NAA finds Maggi noodles distributor guilty of profiteering, seeks amount with interest

The National Anti-profiteering Authority (NAA) has held a Maggi noodles distributor guilty of indulging in profiteering. It has asked the firm to reduce the prices and also deposit most of the profit, along with interest, in the Consumer Welfare Fund.

When contacted a Nestlé India (the company which produces Maggi) spokesperson said, “The order pertains to our distributor and we do not wish to comment on the same.”

The matter involves a distributor named Kunj Lub Marketing, Hardoi, Uttar Pradesh. The allegation was that the firm did not pass on benefit of reduction of GST rate to 12 per cent from 18 per cent with effect from November 15, 2017. The allegation was that that prior to November 15, the firm was charging 18 per cent GST on the product’s (35 grams pack) base price of ₹3.96 per pack. However, after the rate reduction it had started charging lower rate on the product’s increased base price of ₹4.17 per pack which meant final price remained unchanged at ₹4.67 and thus pocketed the profit.

The matter was reported to the Standing Committee which referred the matter to the Director-General Anti-Profiteering (DG-AP). During the investigation, the distributor pleaded that the benefit which accrued in respect of ₹5 MRP pack had been passed on by reducing the price of other pack of Maggi (₹12 MRP pack with 70 grams quantity). It was further submitted that MRP of ₹12 pack was reduced by ₹1 which was more than the total benefit arising on ₹5 and ₹12 MRP pack cumulatively (₹0.92). The dealer also submitted that such reduction was made in light of legal tender issues due to fractional pricing.

After a detailed hearing, the Authority observed there is no doubt that the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price charged by the Respondent which amounts to violation of the provisions of Section 171 of the GST law.

Also, the Respondent has no such liberty to arbitrarily decide in respect of which products he would pass on the benefit and in respect of which products he would not pass such benefit.

It also said that the Maggi Noodle pack of 35 grams is distinct from a 70 grams pack and both the packs may be bought by the different recipients/customers and hence the benefit accruing to one customer cannot be given or denied to another nor can the benefit given to one set of customers arbitrarily enhanced and set off against the another.

No adjustments

No such adjustments are permissible under the Act, it said while ordering the dealer to deposit the amount profiteered (₹90,778) along with interest at the rate of 18 per cent in the Consumer Welfare Fund, after refunding the profiteered amount of ₹2,253 (along with interest) to the applicant.

Tax experts found price reduction not an easy thing to do especially on package with small quantities. MS Mani, Partner at Deloitte India, said while there may be a requirement to reduce the price at each pack level consequent to the GST rates being lowered, the fact that the prices have been lowered on an overall basis should be considered. “Businesses having many SKUs (Stock Keeping Units) have found it practically difficult and commercially inconvenient to enforce an identical quantum of reduction in each SKU,” he said.

Similarly, Harpreet Singh, Partner (Indirect taxes) at KPMG, felt the reduction was easier said than done. “It would be a challenge to change the price, especially of smaller products/ quantities such as sachets used for shampoo, sauce, soaps etc., to pass on the benefit of rate reduction under GST,” he said.

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