Earlier, a GST rate of 18% was applied only on fountain pens and stylograph pens, while ballpoint pens were taxed at 12%.
Industry trackers say that low-cost pens have high price elasticity and the slightest increase in cost results in disproportionate reduction in sales.
“The pen industry has been badly hit during the pandemic and has not recovered, as schools and offices are not yet fully operational,” said Rajesh Rathod, president of Writing Instruments Manufacturing Organisation (India). “This additional tax burden will give further irreversible pain to the Indian manufacturers.”
Two associations-Tamil Nadu Pen Manufacturers and Vidarbha Pen and Stationers Associations-have written to the finance ministry seeking reduction in GST rate.
The government had recently said that beginning October 2021, all pens would be taxed at 18%.
Now, all pens, including ballpoint, felt-tip, other porous tip pens, markers, pen holders, pencil holders, and similar holders, including caps and clips, now come under the 18% GST category.
Tax experts say that the rate increase could also lead to litigation.
“While rate rationalisation and fixing the tax rate is a policy issue, the constitutional validity of the change of tax in the instant case cannot be ruled out due to various principles related to cooperative federalism and right to education in the Constitution,” said Abhishek A Rastogi, partner at Khaitan & Co, a law firm.
The government has been trying for rate rationalisation under GST, say industry trackers.
This means that from four GST rates, the government hopes to move towards lesser tax brackets in a bid to reduce litigation.
Most of the litigation or confusion in the indirect tax ruling is mainly due to product categorisation and the issue of which tax bracket the goods or service should be considered-5%, 12%, 18% or 28%. This exercise seems to have impacted the low-end pen manufacturers.
“It is hoped that the GST Council brings the rate on pens at par with pencils (12%) which will relieve the pain of both manufacturers and students,” said Rathod.