GST profiteering: Delhi HC comes to the rescue of Nestle, grants stay

The stay, granted through an order issued on February 10, was given on grounds that Nestle had already paid Rs 16.58 crore of the total demand of Rs 89.73 crore

Coming to the rescue of fast-moving consumer goods giant Nestlé, the Delhi High Court has again stayed National Anti-profiteering Authority’s (NAA’s) order to recover Rs 73 crore by March for not passing the benefits of the goods and services tax (GST) rate cut to consumers. 

The stay, granted through an order issued on February 10, was given on grounds that Nestlé had already paid Rs 16.58 crore of the total demand of Rs 89.73 crore. 

The NAA had in December upheld profiteering allegations on the ground that the firm had not passed on the benefits of reduction in GST in respect of various products.

Nestlé had challenged the order on the ground that the NAA had passed the same suo motu and not on the basis of written complaint, which was impermissible. Besides, it argued that while the matter was heard by four members, the NAA order was signed by only three members and was passed beyond the mandatory period of three months. 

The NAA noted that the methodology adopted by Nestlé to pass on GST rate cut was “illogical, arbitrary, and illegal, which has resulted in unfairness and inequality while passing on the benefit of tax reduction”.

M S Mani, partner, Deloitte India, said the absence of a prescriptive methodology for determining profiteering had made it difficult for conducting businesses. 

“They will hope for some relief considering the practical challenges faced during the initial period of GST introduction,” he said.

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”. The next date of hearing is May 20.

A Nestlé India spokesperson told Business Standard earlier that “…the benefits largely have been passed on by way of reduction of MRP or by way of increase in grammage. On SKUs (stock-keeping units), 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”.

The Delhi HC on Tuesday also stayed a show-cause notice by NAA to Johnson & Johnson for allegedly profiteering by not passing on the benefit of rate cuts. J&J argued that the calculation of profiteering of Rs 42.7 crore was based on “arbitrary, unreasonable and capricious methodology”.