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The National Anti-profiteering Authority (NAA) has rejected the contention of Johnson & Johnson (J&J) that it was passing the benefit of lower GST (Goods and Services tax) rate, and upheld allegations of profiteering against one of its distributors.
The matter involves a complaint that Delhi-based distributor — JP and Sons — had not passed on the benefit of GST rate reduction from 28 to 18 per cent with effect from November 15, 2017, by maintaining the same Maximum Retail Price (MRP), which he was charging before the said date in case of the two products — Johnson & Johnson Baby Shampoo 100 ml and Johnson & Johnson Baby Powder 200 gm. It was also alleged that instead of reduction, the base prices of these products were increased on November 15, 2017, and thus the said distributor had indulged in profiteering.
J&J did not respond to BusinessLine queries.
The distributor, in his defence said billing was provided and fully controlled by J&J and he couldn't make any modifications in the billing software and sold these products on the MRPs which were uploaded in the software.
Software control
It was claimed that once the base prices had been increased by J&J with effect from November 15, 2017, in the software, he had no option except to charge these prices and therefore, he was not liable for profiteering.
J&J was also issued notice to clarify upon the claims made by the distributor in respect of the control on the software and increase in the base prices made by it after November 14, 2017. The company, in its submission, said that it had in fact lowered the base prices after reduction in the rate of tax from 28 to 18 per cent.
After screening by the Standing Committee and investigation by Director-General of Anti-Profiteering (DG-AP), the authority considered the materials placed before it and held that there is no doubt that the distributor had increased the base prices of the above products from November 15, 2017, whereas he was required not to increase them and after charging GST 18 per cent which meant he has indulged in profiteering.
Lack of evidence
The NAA held that the distributor had also not produced any evidence to show that he had made any correspondence with J&J to inform it that he was bound to reduce the prices due to reduction in the rate of tax and J&J should either not increase the base prices or compensate him for the benefit he was bound to pass on to his customers, therefore, it is quite apparent that he had deliberately charged the enhanced prices with an intention to pocket the amount which he was bound to pass on to the recipients. Accordingly, it was asked to deposit the profiteering amount of over ₹5 lakh, along with interest, with the consumer welfare fund.
Practical difficulties
According to Harpreet Singh, Partner at KPMG, it is clear that arguments such as base price of product rose due to increase in cost at the time when rates were reduced, and it could not pass the muster of anti-profiteering scrutiny, unless the same was backed by adequate and robust documentation in the form of agreements, e-mail correspondence etc.
“The order clearly establishes that citing practical difficulties such as changing the MRP, lack of control on billing software, increase of base price by manufacturer etc. would not be acceptable while determining whether profit has been adequately passed on or not,” he added.
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