A Jaipur-based dealer of Hindustan Unilever (HUL) products has turned out to be the first business in India to have been held guilty of not passing on the benefit of reduced tax incidence to consumers in the foods and services tax (GST) regime. The National Anti-profiteering Authority (NAA) has found that while the GST on skincare product Vaseline was reduced to 18% from 28% on November 15 last year, one Sharma Trading Company increased its base price in order to keep the selling price the same as before and thereby denied the consumer the benefit of the tax cut.
The dealer/HUL will have to be deposit the extra amount collected from the consumers in a designated fund; the dealer will also have pay a fine for the lapse. In its previous four orders, the authority had exonerated the businesses accused of profiteering as it didn’t find merit in the complaints. In the latest order, however, the NAA found the dealer has profiteered to the extend of Rs 5,50,370 on account of increased base price charged between November 15, 2017, and January 31, 2018. “NAA has significantly increased the tax compliance risk for all companies, stockists and their distributors, especially FMCG companies,” said Rajat Mohan, partner at AMRG & Associates.
Mohan added: “In India GST rate changes are notified overnight, and tax authorities’ expectation that dealers, stockists, shopkeepers would ascertain the anti-profiteering element and implement them in real-time is far-fetched, especially when even the country’s biggest software company is unable to implement seamless nationwide GST network for over 15 months.”
The dealer in its plea claimed that HUL had changed the base price in its software and, hence, the dealer was bound to charge the increased base price at the time of issuing invoices. In response, the NAA said that since the dealer was aware of the reduction cut, it was his responsibility to pass on the benefit of the reduced rate to the consumers.
Further, the stockist also argued that since the extra credit availed by HUL had been deposited in the Consumer Welfare Fund (CWF), the dealer wasn’t accountable for profiteering. Analysts said that this NAA observation could create problems for HUL. The multinational FMCG major had approached the government for a procedure to deposit some Rs 119 crore in the CWF in similar cases.
This amount, as assessed by the firm, is the benefit it couldn’t pass on to the consumers after rate cuts due to logistical reasons.
HUL refused to comment for this story. The NAA said in case of the Jaipur dealer: “It is apparent from the record that the respondent had been instrumental in issuing incorrect invoices in supplying 35,244 units between November 15, 2017-January 31, 2018, in which he has increased the base price of the product in order to negate the benefit of reduction of tax rate… Any subsequent deposit of such excess amount in CWF can’t absolve him of allegation of profiteering.”
The anti-profiteering mechanism that comprises the NAA, DG, anti-profiteering, a standing committee at the national level and screening committees at states, is tasked to ensure that a reduction in tax incidence due to rate cuts or the benefit of input tax credit has been passed on to customers by way of commensurate reduction in prices. If the authority confirms the necessity of applying anti-profiteering measures, it has the power to order the business concerned to reduce its prices or return the undue benefit availed along with interest to the recipient of the good or service.
If the undue benefit cannot be passed on to the recipient, it can be ordered to be deposited in the consumer welfare fund within a stipulated time. The authority can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.
According to sources, the NAA also asked DG-AP to ascertain whether HUL has deposited the amount profiteered by the Jaipur-based trader . If not, the order said, the dealer must deposit the same in the CWF. Additionally, the order also found the dealer’s case fit for imposition of fine according to the GST Act. The dealer would be required to pay the higher of the two amounts: Rs 10,000 or the input tax credit amount wrongly claimed.