In this article, Sanghamitra Sengupta of SLS, Pune discusses Legal Compliances to follow for opening a grocery store in India.
With India’s Retail Industry growing at a rapid rate and being one of the fastest growing retail industries in the world; it cannot be denied that food and grocery which form the backbone of the Indian Retail Sector are essential to the country’s economy.
Setting up a retail store – Best practices to follow
The retail industry consists of retail markets which engage themselves in the process of selling consumer goods and services to customers, in order to earn a profit. Grocery stores come under the ambit of the retail industry as they too sell a variety of food and non-food products. In fact, in the Indian context, grocery stores are the most popular type of retail business, as no matter what the state of the economy in a particular region is, grocery is an essential part of one’s daily life and can’t be done without.
Now that the importance of grocery stores in the country has been established, there are a few points that one needs to keep in mind before establishing a grocery store and while running it so as to not run into a legal dilemma. Don’t forget that running a grocery store is quite similar to running a large business when it comes to complying with the law.
Here are the few steps you need to keep in mind before starting a grocery store:
- Business structure or a legal entity, as we may call it, refers to the kind of ownership the business possesses. It is very important, for you, as a grocery owner, to make a wise decision regarding the business structure as it determines the growth of your store in the long term.
- There are 6 options namely- sole proprietorship, partnership, one person company, limited liability partnership, private limited company and public limited company.
- Sole proprietorship is the easiest business structure to start with and this is exactly why it is a popular choice amongst those wanting to start a grocery store. Opting for this structure would mean less legal compliances, making it easy for you to handle the store on your own.
- Register the store under sole proprietorship at the nearest local municipal office. There are no additional costs involved and only a current account is required to be registered with the grocery store at a bank. Corporate tax rates will not be levied on the grocery store in case of sole proprietorship.
Contract of lease
First things first, one needs to obtain a shop to conduct his business of grocery store. For this, the owner of the business has to prepare a contract of lease with the landlord. Proceeding without entering into this contract is like inviting trouble from the legal god. This contract is governed by the Rent Control Act enacted by the states. A lease contract for a grocery store is essentially different from that for a residential house. Hence, it must contain clauses such as:
- Base rent, deposit, maintenance charges
- Alteration of structures
- Right to sublease
- Working hours on the property
- Consequences of breach of contract
- Terms and conditions of renewal
- Code compliance
- Name and Address of both tenant and landlord
- Amount of payment
Licensing and registration
A trader is bound by law to obtain a trade license before initiating his trade and as the owner of a grocery store, you too are expected to obtain this license to ensure that your store abides by all standards, regulations, ethical and safety norms. The permission must be granted by the nearest local municipal authority to your grocery store.
There are 3 kinds of businesses and trade for which a trade license is absolutely mandatory, namely-
- Any business which deals with sale of food such as restaurants, hotels, bakeries, grocery stores, food stalls, canteens.
- Any trade which uses motives like manufacturing industry, factories, power looms, flour mills, cyber cafe etc.
- Any offensive and dangerous trade such as sale of timber wood and firewood, candle manufacture, cracker manufacturer.
Legal technicalities of trade license
Every state has its own legal regulations pertaining to trade license. The trade license has to be obtained from the municipal authority. Most of the states provide a 30-day window after the trade has commenced for obtaining a trading license from the municipal authority.
The process isn’t a very tedious one as it usually takes 8 days to obtain a license but the process may take longer if the required documents prove to be faulty. The license may be revoked or canceled if the trader violates any of the conditions laid down in the trade license or because of a ruckus created by the trade.
Documents required for obtaining trade license
- Pan Card
- A bank statement of the establishment of the trade
- Certificate of establishment
- Premises proof in the form of either electricity bill, water bill or sale deed
- Colour photograph, ID proof and Address Proof of the owner/partners
- Front facing photograph of the trading business with goods that are traded in proper display
A trader must ensure to renew his trade license from the period of 1st January to 31st March of a year. Along with the provision of trade license being provided for in The Shop and Establishment Act, there are certain rules and work conditions which a trade must abide by in order to obtain a license-
- Permissible working hours per day and per week have been specified in the act. This permissible limit must not be exceeded by any trade.
- Opening and closing hours, holidays, overtime policies, non-working days, spread over of work are also dealt with by the act. A trade must not exploit its workers by breaching any of these provisions.
- Employment and termination conditions.
- Regulations for maternity leave and paid leave must be followed.
- Employment of young and women must be regulated properly at workplace.
The Shops and Establishment Act, 1953
- As an owner of a shop, the first thing you are required to do is to register your shop under ‘The Shops and Establishment Act, 1953’.
- The act defines ‘shops’ as any premise where goods are sold, either by retail or wholesale and where services are rendered to customers. It is, thus, implied that a grocery store is covered within this definition.
