Compliance Check for a Packaged-Snack Start-up
A young entrepreneur in Rohtak plans to sell packaged roasted snacks under a new brand. She will manufacture in a small rented unit, sell through local shops and an online marketplace, and expects first-year turnover of ₹1.8 crore. Her products contain no meat and are shelf-stable. She has registered the business as a proprietorship and has an Udyam registration. An adviser tells her: 'You only need a basic FSSAI registration because you are a small unit; GST registration is optional below ₹1.5 crore; and you can use the brand name without checking trademark rights because you are local.'
She asks for a compliance check before launch. She wants to know which of the adviser's three claims is correct, which licence she actually needs, and what changes if turnover crosses ₹20 crore in year three. She also plans to export to Nepal next year.
1. Evaluate the adviser's three claims. Which are correct, which are wrong, and why?
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None of the three claims is correct as stated.
FSSAI licence: Basic registration is only for turnover up to about ₹12 lakh. A State licence covers roughly ₹12 lakh to ₹20 crore. At ₹1.8 crore, she needs a State FSSAI licence, not basic registration. The 'small unit' description does not override the turnover slab.
GST: For goods, the normal threshold is ₹40 lakh (₹20 lakh in special-category states); Haryana is not in that special category. At ₹1.8 crore, GST registration is mandatory. The adviser's ₹1.5 crore figure is not the goods threshold.
Trademark: Being local does not create immunity. She should conduct a trademark search and file for registration in the relevant class; otherwise she risks objections or passing-off claims. Local use may give limited common-law rights, but it is not a safe launch strategy.
Her Udyam registration may help with classification and scheme benefits, but it does not replace FSSAI or GST compliance.
2. State the FSSAI licence the business needs at ₹1.8 crore and explain what would change if it begins exporting to Nepal.
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At ₹1.8 crore turnover, the business falls in the State FSSAI licence band (above ₹12 lakh and up to ₹20 crore).
If it begins exporting to Nepal, it should obtain a Central FSSAI licence. Exporters are covered by the central licensing category even if their turnover is below the ₹20 crore threshold. The business would also need to meet the importing country's requirements and any export documentation, but the FSSAI side is the immediate change.
If turnover later crosses ₹20 crore, the Central licence would be required anyway on turnover grounds. So the export plan accelerates a compliance step that would otherwise arrive at a higher turnover.
3. The entrepreneur proposes to split the business into two proprietorships, each with turnover of ₹90 lakh, to avoid GST and the State FSSAI licence. Is this permissible? Explain.
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This is not a safe or permissible planning strategy if the split is artificial.
For GST, the threshold applies to a 'person'. Two proprietorships owned by the same proprietor are not genuinely separate persons merely because the business is divided on paper. Tax authorities can examine whether the split is a device to avoid registration or tax. An artificial division with shared premises, staff, brand and customers risks being treated as one business, with penalties.
For FSSAI, the licence category depends on the turnover and scale of the food business. Splitting one integrated operation into two labels does not necessarily create two independent food businesses. The units may be assessed together if they are under common control and share the same brand and production.
A genuine restructuring with separate legal entities, independent operations and commercial substance might be different, but the stated motive-staying below thresholds-makes the arrangement vulnerable. The compliant route is to register for GST and obtain the State FSSAI licence.