Hindustan Unilever, Abbott, Johnson & Johnson, Philips, Patanjali, Samsonite, Jubilant Foods, and Nestle are among those that dragged the indirect-tax department to court over anti-profiteering provisions under GST.
These companies had approached the high court earlier after they were penalised under the anti-profiteering mechanism.
The Delhi High Court decided to club all the cases together.
Anti-profiteering mechanism under GST was introduced by the government to make sure that the companies pass on the benefits of lower tax rates to consumers.
The tax department had begun investigations in several cases, based on complaints from consumers, in this regard.
In many cases, the investigations found that the companies had allegedly not passed on the benefits of a lower tax rates or the benefits of the input tax credit to consumers.
The government is of the view that these companies did not pass on the benefits to consumers and benefited from it—or profiteered from it. In most cases, these companies were slapped with penalties under anti-profiteering.
These companies had approached the court and challenged the penalties and the government’s conclusion that they made money from 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, penalties can be levied, along with penal interest.
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 imposing 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, 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 the question remains unanswered whether these three are “different products” or the same.