The National Anti-profiteering Authority (NAA) for goods and services tax (GST) has found FMCG major Hindustan Unilever Ltd (HUL) to have profiteered Rs 535 crore and has asked the company to pay Rs 383.35 crore after factoring in some deductions.
Since it began functioning in September last year, this is the highest fine that has been imposed by NAA for profiteering complaint against any company and also more than double the amount of Rs 160 crore that HUL has already deposited in the Central Consumer Welfare Find (CWF).
The complaint before the National Anti-Profiteering Authority stated that although the GST rate on a large number of products was cut from 28 per cent to 18 per cent, HUL had not reduced the maximum retail price (MRP) of its products. The NAA while passing the order said that Rs 383.35 crore worth “benefit has been denied” by HUL to his customers. After a detailed probe, the authority found that HUL failed to reduce the prices for a clutch of products commensurate with rate cuts announced on November 15 last year. HUL, which makes consumer goods like Lux, Dove, Axe and Surf Excel, claimed deductions in the profiteered amount estimated by the investigating arm of the authority under various heads. However, the authority allowed deduction of Rs 68.7 crore only, accepting the firm’s claim that it provided extra grammage of products, while not reducing the prices.
“The rates of tax were recommended to be reduced by the GST Council in its meeting held on November 10, 2017 and within a period of 4 days, the respondent (HUL) had manipulated its software by increasing the base prices of as many as 12,016 items instead of only reducing the rates of tax which would have compelled the stockists to lower prices commensurate with the reduction in the rates,” NAA said in its order.
While the investigating arm of the Authority had determined the profiteered amount to Rs 419.67 crore, NAA made additions to it during the hearing given transitional credits claimed by HUL. HUL on its own had estimated a profiteering amount of 320.7 crore. Efforts by HUL to suggest that it was willing to pay profiteered amount suo motu didn’t cut ice with NAA, which said that such a decision seemed like an afterthought following complaints against the firm. “The national anti-profiteering authority found that it had misled the authorities by making false claims as he had acted quite contrary to the claims which were made by him. Instead of passing on the benefits he had increased the base prices, had compelled the customers to pay more price than what they legally required to pay, had forced them to pay additional GST on the increased prices and also earned extra margins on the enhanced prices,” the order said.
HUL also claimed deductions for not getting the full exemptions under area-based exemption under GST regime but the NAA said that there was no direct correlation between MRP and exemptions and rejected its contention.
As per GST rules, 50 per cent of the amount profiteered or Rs 191.68 crore is required to be deposited by the company in the central CWF, while the balance amount is to be deposited in the CWF of concerned states where the company sold its products. “Since the respondent (HUL) has already deposited an amount of Rs 160.23 crore in the Central CWF, he is hereby directed to deposit an amount of Rs 31.45 crore in the central CWF and the balance amount of Rs 191.68 crore in CWFs of the states,” the NAA said.
The authority also directed HUL to reduce the prices of its products by way of commensurate reduction keeping in view the reduced rates of tax and the benefit of ITC. “He (HUL) has acted in conscious disregard of the obligation which was cast upon him to pass on the benefit of GST rate reductions. Instead he had delilberately increased the base prices by enhancing them equivalent to the amount of GST rate reductions in order to keep the old MRPs in place or not reduced them proportionately to the benefit of tax reductions…,” the NAA said in the order.
The present probe was conducted by the Directorate General of Anti-Profiteering between November 15, 2017, and February 28, 2018. The NAA directed DGAP to conduct further probe to find whether HUL has passed on the benefit of tax reductions in respect of all products being sold by him and submit a report quantifying the amount of profiteering.