In a setback to FMCG major Hindustan Unilever (HUL), the Delhi High Court on Wednesday refused to stay the National Anti-profiteering Authority (NAA) order asking the company to deposit around Rs 223 crore in the consumer welfare funds of the government for failing to pass on the entire benefit of GST reduction last year.
NAA, established under the GST regime, had on December 24 held that HUL had not fully passed on the benefits of GST rate reduction to the customers by way of commensurate price reduction and has thereby ‘profiteered’ an amount of Rs 534.89 crore.
Out of Rs 535 crore amount of profiteering by HUL, around Rs 383.35 crore was denial of benefit to consumers after the GST was reduced from 28% to 18% on home and personal care products in November 2017.
Despite the company depositing Rs 78.97 crore with the central consumer welfare funds (CWFs) of the government, the net undue gains after taking into account certain deduction of Rs 68.77 crore on account of extra grammage supplied and Rs 3.80 crore for sales made to CRPF/CPC, credits that were given to HUL stood over Rs 223 crore.
HUL was also asked to pay 18% interest and also reduce the prices of its products by way of commensurate reduction keeping in view the reduced rates of tax and the benefit of ITC.
As per GST rules, 50% of the amount profiteered, or Rs 191.68 crore, is required to be deposited by the company in the CWF, while the balance amount is to be deposited in the CWF of concerned states where the company sold its products.
A Bench led by Justice Sanjiv Khanna, while refusing to grant any interim relief, asked the HUL to deposit Rs 90 crore with the department as per the NAA order. It also sought response from NAA and others. NAA had issued such notices to many companies. The HC had stayed the notices on petitions filed by companies including real estate developer Pyrami Infrastructure.
HUL had challenged the constitutional validity of the anti-profiteering measure under Section 171 of the Central Goods and Services Act, 2017 (the GST Act), and the relevant GST Rules, as being ultra vires Article 14 and Article 19 of the Constitution of India on the ground that the authority has not provided any methodology for computation of the profiteered amount, as stipulated under Section 171 of the GST Act. The absence of any guidelines or methodology invests the statutory authority with unguided and unbridled powers leading to arbitrary decisions by the authority, HUL senior counsel Harish Salve argued.
It also said that the authority has denied increase in grammage or extra quantity while retaining the same price in future, denial of costs incurred due to the transition including decrease in fiscal incentives and rejection of HUL’s submission of having providing the benefit to retail chains who in turn would be responsible for passing it on to the customers.
HUL counsel Vinita Bhargava further said that NAA is a creature of statute (GST Act) and can exercise only such powers which are specifically conferred under the Act and Rules.
“The Act and the Rules mandated NAA to formulate methodology. NAA chose not to formulate such methodology and took the view that it would determine profiteering on case to case to basis. Though the Act did not permit NAA that it can treat extra grammage as value deduction for some period but not for subsequent period, NAA held so,” according to the petition.