ITC, Patanjali under scanner for not passing on GST benefits to customers

Even as its term is nearing an end, the country’s profiteering watchdog has widened probe against fast-moving consumer goods (FMCG) and consumer durables companies for not passing on reduced goods and services tax (GST) rate benefit to consumers in a timely manner. Sources said ITC and Patanjali Ayurveda are also being investigated apart from the earlier known names of Procter & Gamble (P&G), Johnson & Johnson (J&J), and Samsung, among others. Most of the firms have denied all such charges.

GST rules mandate businesses to pass on the benefits from lower tax incidence, arising from rate reduction and/or input tax credit, to the consumer. “We are simply asking companies whether they were able to pass on the rate reduction benefit to consumers and if not, how much was the profiteered amount according to them. All companies are fully cooperating with us,” said a government official.

ITC, which sells soaps under brands Fiama and Vivel, has received notice from the Directorate General of Anti-Profiteering (DGAP) over not passing appropriate benefits of GST rate reduction to consumers of its FMCG products. In November 2017, the rates for 178 items, including detergents, shampoos and beauty products were reduced from 28 per cent to 18 per cent under the GST.

ITC confirmed it had received enquiries from the DGAP. “We are continuously providing necessary information to the authorities. We are in full compliance with the law and will continue to cooperate with the authorities. The matter is subjudice and, therefore, we would not like to offer any further comment at the moment,” an ITC spokesperson said.

Besides, the DGAP has alleged that Baba Ramdev-led Patanjali profiteered close to Rs 176 crore on various FMCG items till August 2018. “We are now extending our investigation to check further profiteering by Patanjali till March 2019,” said the official mentioned earlier. The company has said that the DGAP has magnified the profiteered sum by looking at duplicate invoices. The company’s officials could not be reached for comments.

The DGAP is also investigating whether companies passed on reduced rates to end users in the sanitary napkins segment. Though the DGAP has found P&G of profiteering a sum of Rs 250 crore in its FMCG segment, investigations in the sanitary napkins segment is going on. P&G sells the Whisper brand of sanitary napkins. A notice has also been sent to J&J for the same segment. In July 2018, the GST Council had exempted sanitary napkins from the levy, which stood at 12 per cent earlier. “As a responsible corporate, P&G has always been committed to passing the net benefit of GST rate reduction to consumers. We have passed the net benefit and communicated the same via advertising in mass media to help increase awareness with the consumers, shoppers, and retailers,” a P&G spokesperson said. “We hope the authorities concerned will appreciate the procedure followed to pass on the GST benefits and will take a just view of the matter.” The firm also said it would continue to cooperate with the authorities and give clarifications.

A spokesperson from J&J, the makers of Stayfree sanitary napkins, said: “We have passed on all the net benefits arising out of GST exemption on sanitary napkins. We deny any claim of profiteering. We have made our submissions to clearly demonstrate to the concerned authorities that we have passed on all the net benefits arising from this exemption. The matter is currently under adjudication and we continue to work closely with the authorities to address any queries that they may have on the subject.”

Korean consumer goods giant Samsung is being probed for not passing rate reduction in case of television sets. GST Coucil, the highest decision making body for the indirect tax regime, had slashed rates on monitors and TV sets of up to 32 inches from 28 per cent to 18 per cent in its December meeting. “Samsung reduced its sales price according to GST reduction w.e.f. January 1. We are cooperating with the DGAP on this matter,” said a spokesperson. According to people aware of the development, the leading white goods maker received a notice from the DGAP after a consumer filed a complaint with the concerned authority against pricing of Samsung television.

M S Mani, partner, Deloitte India, however, said: “Businesses have been facing practical challenges in implementing the anti-profiteering provisions and these should be considered. It is essential that affected businesses carry out a study to determine whether they have received any benefits band the extent to which they have been passed.”

Abhishek Jain, tax partner, EY, said that while businesses did not mind passing on the benefits, the main challenge that they encountered was on the precise modality in which the benefits were to be calculated and passed on.

The heat is on
  • DGAP investigating ITC, Samsung, J&J, P&G Patanjali, others
  • Widens probe against Patanjali Ayurveda. Alleges Rs 176 cr undue profits pocketed by August 2018
  • P&G, J&J under lens for not passing entire rates cut benefit in sanitary napkin
  • Samsung under scanner for not passing rate cut benefit for TV sets

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel