GST rate-cuts: Increasing quantity of product while charging same MRP will defeat purpose, says Delhi High Court

Delhi High Court

The Delhi High Court has said that whenever the GST Council reduces the tax rates on a product, the ultimate benefit must flow directly to consumers through a corresponding reduction in the product’s price. A division bench of Justices Prathiba M Singh and Shail Jain emphasised that manufacturers cannot bypass this mandate by altering the product’s quantity while continuing to charge the same MRP.

“The benefits extended to the consumer are also of utmost importance. The purpose of reduction in GST is to make products and services more cost effective for the consumers. The said purpose would be defeated if the price is kept the same and some unknown quantity is increased in the product, even without the consumer requesting for the increased quantity product,” the Court observed.

The matter arose out of a petition filed by Sharma Trading Company, a distributor of M/s Hindustan Unilever Limited, challenging the proceedings initiated against it by the National Anti-Profiteering Authority in 2018. The allegation was that even after the GST rate on Vaseline was reduced, the distributor continued to charge the same price from consumers.

The distributor’s defense was that the volume of the product had been increased by 100 ml after the rate change and therefore no unfair practice could be alleged. The Court, however, rejected this argument, holding that such a move could not substitute the legislative requirement of lowering the actual price.

Referring to the judgment in Reckitt Benckiser India Pvt. Ltd. v. Union of India (2024), the bench noted that “increase in volume or weight or supply of additional free material by any schemes would not be sufficient to satisfy the requirement of passing on the benefit availed to the consumers.”

The earlier ruling had categorically clarified that “the legislative mandate is that reduction of the tax rate or the benefit of Input Tax Credit must not only be reflected in reduction of prices but it must also reach the recipient of the goods or services. Such a mandate cannot be tampered with by the supplier by substituting the benefit in the form of reduction of actual price with any other form such as increase in volume or weight or by supply of additional or free material or festival discount like 'Diwali Dhamaka' or cross-subsidisation…the requirement that the benefit of the rate reduction and Input Tax Credit reach the final consumer by way of 'cash in hand' through commensurate reduction in prices…”

The Court also acknowledged that manufacturers might encounter transitional hurdles because of pre-printed stock, but insisted that these cannot override consumer rights. “However, the purpose of the reduction in GST rates cannot be defeated. Such problems are nothing but those for which the manufacturers and retailers ought to be prepared for. For example, upon immediate reduction of GST rates, the product MRP may be the same, but the GST component has to be reduced, even if it means that the product is being sold for less than the MRP.”

The bench was categorical in describing the practice of increasing product quantity without price reduction as deceptive. “Increasing the quantity of the product unknowingly and charging the same MRP is nothing but deception. The consumer's choice is being curtailed. The non-reduction of price cannot be sought to be justified on the ground that the quantity has been increased or that there was some scheme which justifies the increase in price. In the opinion of this Court, such an approach would defeat the entire purpose of reduction of GST rates and the same cannot be permitted.”