Ankit Kumar Bajoria Vs Hindustan Unilever Limited (National Anti-Profiteering Authority)
NAA held that Respondent Hindustan Unilever Limited (HUL) has resorted to profiteering being very well aware of the law and the rules which warranted him to pass on the benefit of GST rate reductions. Further he has also consciously and illegally recovered the excess realisation which was due to his RSs as ITC and thereby denied the benefit of tax reductions to the customers. He has further acted in conscious disregard of the obligation which was cast upon him to pass on the benefit of GST rate reductions. Instead he had deliberately increased the base prices by enhancing them equivalent to the amount of GST rate reductions in order to keep the old MRPs in place or not reduced them proportionately to the benefit of tax reductions, accordingly he has committed an offence under section 122 (1) (i) of the CGST Act, 2017 by issuing incorrect invoices to his customers and thus penal provisions under the above Act are required to be invoked against him. A notice dated 29.08.2018 was issued to the Respondent to explain why penalty should not be imposed under the above provisions. The Respondent vide his reply dated 14.09.2018 has submitted that in so far as the proposal to invoke penal provisions for imposition of penalty and cancellation of registration was concerned it can be done only after the Authority determines the allegation of profiteering against him. Since the Respondent has been held guilty of profiteering and has also been found to have violated the provisions of Section 122 (1) (i) of the CGST Act, 2017 a fresh notice be issued to him asking him to explain why penalty should not be imposed on him.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The brief facts of the present case are that an application through e-mail dated 26.11.2017 (Annexure-1) was filed by the Applicant No. 1 before the Standing Committee on Anti-profiteering under Rule 128 of the Central Goods and Services Tax Rules (CGST), 2017 requesting that his identity should not be disclosed. The above Applicant through his application had complained that although the Goods & Service Tax (GST) had been reduced from 28% to 18% on a large number of products w.e.f. 15.11.2017, the Respondent had not reduced the Maximum Retail Prices (MRPs) of the products which were being sold by him. The Applicant No. 1 had also alleged that the Respondent had increased the base prices of his products, so that the MRPs continued to be the same even after reduction in the rates of GST. He had also enclosed a copy of the letter dated 21.11.2017 written by the Respondent to his Redistribution Stockists (RSs) stating that he will be recovering the excess Input Tax Credit (ITC) on the stocks of his brands lying with them as on 15.12.2017 and the benefit of tax reduction shall be passed on to the end consumers through reduction in the MRPs or through fill level increases. He had further informed vide his e-mail dated 25.01.2018 (Annexure-3) that the Respondent had started the process of recovery. Another application against the Respondent vide e-mail dated 17.11.2017 (Annexure-4) was filed before the Standing Committee by the Applicant No. 2 stating that the Respondent had increased the basic rates of his products after the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. Both these applications were examined by the Standing Committee on Anti-profiteering in it’s meetings held on 29.11.2017 and 24.01.2018 respectively, wherein it was decided to refer the matter to the Applicant No. 4 (here-in-after referred to as the DGAP) to investigate both the above applications to determine whether the benefit of reduction in the GST rates had been passed on by the Respondent to the customers or not. Meanwhile another application dated 20.09.2018 was received from the Applicant No. 3 139 this Authority stating that the benefit of GST rate reduction had not been passed on by the Respondent and there was no evidence to show that the amount profiteered by him had been deposited in the Consumer Welfare Fund (CWF). Since the issue raised by the above Applicant had been investigated and a Report had already been filed by the DGAP on 15.06.2018 this application was not forwarded to the Standing Committee.
2. The DGAP after detailed investigation has submitted his Report on 15.06.2018 along with his subsequent reports dated 31.08.2018 and 25.09.2018. In his initial report dated 15.06.2018 the DGAP has stated that on the receipt of the minutes dated 29.11.2017 (Annexure-2) from the Standing Committee, notice under Rule 129 of the CGST Rules, 2017 was issued on 10.01.2018 calling upon the Respondent to submit his reply whether he admitted that the benefit of reduction in the rates of tax had not been passed on by way of commensurate reduction in the prices. The Respondent was also asked to suo moto determine the quantum of benefit not passed on and intimate the same. The Report further states that the Respondent had determined the amount of profiteering suo moto and come forward to deposit an amount of Rs. 59.94 Crores for the period w.e.f. 15.11.2017 to 30.11.2017 vide his letter dated 04.12.2017 addressed to the Chairman, Central Board of Excise and Customs now re-designated as Central Board of Indirect Taxes and Customs (CBIC). Vide his subsequent letter dated 08.01.2018 addressed to the Chairman, the Respondent had offered to deposit an amount of Rs. 59.04 Crores on account of profiteering for the month of December, 2017.
3. The DGAP’s Report also states that vide his letter dated 14.05.2018 (Annexure-10) both the Applicants No. 1 & 2 were provided an opportunity to inspect the non-confidential evidences/reply furnished by the Respondent, which was not availed by them. He has also intimated that since the analysis of data was complex and voluminous, he had requested for extension of time for completing the investigation which was given upto 17.06.2018 by the Standing Committee, vide minutes of it’s meeting dated 14.03.2018 in terms of Rule 129 (6) of the CGST Rules, 2017. He has further intimated that the investigation was conducted for the period w.e.f. 15.11.2017 to 28.02.2018 only.
