Oil Producers' Association (IVPA), have urged the government to remove refund restrictions and align the treatment of edible oils with products like butter and ghee, which continue to enjoy refund benefits.
Call for Policy Stability and Investment Boost
According to industry bodies, restoring ITC refunds would:
- Ensure policy stability for manufacturers
- Encourage new investments in processing and refining
- Improve the economic viability of domestic producers
- Help stabilise consumer prices
- Promote safer and transparent consumption practices
The Centre's larger proposal on GST rate rationalisation includes a simplified structure of 5% and 18% for merit and standard goods, along with a 40% rate on select items. This would replace the existing 12% and 28% slabs.
New Regulations for Transparency
Alongside the tax issue, Chopra highlighted the government's focus on implementing the Vegetable Oil Products, Production and Availability Regulation Order, 2025, which aims to increase transparency, curb hoarding and stabilise edible oil prices.
Under the new rules, all vegetable oil producers must register with the Directorate of Sugar and Vegetable Oils and submit monthly reports on production, sales, stock levels and purchases by the 15th of each month.
"Reporting data will take time, and it is not happening on a large scale due to lack of awareness," Chopra said, adding that the ministry will hold awareness camps at key industry hubs to enable on-spot registration.
He noted that around 20% of players account for 80-90% of total production, and once major companies register, the government will have a reliable dataset on production, imports and stock positions.
Outlook
With the Food Ministry backing the edible oil industry's demand, all eyes are now on the GST Council's upcoming meeting, which may decide on lifting refund restrictions and offering long-awaited relief to the sector.
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