Trader Profiteered from Vaseline Product by Not Passing on GST Rate Reduction Benefit to Consumers: Delhi HC Upholds NAPA’s Order [Read Order]
Delhi High Court upheld NAPA’s profiteering order against the trader for not passing on the GST rate reduction on Vaseline but set aside the proposed penalty.
Trader Profiteered - Vaseline Product - Passing - GST Rate Reduction Benefit - Consumers - Delhi HC - NAPA’s - taxscan
Trader Profiteered - Vaseline Product - Passing - GST Rate Reduction Benefit - Consumers - Delhi HC - NAPA’s - taxscan
In a recent ruling, the Delhi High Court held that a trader profiteered from the sale of a Vaseline product by not passing on the benefit of the reduction in GST rate from 28% to 18% to consumers and upheld the order passed by the National Anti-Profiteering Authority (NAPA).
Sharma Trading Company, a distributor of Hindustan Unilever Limited (HUL), filed a writ petition challenging Section 171 of the Central Goods and Services Tax Act, 2017 and Rule 126 of the CGST Rules, 2017 as unconstitutional and also assailed NAPA’s order dated 7 September 2018 which held that the trader had failed to reduce the price of the product after the GST rate reduction.
NAPA had determined profiteering of Rs. 5,50,186 and directed the amount to be deposited with interest in the Consumer Welfare Fund.
The petitioner’s counsel argued that the selling price remained the same because the quantity of the Vaseline product was increased by 100 ml after the rate change and that promotional schemes, such as offering free Dove soap bars, justified the price charged.
The counsel also argued that the base price was fixed by HUL through its billing software and that the petitioner merely followed the price reflected therein.
The government’s counsel argued that Section 171 required the trader to pass on the benefit of tax reduction by way of a commensurate reduction in price. They submitted that increasing the quantity of the product or giving promotional offers could not substitute the mandatory price reduction.
The Division Bench comprising Justice Prathiba M. Singh and Justice Shail Jain observed that the maximum retail price of the product remained Rs. 213.63 both before and after the rate reduction, and that the base price was increased from Rs. 158.66 to Rs. 172.77, nullifying the benefit of lower tax.
The court explained that Section 171 was enacted to ensure that consumers receive the direct benefit of tax reduction through lower prices. It pointed out that increasing product quantity or offering free goods cannot replace the legal requirement of a commensurate price reduction.
The court further observed that the purpose of GST rate reduction is to make products more affordable and maintaining the same price after the rate cut defeats that objective. The court upheld NAPA’s finding that the petitioner profiteered and directed that the amount already deposited be transferred to the Consumer Welfare Fund.
The court clarified that no penalty would be imposed, in view of the decision in Reckitt Benckiser India Pvt. Ltd.. The writ petition was dismissed.
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