- The owner of a shop must submit an application along with the required legal fee to the Inspector of the local area within the prescribed time.
- The prescribed time for submission of the application and the legal fee may differ in different states.
- The application consists of the owner’s name, shop address, number of employees and other necessary details. The chief commissioner, on satisfying himself with the application will issue a certificate of registration to the shop.
- The shop owner is bound to prominently display this certificate at his shop and ensure periodic review of the certificate.
- The shop owner may make amendments to the certificate by notifying the inspector within 15 days of the occurring of the change.
- The relation between the inspector and owner of the shop doesn’t end with the establishment of the shop and its registration. The owner has an obligation to inform the inspector of the closing of the shop within a prescribed time to get the certificate cancelled.
- The Indian Government, in order to ensure registration of shops in the country, has facilitated online registration. Mumbai grocery store owners can use this link to register themselves. Likewise, Delhi grocery stores can register here. Kolkata and Bangalore too can register themselves online. The grocery store owners of other states can easily find an online registration portal by visiting the webpage of their municipal corporation.
A large chunk of the items for sale at grocery stores is the edible material; food. Any business in India that deals with food is known as a ‘Food Business’, under Food Safety and Standard Authority of India (FSSAI).
FSSAI through this classification imposes numerous legal compliances on a grocery store, the non-compliance of which could prove to be fatal to consumers.
Below are a few factors essential to the process of licensing under FSSAI
- The owner of a grocery store for the purpose of licensing is known as a Food Business Operator (FBO). The FBO needs to first realize the ‘capacity’ of the shop/food business, in order to apply for a specific category of license. The amount of turnover is the biggest determiner of the kind of license granted to an FBO by FSSAI.
- If a food business has its branch in more than one state, it has to obtain a ‘central license’ for its head office. A Food Business with an annual turnover of Rs. 20 Crores qualifies for a central license.
- If a food business has an annual turnover of Rs. 12-20 Crores, then it must obtain a ‘state license’. A license, once obtained, under FSSAI is valid for 5 years, after which renewal is mandatory.
- However, one category of FBOs have been exempted from this obligation and that is ‘petty food manufacturers’, who have an annual turnover of less than 12 Lakhs.
- Petty food manufacturers are small-scale manufacturers with a capacity of less than 100 KG of production in a day or are temporary vendors. They are merely required to register themselves by filling Form A under Schedule II of FSSAI and not obtain a license.
- An FBO may obtain a central license by applying on http://www.fssai.gov.in and sending a copy of the required documents and prescribed legal fee to the Central Licensing officer within 15 days of filing application.
- Form B in the Scheduled 2 is to be filled to obtain a state license and submitted to the nearest designated officer along with required documents and the prescribed fee.
Controversially called the ‘Poster-boy of Indian Tax Reform’ – Goods and Services Tax (GST) has changed the taxation norms for grocery stores across India. Every business is required to pay tax and register itself under GST, as it deals with the sale of goods. Every grocery store owner, on registration, will get a GSTIN, a 15 digit code which is a unique GST identification number.
Registration becomes compulsory only when the business crosses a specific annual turnover. If the annual turnover of a grocery store is less than 20 lakhs, it may or may not register itself under GST but an annual turnover greater than Rs. 20 Lakhs invites mandatory registration with GST. Due to the emergence of GST, businesses avoid transactions with unregistered companies as everything is documented and could result in reverse taxation. Under normal GST returns, shopkeepers have to file 3 monthly returns and 1 annual return.
You decide to put up a big sign outside your grocery store to attract people, but you realize you’re not attracting customers with your sign but some trouble, instead. Some cities have regulations on the size, location, type or even the lighting of a sign you put outside your grocery store. This particular compliance may not be apparent enough but owners must acquaint themselves with the local regulations on signs from their local municipality.
Are there any legal compliances to follow for starting home delivery services by a grocery stores?
You may have considered starting a home delivery service for groceries from your store to customers living nearby. You can start a home delivery service which will make shopping convenient for your customers and increase your profits, eventually. But, here’s a few things to keep in mind before allowing a delivery boy to deliver groceries-
- A motorbike used by the delivery boy for a delivery purpose cannot be privately registered. It is known to all that vehicles have to be registered before it is driven. A privately registered two-wheeler cannot be used for commercial purpose, i.e., delivery of groceries.
- RTO can seize any motorbike being used for commercial purposes.
- There are no regulations concerning use of bicycles for purpose of home delivery by grocery stores.
Importance of obtaining licenses cannot be ignored in any business and a grocery store is no different. The legal procedure isn’t as cumbersome as other businesses have it considering the small scale on which a grocery store works. Follow the law and reap its benefits!
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