About 51 companies including HUL, Abbott, Johnson & Johnson, Philips, Acme developers, Samsonite, Jubilant Foods, Nestle, Whirlpool, Samsung, Subway, Samsonite, Reckitt Benckiser and Patanjali have dragged the Indian indirect tax department to court over anti-profiteering under GST. These companies had approached the high court earlier after they were penalised under the anti-profit mechanism of the indirect tax department.
The tax department had about 15 questions that they wanted to seek information from, while all the companies together had about 50 questions. The court in a proceeding would want both sides to arrive at a consensus on which is the pertinent questions for the court case. Because both sides stuck to their guns, the court would now have to address all the questions together. And this would take at least three to four weeks.
The court said that it would now hear the matter after the December vacations in January.
“While it is a good thing that the court has agreed to hear all the issues comprehensively, frankly the list could be truncated as far as the decision is required to be taken on the constitutional aspect of the provisions”, said Abhishek A Rastogi, Partner at Khaitan & Co, who is representing various petitioners across different sectors.
These companies had approached the court and challenged the penalties and the government’s conclusion that they had made money of it. Most of the companies are challenging the tax department on two main issues—constitutional validity of anti-profiteering mechanism and absence of precise regulations and methodology to determine if benefits have been passed on to the end consumer.
As per the GST framework, the benefits of the rate reduction have to be passed on to customers. If a company is unable to do so, it can be levied penalties and interest on top of it for profiteering from the tax regime. The section in the GST Act dealing with anti-profiteering states: “Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient (consumer) by way of commensurate reduction in prices.”
Input tax credit refers to a mechanism under the GST framework wherein the tax a company pays when it buys raw materials or other services can be passed on to the buyer when the goods or services are sold. The National Anti-profiteering Authority (NAA) has been slapping fines on companies that were found to be benefiting from GST and had not passed on the benefits of the tax or input tax credit to the end consumers.
Tax experts also point out that the current regulations are silent on how exactly the benefits of GST have to be passed on.
For instance, if companies have to reduce prices at a product level or they can do so at a portfolio level or at entity level. Also there is no guideline around how the government defines a “product.” So a company can be selling a brand of soap in three different weight sizes; so are these three “different products” or the same one. Also, are companies required to slash prices exactly or they can pass on the benefits through giving additional quantities to consumers. These are certain questions that the court would decide on.