Anti-profiteering charge on L’Oreal

The NAA had earlier fined companies such as Nestle India, Proctor and Gamble, Johnson & Johnson, Hindustan Unilever for similar violations.

Most products sold by L’Oreal attracted a 28% GST between July 1, 2017, and November 14, 2017.
Most products sold by L’Oreal attracted a 28% GST between July 1, 2017, and November 14, 2017.

The National Anti-Profiteering Authority (NAA) has asked personal care major L’Oreal to pay Rs 186 crore along with 18% interest to the Consumer Welfare Fund for not passing on GST rate cut benefits to consumers.

In a 131-page order, the NAA said that commensurate reduction in the prices of goods has not been effected by the company after the GST rates were reduced. In its order dated June 23, the authority also directed the directorate-general, anti-profiteering, to initiate further investigations to find out whether L’Oreal passed on the tax reduction benefits in the period after December 31, 2018.

Most products sold by L’Oreal attracted a 28% GST between July 1, 2017, and November 14, 2017. The rates on these items were reduced to 18% from November 15, 2017.

The NAA has directed that half of the amount of Rs 186 crore, along with interest, should be deposited in the central Consumer Welfare Fund and the balance to the central Welfare Fund of the states concerned.

The amount needs to be deposited within three months, the NAA said.

NAA said that L’Oreal’s claim that it had passed on the benefits of Rs 276.48 crore doesn’t merit consideration.

In its defence, L’Oreal had said it reduced rates after the GST Council decision in November 2017 by increasing the quantity in the case of shampoos, conditioners and colour naturals. The company also pointed out that the government had not given any guidelines or methodology to pass on benefits to end consumers.

NAA, however, said, that “L’Oreal has no bona fide intention and continued to sell its products at pre-rate reduction MRPs (maximum retail price)”. It also said, that the increase in grammage is not equivalent or similar to commensurate reduction in prices. Besides, the data submitted by the company regarding this, is full of inconsistencies.

NAA said L’Oreal has not only collected excess base prices from its customers which they were not required to pay because of the reduction in the tax rate; it has also compelled customers to pay additional GST on the excess base prices which they should not have paid. “The respondent has thus defeated the objective for both the central and the state governments to provide the benefit of rate reduction to the ordinary customers by sacrificing their taxes.”

The NAA had earlier fined companies such as Nestle India, Proctor and Gamble, Johnson & Johnson, Hindustan Unilever for similar violations.

Some FMCG companies had earlier contended that the methodology has to be determined before cases of alleged profiteering are adjudicated.

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