Delhi HC stays penalty notice on Johnson and Johnson for 'profiteering' on sale of sanitary napkins

The Delhi High Court Tuesday stayed a show cause notice for penalty by the National Anti-Profiteering Authority (NAPA) to Johnson and Johnson Pvt Ltd for allegedly resorting to profiteering by not passing on the benefit of tax reduction to buyers of sanitary napkins through commensurate price cut. A bench of Justices Vipin Sanghi and Sanjeev Narula said no penalty proceedings be initiated against the Indian arm of the US-based company till the next date of hearing on September 24.

The court also sought response of the Centre, NAPA, and Director General of Anti-Profiteering on the company's petition challenging the show cause notice and penalty notice to it.

"Prima facie it appears to us that the impugned order needs consideration. The petitioner (company) has been able to make out a prima facie case, the operation of the order is stayed till the next date of hearing," the bench said.

The company has challenged NAPA's November 21, 2019 order that it did not pass on the commensurate benefit of reduction in the rate of tax to its recipients between July 27, 2018 and September 30, 2018 and hence profiteered Rs 42.7 crore in contravention to the provision of the Central Goods and Services Tax Act.

The petition said that prior to July 27, 2018, sanitary towels (pads)/sanitary napkins were leviable to Goods and Services Tax (GST) at the rate of 12 per cent.

With effect from July 27, 2018, these products were fully exempted from GST. However, as the products became exempt, the company could not avail any Input Tax Credit (ITC) and there was an increase in input costs of the products, it said.

It claimed that when the tax rate on sanitary protection products was brought down to nil, the company took immediate steps to ensure that the benefit of the rate reduction is passed on to its recipients.

It said the NAPA order has determined profiteering of Rs 42.7 crore based on "arbitrary, unreasonable and capricious methodology" adopted by the Director General of Anti-Profiteering and urged to court set aside the order.

The petition has sought quashing of the show cause and penalty notices issued by the authorities.

Besides, it has also sought to declare certain provision of the CGST Act and Rules as unconstitutional. It had also sought to declare the composition of National Anti-Profiteering Authority as unconstitutional.