The National Anti-Profiteering Authority (NAA) has slapped a hefty penalty of Rs 383 crore on consumer goods major Hindustan Unilever Ltd (HUL) on the ground of not passing benefits of GST rate cuts to consumers.
The company had earlier this year voluntarily submitted Rs 160 crore – an amount significantly lower than the government’s calculation – as the profiteering amount to the government.
As per GST rules, 50 percent of the amount profiteered or Rs 191.68 crore is required to be deposited by the company in the central consumer welfare fund (CWF), while the balance amount is to be deposited in the CWF of concerned states where the company sold its products.
NAA has also asked HUL to explain why the penalty should not be imposed on the company.
Under the GST-related laws, the government has introduced an anti-profiteering clause to ensure businesses transfer the benefit of input tax credit to the consumers by ‘commensurate reduction in prices’.
If this is not done, the NAA can then impose penalty, cancel registration of the supplier or return the amount of benefit not passed on, along with an interest of 18 percent, depending on the details of the case.
“In the absence of a framework or methodology to determine the manner in which GST rate reductions or increase in input tax credits should be passed on across the value chain, any decision that does not consider the overall cost, weight, size, package aspects may be challenged provided the intention of the law is satisfied. Significant input cost changes during the past year including oil price changes, rupee devaluation making imports more expensive, in addition to the dynamic domestic cost environment need to be factored while considering cases of anti-profiteering- as these factors also have a significant impact on pricing,” said MS. Mani, Partner, Deloitte India.
The framework of the anti-profiteering mechanism comprises a standing committee, screening committees in every state as well as the Directorate General of Safeguards, now renamed as DG anti-profiteering (DGAP).
If consumers feel that the benefit of a rate cut is not being passed on to them, they can directly approach the state’s screening committee for relief. Once DGAP completes the investigation, the case is then sent to NAA, which issues the final order.
Complaints started pouring in after the GST Council in November last year cut rates of over 200 items across various slabs. The rate rationalisation continued earlier this year in January, July and also last week.