NAA slaps Rs 3.83-bn penalty on HUL for not reducing MRPs of products

Of the Rs 3.83 bn, half the sum is to be deposited in the central Consumer Welfare Fund and the other half in the similar funds of 35 states and Union territories

The National Anti-Profiteering Authority (NAA) has slapped a penalty of Rs 3.83 billion on Hindustan Unilever Ltd (HUL) for not reducing maximum retail prices of its products after the goods and services tax rate cuts came into effect on November 15, 2017. 

The GST rate was cut on a number of products from 28 per cent to 18 per cent that day.

Of the Rs 3.83 billion, half the sum — Rs 1.91 billion — is to be deposited in the central Consumer Welfare Fund (CWF) and the other half in the similar funds of 35 states and Union territories. 

The company has deposited Rs 1.60 billion in the central CWF, according to calculations made by it. Now HUL is required to deposit Rs 314 million in this fund. 

As Rs 362 million (in the Rs 1.91 billion) has been apportioned by the Directorate General of Anti-Profiteering (DGAP) to CWFs, HUL was ordered to deposit the balance to the CWFs of states and UTs. 

An HUL spokesman said the company was reviewing the order and would explore all “possible” options. 

He said, “In the absence of set rules and guidelines on profiteering, we have gone by the spirit of the law, and we passed on the entire benefit received under the GST to consumers — either through reduction in prices or increase in grammage.”

The authority had calculated the amount of profiteering at Rs 5.35 billion and arrived at Rs 3.83 billion after some deductions. Of various deductions HUL wanted, the authority allowed Rs 687 million for increase in grammage in the size of products. 

The NAA did this for the first time.

Tax experts said the order was surprising in the absence of any prescribed method in the GST law to calculate the undue profit earned. 

“The problem that India Inc faces is how to comply with anti-profiteering rules. That’s because no rule exists,” a tax consultant said.

“Though contrary to an earlier order by the authority, where passing on benefits by increase in quantity was disallowed, the deduction allowed in this order appears to be the correct interpretation,” said Harpreet Singh, partner, KPMG. 

Abhishek Jain, partner, EY, said the order had allowed adjustment where the benefit of the GST was passed through increased grammage, which was positive for the industry. 

The company spokesman referred to Rs 1.60 billion deposited by the company in the CWF, as cited above. 

"We kept the government informed of the approach and the method that we had adopted in passing on GST benefits to consumers. The DGAP had submitted a report, which we had responded to comprehensively," he said. 

M S Mani, partner, Deloitte India, said in the absence of a framework or methodology to determine how GST rate reductions or increase in input tax credits should be passed on, any decision that did not consider the overall cost, weight, size, and package aspects might be challenged.

The DGAP did the investigation for the period between November 15, 2017, and February 28, 2018.

The NAA directed the DGAP to conduct further investigation to ascertain whether the respondent had passed on the benefits of tax reductions in respect of all the products being sold and submit a report quantifying the amount of profiteering.