Profiteering Current Affairs - 2020

Delhi HC stays fine on HUL for GST profiteering

On the plea by Hindustan Unilever Ltd (HUL) against the order given by the National Anti-profiteering Authority (NAA), the Delhi High Court has stayed the fine imposed on HUL.

Why the HUL has sought a review?

The HUL has sought the review of the order of NAA before the Delhi High Court based on the following reasons:

  • NAA has made a narrow interpretation of the law and did not take into account the well-established industry practice backed by law.
  • NAA order is arbitrary since no methodology has been determined by the NAA as required under law to determine if the benefit has been passed or not.
  • Absence of any prescribed method in the GST law to calculate the undue profit earned.

HUL case is one among the others

The various decisions of the NAA are now questioned in the various High Courts.  Even the real estate firm Pyramid Infratech has moved the high court against the order of NAA.

Why the issue has become complicated?

Section 171 of the CGST act deals with profiteering. It aims to ensure that reductions in the rate of tax on any supply of goods or services or the benefit of the input tax credit are passed on to consumers and empowers the central government to constitute authority for that purpose. The National Anti-profiteering Authority (NAA) was established by the central government under this provision.

But the absence of a clearly defined method to calculate the undue profit earned has become the bone of contention. The absence of rules has created a vacuum and resulting in ambiguity in dealing with anti-profiteering measures.

HUL found guilty of Profiteering Rs 383 crore

National Anti-profiteering Authority (NAA) assessment has revealed consumer goods maker Hindustan Unilever Ltd (HUL) allegedly profiteering to the extent of Rs 383 crore after the large-scale goods and services tax (GST) rate cut last November.

The National Anti-profiteering Authority (NAA) has asked HUL to deposit Rs 223 crore in central and state consumer welfare funds since the company itself had proactively deposited Rs 160 crore with the central consumer welfare fund.

National Anti-profiteering Authority

National Anti-profiteering Authority was constituted by the central government to provide an institutional mechanism under the GST law for checking the unfair profit-making activities by the trading community.

National Anti-profiteering Authority is headed by a senior officer of the level of Secretary to the Government of India. There will be four Technical Members from the Centre and/or the States.

GST consumer welfare funds

The GST law also provides for the creation of a Consumer Welfare Fund wherein undue benefits made by businesses under the GST law have to be deposited, in case it cannot be passed on to the identified recipient. The proceeds from the GST consumer welfare fund can be given as grant to the Centre and state governments as well as regulatory authorities.

Why the profiteering is rampant in India?

According to the anti-profiteering laws in India, businesses have to pass on the benefit of tax cuts as well as tax rebates to consumers. But the businesses often increase prices to commensurate with the reduced taxes due to the free nature of the market.

Also, there are no explicit guidelines for companies which they are required to follow so that the benefit of tax rebates and rate reductions on raw materials are passed on to consumers at the right measure across all final products. As a result, the NAA is witnessing a large number of complaints related to overcharging.