The Indian operations of the multinational FMCG firm Johnson & Johnson has been fined for not passing on the benefit of a reduction the GST rates of some of its products. On the other hand, the company is alleged to have made profit out of the rate cut by increasing the base price of the products. The amount of penalty levied on J&J is Rs 230.4 crore.
The National Anti-Profiteering Authority has passed this order imposing the penalty and has asked the company to deposit this amount within a period of 3 months. J&J will have to deposit this amount in a consumer welfare fund along with the interest calculated at the rate of 18% per annum.
The case relates to an enquiry conducted by the NAA pertaining to the period November 15, 2017 to the end of December 2018.
While enacting the GST Act, the government had included provisions in the law that prevents the manufacturers of goods or providers of services from making undue profits by retaining or not passing on the benefits of reduction in the rates of GST to the end consumers. The logic behind this is that the purpose for the government in reducing the rates of taxes from time to time is to benefit the consumers and in the process the government foregoes its own revenue. Now, if the person in the middle, the manufacturer or service provider gains by absorbing the reduction in tax and does not pass it on the consumers, it becomes illegal and is a punishable act. The NAA has been constituted to keep an oversight over such acts by the companies.
This does not prevent the companies from raising the prices of their products, particularly, if their products are not covered under the Essential commodities Act.
The critical period is when a rate cut is announced. Though there is no specific mention of a period for which the prices should not be increased after a rate cut, blatant acts of raising the basic prices just to make profit from the rate reduction as it is alleged in the J&J case is not permissible. There are companies in the FMCG space which attempt to offer a slightly higher volume of the product at the same price, thereby passing on the tax benefit indirectly.
The NAA has an investing arm is such cases, headed by the Director General of Anti-profiteering. The DGAP has reached the conclusion after the investigation that despite the reduction in the GST rate from 28% to 18% on some of their products, the company had net higher sales realisation, primarily owing to increase in the base price of products. The period was selected on the basis of the rate reduction being decided at the meeting of the GST Council in November 2017. There were complaints about many consumer goods manufacturers which the DGAP took up for investigations.