GST: NAA finds Lifestyle International guilty of profiteering

By: |
Ghaziabad | Updated: September 28, 2018 7:04:51 AM

The National Anti-profiteering Authority (NAA), a watchdog in the goods and services tax (GST) regime, has found multi-brand retailer Lifestyle International guilty of profiteering after it failed to pass on the benefit of reduced GST to consumers.

gst, economyNAA held that the company had enhanced the basic price of the product, which was equal to the amount by which the GST had been reduced.

The National Anti-profiteering Authority (NAA), a watchdog in the goods and services tax (GST) regime, has found multi-brand retailer Lifestyle International guilty of profiteering after it failed to pass on the benefit of reduced GST to consumers.

The authority directed the firm to return the profiteered amount to the complainant along with 18% interest, and deposit Rs 15,820 to the consumer welfare fund for excess amount collected from unidentifiable recipients.

With this order, the authority has found allegations of profiteering to be correct in three cases. This includes a Jaipur-based dealer of HUL and a Gurgaon-based real estate developer. However, the four earlier orders had dismissed profiteering allegations against companies.

A Ghaziabad-based consumer had filed a complaint regarding a particular cosmetic product for which the company had charged 28% GST even though the tax rate was reduced to 18% on November 15 last year. The consumer had alleged that the product price remained constant even after the rate change.

NAA held that the company had enhanced the basic price of the product, which was equal to the amount by which the GST had been reduced.

During the hearing before the NAA, the company argued that changes to be made in maximum retail price (MRP) of a product was a responsibility of the brand owners as the store could only control the retail sales prices. It also argued that the scope of investigation should not be extended on a pan-India basis and the same should be restricted to the complainant.
However, based on the investigation report prepared by the Director General of Anti-profiteering (DG-AP), the NAA dismissed the company’s contention saying that the retailer was bound to pass on the benefit of tax reduction to the customers.

Any benefit accruing out of reduction in GST rate is to be passed on for each product and to each and every customer and the law of averages cannot be applied, which meant that the company couldn’t pass on the benefit to certain customers arbitrarily.

“This is perhaps the first NAA order which explicitly states that any benefit arising out of GST has to be passed on at each stock keeping unit (SKU) level and the same cannot be averaged out, which may turn out to be a painful exercise for businesses, particularly FMCG companies, where the number of SKUs are huge.

“The ruling again underlines the need to have a proper guideline as to how the benefit has to be passed on, in terms of the regulations,” Pratik Jain, partner and leader indirect tax, PricewaterhouseCoopers (PwC) India, said.

Abhishek A Rastogi, partner, Khaitan & Co, said: “The disputes around section 171 and Rule 126 concerning anti-profiteering will only increase from here on. The authority held that it will not be involved in arithmetic calculations and hence a prescribed mechanism to determine profiteering is essential due to a wide diversity for different sectors.

“The question of constitutional validity and arbitrariness/vagueness of provisions will continue to plague the industry in the months ahead.”

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.