Rate reduction benefits mean just that: Anti-profiteering authority

In what could revive the debate about the manner in which benefits of cuts in the goods and services tax (GST) could be passed on to consumers, the National Anti-Profiteering Authority (NAA) has found a distributor of Hindustan Unilever “guilty” of not passing on the reduction in the rate on 400-ml Vaseline VTM to a buyer.

This was despite the fact that the distributor had issued a credit note passing on the benefits and raised the grammage of the product.

The ruling has set a precedent that distributors or dealers cannot escape their obligation to pass on the benefits of cuts on the grounds that the manufacturer collected and deposited an equivalent amount in the Consumer Welfare Fund, said Harpreet Singh, Partner, Indirect taxes, KPMG. 

A complainant running a departmental store alleged the distributor charged the same price from him on sale on November 15 last year as he had charged before the GST rate was decreased and therefore indulged in profiteering. 

The GST Council had cut the rate on Vaseline from 28 per cent to 18 per cent with effect from November 15 last year. 

However, the distributor said the transaction was reversed and the transaction was redone in accordance with the rate cut by issuing a credit note. 

Also, he said he had supplied an enhanced quantity of Valeline (400 ml instead of 300 ml) at the same price and, accordingly, there was no profiteering.

The distributor defended himself by saying it was practically impossible for a dealer to calculate the additional benefit overnight.

The authority, however, upheld the consumer’s position. It said reversing the transaction using a credit note did not absolve the distributor of the consequences resulting from issuing tax invoices wherein the anti-profiteering provisions were violated.

With regard to enhanced grammage, the authority noted the distributor was in no position to decide the quantity to be passed on as benefit arising out of rate reduction.

Regarding the argument that it was “practically impossible” for a dealer to overnight calculate the additional benefit, the authority stated the matter involved just calculation.

Experts said the ruling was harsh. 

Singh said as the anti-profiteering authorities had not only disregarded the issuing of credit notes to pass on the rate reduction benefit, it rejected the plea of passing on the benefit by way of increase in quantity.

"Going by the ruling, it appears that reducing the rate is the only acceptable way of passing on the benefit. Giving additional discounts or increasing the quantity does not appear to be acceptable to the anti-profiteering authorities. This interpretation appears to be a little harsh on the industry,” he added.  

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