The National Anti-profiteering Authority (NAA), under the Central Board of Indirect Taxes & Customs, ordered US multinational Johnson & Johnson (J&J) to pay Rs 230.4 crore, along with 18 percent interest, for not passing on the benefit of a reduction in the GST rate on baby care products such as creams, lotions, shampoos, among others.
It was alleged that J&J profiteered by not passing on the benefit of reduction in the GST rate when the same was reduced to 18 percent with effect November 15, 2017 from 28 percent.
J&J was given three-months to deposit the amount with interest. Moneycontrol has seen a copy of the order.
The spokesperson for J&J declined to comment.
In its defence, J&J said the Director General Anti-Profiteering (DGAP's) investigation has not been initiated in compliance with Rule 128 of the CGST Rules and was without jurisdiction. The proceedings have been initiated on the basis of suo moto reference. The company also argued that under Section 171 (1) of the CGST Act, the benefit of any tax rate reduction of ITC should be passed on to the recipient by way of a commensurate reduction in prices and it ought to be noted that the statute did not prescribe any method of computation by which the amount of profiteering could be computed.
J&J said it had communicated about the reduction in the minimum retail price (MRP) to distributors, had issued guidelines to the downstream trade to ensure compliance with the anti-profiteering provisions, and that the distributors were independent assesses who were subject to GST compliance independently.Tightening anti-profiteering rules
The latest order from NAA is one of the biggest in recent times on a fast moving consumer goods (FMCG) company. The company was also charged by the anti-profiteering watchdog in April for not passing on the GST rate reduction on sanitary napkins, and was asked to deposit Rs 42.7 crore. To be sure J&J isn't alone.
Early this month, Nestle, the maker of Maggi, KitKat, Munch, and Nescafe, was asked to pay Rs 90 crore in a similar case of not passing on the cut in the GST rate to consumers.
The other FMCG companies who were reported in the media to be under scanner of the NAA are Reckitt & Benckiser P&G, ITC and Patanjali.
NAA has been constituted under Section 171 of the Central Goods and Services Tax Act, 2017 to ensure the reduction in tax rate or benefit of input tax credit is passed on to the recipient by way of commensurate reduction in prices.
NAA has been investigating several cases of companies not passing the benefits.
With lower-than-expected GST collections and sharp increase in fiscal deficit, the GST Council is tightening the rules to curb anti-profiteering and tax evasion.
The government has handed out more powers to the anti-profiteering watchdog, allowing it to widen a probe against a company to include goods or services not covered in an investigation report.
The government in July has granted more teeth to NAA, allowing the DGAP to widen the probe if there is reason to believe that there has been contravention of norms. The time given to probe for DGAP was also doubled, including a provision to apply for a three-month extension. The GST Council also approved imposition of additional penalty of up to 10 percent, if the companies don't deposit the computed profiteered amount within a three-month period.