‘Profiteering’ charge upheld against Park Avenue product

Our Bureau New Delhi | Updated on May 19, 2020

The National Anti-profiteering Authority (NAA) has upheld the profiteering allegation against ‘After Shave Lotion Park Avenue Good Morning 50 ml,’ a product from J K Helene Curtis Ltd of Raymond Group. It has asked the company and one of its distributors (respondents) to deposit the profiteered amount of around ₹19 crore with the Consumer Welfare Fund (CWF) within three months.

The case is related to not passing the benefit of reduction in the Goods & Services Tax (GST) rate. Based on the GST Council’s recommendation, the rate was lowered to 18 per cent from 28 per cent with effect from November 15, 2017. It was alleged that the company increased the base price, and hence, there was no change in the MRP.

After hearing the arguments and going through the investigation report from the Director General of Anti-profiteering, the authority upheld that respondents denied the benefit of tax reduction. It affirmed there is no provision of passing on the benefit of tax reduction by offering discounts; it should be passed on by commensurate reduction in prices only. It opined that the discount offered does not satisfy conditions under law as it did not form part of taxable supply.

The NAA observed there was a reduction of 10 per cent in tax rate which was required to be passed on, while rejecting the respondents’ plea that there was no reduction in rate of tax on the SKUs (stock keeping unit) produced in excise-free units and for exclusion of sales to institutional customers. It emphasised that netting off cannot be applied in case of FMCGs and ‘Zeroing’ has to be applied as customers have to be considered as individual beneficiaries.

Period of probe

The authority refuted the respondents challenge on the period of investigation by the DGAP (16 months and 16 days) and reliance on other NAA decisions. It pointed out that complaints in those cases were received immediately after reduction in rate of tax was announced; therefore, the period of investigation was restricted to three months.

“There is no restriction on launching fresh investigation against them in case they have not passed on the benefit of tax reduction subsequent to passing of the orders against them,” it said.

The NAA is tasked to determine if reductions in tax rates and benefits of input tax credit (ITC) are passed on to consumers by way of commensurate reduction in prices.

If the authority confirms there is a necessity to apply anti-profiteering measures, it has the authority to order the supplier/business concerned to reduce its prices or return the undue benefit availed, along with interest, to the recipient of the goods or services.

If the undue benefit cannot be passed on to recipient, it can be deposited in the CWF. In extreme cases, the NAA can impose a penalty on the defaulting business entity and even order cancellation of its registration under the GST.

Published on May 19, 2020

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