Price of each product must be lowered in case of GST rate reduction: Profiteering regulator

In what could be a clear message to industry, the National Anti-profiteering Authority (NAA) has said the GST rate cut benefit should to be passed on to the consumers for each and every product and the law of averages will not apply.

Based on a customer complaint, investigation by Director General-Anti Profiteering (DG-AP), and detailed hearings, the Authority has asked a unit of Lifestyle International located at Vaishali in Ghaziabad, Uttar Pradesh, to lower prices of products because of reduction in GST rates.

It has also ordered to refund the excess amount of₹41 along with interest at 18 per cent (from the date of purchase till the date of the refund). The unit has also been asked to get the balance amount of profiteering of ₹15,820, from recipients not identifiable, deposited in the Consumer Welfare Fund.

Apart from this, a show-cause notice has been issued for penalty and investigation ordered for profiteering of ₹2 crore, which might not have been passed to individual buyers.

When contacted, a spokesperson of the company said, “Lifestyle International is a fully compliant, law-abiding company that follows best governance practices. We are in receipt of the order and are reviewing it. We will take suitable action.”

Anita Rastogi, Indirect Tax partner at PwC, said the case decides on the complaint but also issues order for investigation on other products sold sending a clear message that price reduction is required for each product and general reduction in prices does not make the business compliant.

What the case is

The matter is a year old. A customer bought a cosmetic product from the said outlet on November 22 and paid ₹525 which included GST at the rate of 18 per cent. But, just a week before the purchase, that is from November 15, the rate was lowered to 18 per cent from 28 per cent. The customer approached the Standing Committee (the first tier of anti-profiteering mechanism) and complained that the outlet has not passed on the benefit of reduction in the rate of tax by lowering the price and has indulged in profiteering.

Preliminary examination

After preliminary examination, the compliant was forwarded to DG-AP which suo moto became the second applicant after the complainant.

After the investigation, the DG-AP said the Lifestyle unit had sold 46 units of the product carrying maximum retail price (MRP) of ₹550 during the period between November 1 and 14, 2017, wherein the basic price per unit, excluding GST of the product, was ₹410 per unit and the retail sales price (RSP) charged inclusive of 28 per cent GST was ₹525 per unit. The product was bought by the complainant on November 22 in which the basic price per unit was increased from ₹410 to ₹445 as a result of which the RSP charged inclusive of 18 per cent GST was at ₹525 which was equal to the RSP which was being charged by the unit before the rate of tax was reduced.

The DG-AP also noted that if the reduction in the GST rate from 28 per cent to 18 per cent had been taken into consideration the RSP charged inclusive of 18 per cent GST would have been maximum of ₹484 per unit, therefore “it was evident that profiteering of ₹41 per unit (₹525- 484)” had happened.

The ruling emphasised that any reduction in the rate of tax or the benefit of Input Tax Credit has to be passed on to the recipient which means that “every citizen who is a recipient of supply of goods or services has to get the benefit and hence this benefit has to be calculated on each and every product. The respondent has no discretion to provide benefit on certain class of products and deny the same in respect of the other products.”

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