Delhi HC directs L'Oreal to pay profiteered amount of Rs 186 crore

The court, which clubbed the petitions, had posted the matter for next hearing on October 19

The Delhi High Court (HC) has directed cosmetics maker L’Oreal to deposit the “principal profiteered” amount of Rs 186 crore in the consumer welfare fund in six monthly installments. However, it has stayed the penalty proceedings and investigation by the anti-profiteering authority until further orders.

A bench of Justices Manmohan and Dinesh Kumar Sharma issued the direction on L’Oreal’s plea challenging the June order of the National Anti-profiteering Authority (NAA) which held that the company deprived its customers of the benefits of reduction in Goods and Services Tax (GST).

L’Oreal has also challenged the constitutionality of section 171 of the Central GST Act, which provides that any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

With this, the cosmetics brand has joined the fray of petitions challenging the constitutional validity of NAA under the GST system.

The petitions, which number around 80, included those by large companies such as Hindustan Unilever, Patanjali, Jubilant Foodworks, Reckitt Benckiser, Johnson & Johnson, Phillips and Subway.

The court, which had clubbed the petitions, had posted the matter for next hearing on October 19.

“The High Court at this stage is hearing the detailed arguments from companies and the authority with respect to constitutional validity. The issues with respect to determining the quantum of profiteering comes into play after the court rules whether or not the profiteering provisions imposed are valid,” said Abhishek A Rastogi, partner at Khaitan and Co, who is arguing on anti-profiteering for diverse sectors such as real estate, FMCG etc.

While pronouncing the order in the L’Oreal case, the bench said, “Prima facie, this Court is of the view that the under Section 171 any benefit of reduction in rate of taxes or benefit of input tax credit on any supply of goods or services can only be by way of commensurate reduction in prices.”

“When a statute clearly provides for a manner in which something is to be done, and a duty is cast upon the supplier to extend the benefit of rate reduction by way of commensurate reduction in prices, the supplier cannot insist that instead of reducing prices, he will give extra grammage of the product.”it noted.

The petitioner, L'Oreal, challenged Section 171 of the CGST Act, Chapter XV of the CGST Rules,  as unconstitutional, ultra vires, and violative of Articles 14, 19(1)(g), 265 & 300A of the Constitution of India.

The petitioner further said that NAA is not netting off the benefit of rate reduction extended in some products against those where the petitioner has not extended the benefit of rate reduction qua the subject products, by way of commensurate reduction in prices, and therefore, while it is being punished for being a ‘bad boy’, it is not being rewarded for being a ‘good boy’.

NAA on the other hand contended that Section 171 of GST confers powers of wide amplitude upon the NAA to examine “any supply of goods or services” by any registered person and to examine whether the reduction in the tax rate or benefit of input tax credits have been passed on to the recipient by way of commensurate reduction in prices or not.