GST anti-profiteering watchdog NAA imposes Rs 90-crore fine on Nestle

The goods and services tax (GST) profiteering watchdog imposed a penalty of Rs 90 crore on fast-moving consumer goods giant Nestle for not passing on the benefit of rate reduction to consumers.

The national anti-profiteering authority (NAA) noted that the methodology adopted by Nestle to pass on GST rate-cut benefit was ‘illogical, arbitrary, and illegal, which has resulted in unfairness and inequality while passing on the benefit of tax reduction’.

Nestle, the maker of Maggi, KitKat, Munch, and Nescafe, had already deposited Rs 16 crore in the consumer welfare fund last year on a voluntary basis and now requires to deposit Rs 73 crore within the next three months.

“The amount of Rs 73 crore shall be deposited within the next three months from the date of passing this order,” the order said.

The NAA held that the benefit of rate reduction was to be passed on for each stock keeping unit (SKU) and not at the product level. It observed that the benefit was either not passed on for some SKUs, while more than the required benefit was passed on in some SKUs within a category. It noted that the ‘most simple and appropriate methodology required to be adopted was to calculate the new maximum retail price (MRP) for each SKU, according to the tax calculation and to charge it accordingly’.

According to the anti-profiteering rules under GST, “benefits of input tax credit should have been passed on to the recipient by way of commensurate reduction in prices.”

Nestle India spokesperson told Business Standard that, “Nestle India as a responsible corporate citizen has passed on the benefits of GST to consumers and will consider appropriate actions after studying the order by the NAA.  It further said that the benefits largely have been passed on by way of reduction of MRP or by way of increase in grammage. Further, on SKUs where it was not practicable to pass on the benefits, say for example Nescafé single-serve packs for Rs 2 or Maggi noodles Rs 5 packs, the benefit has been passed on other pack sizes within the same product category,” it said.

“The information regarding passing of GST rate reduction benefit together with substantiations had been provided to the NAA. However, we are disappointed that NAA has not accepted the methodology adopted by us to pass on the GST rate reduction benefit. We are studying the order passed by the NAA and will consider appropriate action as advised,” added Nestle.

It further said that in some situations where the benefit could not be passed on instantly by reduction in MRP or increase in grammage, the amount was set aside, to be subsequently passed on and was not reckoned either in its sales or profits. “At our request, the authority through its communication had advised us to provisionally deposit the amount computed by us amounting to around Rs 16.5 crore in the consumer welfare fund, which had been done by us suo motu.”