NAA fines three P&G subsidiaries Rs 241 cr for profiteering on GST rate cut

NAA said that P&G's decision to not increase price at time of GST implementation was a business call.
The National Anti-profiteering Authority (NAA) has slapped a fine of Rs 241 crore on three subsidiaries of the Procter & Gamble (P&G) group for alleged profiteering by not passing benefits of the reduction in the Goods and Services tax (GST) to consumers.

The NAA order found Procter & Gamble Home Products, Procter & Gamble Hygiene and Health Care, and Gillette India guilty of profiteering Rs 181 crore, Rs 2 crore, and Rs 58 crore, respectively. The authority set aside the penalty but directed the subsidiaries to deposit half of the profiteered amount in the central Consumer Welfare Fund (CWF) and the balance in the CWF of 33 states and Union territories, along with 18 per cent interest, said Harpreet Singh, partner at KPMG. A P&G spokesperson said they will review the order by NAA and assess all possible legal options. “We are hopeful that our stand will be vindicated,” the spokesperson said.

He said as a responsible corporate, P&G has entirely passed on the net commensurate benefit under GST to the recipients. 

“In addition, we communicated the same via advertising in mass media to help increase awareness with the consumers, shoppers and retailers. Also, along with the industry, we have been consistently requesting the authorities for a clear set of rules and regulations to eliminate ambiguity and complexity in this area,” the spokesperson said. 

The authority allowed the Directorate General of Anti Profiteering to carry out further investigation to compute the profiteered amount till the date it has been passed on and furnish the report. The authority noted that the GST rate was reduced from 28 per cent to 18 per cent with effect from November 15, 2017.

It also noted that P&G subsidiaries increased prices on the intervening night of November 14 and 15 from when the rate reduction was notified.

NAA clarified that P&G’s decision to not increase price at the time of GST implementation was a business decision. Further, it said that in case there was any increase in costs, the firm should have increased prices during the period between July 1, 2017 and November 14, 2017.

It also rejected the group's plea that sales and profitability were severely impacted because of the pandemic, saying there was no impact of Covid during the disputed period — November 15, 2017 to September 30, 2018. 

The authority said the law required that the benefit of tax reduction be passed on in respect of every supply made.

It also said:“Benefit of tax reduction has to be passed on by way of commensurate reduction in monetary terms and it cannot be passed on in non-monetary terms by supplying additional quantities of the products." It added that the group cannot expect their distributors and retailers to pass the benefit down the supply chain to the ultimate consumer, when they themselves have not received the tax reduction benefit.

 It sternly said: “Anti-profiteering provisions are bound to remain on the statute book till the registered persons cultivate the habit of voluntarily passing on … benefits as a matter of routine”.

It aired its displeasure, saying many registered dealers such as P&G subsidiaries are advancing lame excuses to misappropriate the amount sacrificed by the public exchequer, which is estimated to be around Rs 1,000 crore during the past three years of the GST implementation.

Singh said the stern message by the authority means that anti-profiteering provisions are here to stay till compliance by dealers increases and the registered persons voluntarily pass on benefits. He said there are two interesting observations by the authority: "First, compliance with anti-profiteering requires compliance with every supply. Secondly, only reduction in price is acceptable to authorities — supplying additional quantities of products or other sales promotion schemes would not be construed to be in compliance with the provisions.”  

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