The National Anti-Profiteering Authority has sent a show cause notice to Johnson and Johnson for allegedly not passing on the benefit of tax reduction on sanitary napkins to consumers.

Delhi HC stays penalty on Johnson Johnson for profiteering on sale of sanitary napkins
Money Legal Thursday, February 20, 2020 - 11:32

Multinational corporation, Johnson & Johnson Pvt Ltd has filed a plea in the Delhi High Court, not only contesting the penalty sought to be imposed on it by the National Anti-Profiteering Authority, but it has termed the very composition of the Authority unconstitutional.

The issue relates to the reduction of GST rates on sanitary napkins from 12% to 0%. This was done on July 27, 2018. The National Anti-Profiteering Authority conducted an investigation and found that Johnson and Johnson had failed to pass on the benefit of this tax reduction to the ultimate consumers during the period between July 27,2018 and September 30, 2018 and the penalty for this was demanded. The amount fixed by NAPA is Rs 42.7 crore. The company was asked to show cause as to why it should not be asked to pay this penalty. The present appeal by J&J is against this show cause notice.

The company has taken a plea that it had paid the GST on the inputs for manufacturing the napkins and the removal of or exempting of the product from GST meant that the company was no longer able to avail the setoff of the duty it had paid on the inputs and that is a loss to it. The company has claimed that it did pass on the benefits of the tax reduction to the recipients. The legal petition claims NAPA’s order has been based on "arbitrary, unreasonable and capricious methodology".

The petition goes on to mention that certain provisions of the CGST Act and Rules are unconstitutional. As mentioned, the plea seeks to declare the composition of National Anti-Profiteering Authority as unconstitutional as well.

The two-judge bench of the Delhi High Court that heard the case has ordered a stay of the proceedings by NAPA, meaning the recovery of Rs 42.7 crore be withheld till the court hears the case.

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