4. The Report further submits that the Respondent vide his reply dated 25.01.2018 (Annexure-12) had intimated that he was India’s largest Fast Moving Consumer Goods (FMCG) Company and was engaged in the manufacture and supply of consumer goods comprising of four major categories, viz. Home Care, Personal Care, Foods and Refreshments. The DGAP has also submitted that the Respondent was manufacturing and supplying over 3200 Stock Keeping Units (SKUs) which were being sold through Redistribution Stockists (RSs), Modern Trade (MT) and the Canteen Stores Department (CSD). The DGAP has further submitted that the Respondent had also claimed that the profiteered amount was suo-moto determined by him after taking into account the various deductions Viz. (i) Pricing Deployment (PD), (ii) Trade Term Supply Deployment (TTSD), (iii) Fiscal Deployment (FD) and (iv) Writing off of the existing packaging material. The DGAP has also stated that the Respondent had also intimated that he and his RSs had large inventory of finished goods which was lying in his factories, distribution centers and was also in transit and hence he required nearly 60 days to pass on the benefit of tax rate reductions. The Respondent had also stated that about 900 SKUs were impacted by the GST rate reductions w.e.f. 15.11.2017 and wherever it was possible to print the Maximum Retail Prices (MRPs) online, he had changed them. The DGAP has also stated that the Respondent had informed that in respect of the 505 SKUs out of the 900 SKUs, he had implemented the change at the manufacturing stage itself by reducing the MRPs or by adjusting the grammage. The DGAP has further stated that the Respondent had also claimed that he had to write off packing material having old MRPs printed on it worth Rs. 10.50 Crores and replace it with new packing material which was claimed by him as deduction out of the profiteered amount. The Respondent had also claimed that his contract with the CSD did not include taxes and hence, he had not earned any amount due to reduction in the GST rates. The DGAP has also informed that the Respondent had admitted that the higher sales realization due to GST rate changes, for two channels comprising of (i) General Trade and (ii) MT was Rs. 185.40 Crores for the months of November and December, 2017, Rs. 151.19 Crores for the month of January 2018 and Rs. 135.87 Crores for the month of February 2018, however the Respondent had claimed deductions on account of the discounts, writing-off of the packing material, PD, TTSD and FD and deposited an amount of Rs. 118.80 Crores for the months of November and December 2017 in the CWF.
5. The DGAP has also intimated that the Respondent was asked to supply information/ documents/ record which he had supplied vide Annexures 12-22.
6. The DGAP has also informed that the Respondent had furnished reasons for the various deployments which he had claimed as deductions from the higher sales realization on account of GST rate reductions vide his letters dated 25.01.2018 and 05.03.2018 (Annexure-12 & 13). He has further informed that the Respondent had claimed deductiOn on PD due to the pricing initiatives w.e.f. 15.11.2017 which had resulted in reduction in the MRPs or increase in the grammage. The Respondent had also requested for deduction due to TTSD as he had floated various promotional schemes through the MT as an interim measure to give benefit of tax reductions. The DGAP has also stated that the Respondent had claimed deduction on account of FD because of proportionate reduction in the refund amount which he was getting due to area-based exemptions. The DGAP has further stated that the Respondent vide his letter dated 05.03.2018 (Annexure-13) had submitted that the amount of higher sales realization due to the rate changes for the month of January, 2018 for General Trade and MT was Rs. 151.19 Crores out of which a deduction of Rs. 136.58 Crores has been claimed on account of PD, TTSD and FD along with writing off of packing material with old MRPs worth Rs. 7.78 Crores and accordingly the net amount of higher sales realization of Rs. 6.83 Crores was calculated by him. The DGAP has also intimated that the Respondent vide his letter dated 05.03.2018 had revised the amount of profiteered amount which he was required to deposit in the CWF for the period w.e.f. 15.11.2017 to December, 2017 as Rs. 117.22 Crores instead of Rs. 118.98 Crores and hence he had claimed further deduction of Rs. 1.76 Crores from the amount payable in the CWF for the month of January, 2018 and accordingly he had volunteered to deposit an amount of Rs. 5.07 Crores in the CWF due to net higher sales realization for the month of January, 2018. The DGAP has further intimated that vide letter dated 10.04.2018 (Annexure-17), the Respondent had informed that the higher sales realization due to rate reductions for the month of February, 2018 for the General Trade and the MT was Rs. 135.87 Crores out of which an amount of Rs. 138.52 Crores had been claimed as deduction on account of the PD, TTSD and FD and therefore, the Respondent had informed that he was not depositing any further amount in the CWF. The DGAP has also intimated that the Respondent vide his letter dated 10.04.2018 had also informed that he had recovered an amount of Rs. 36.19 Crores from his RSs, as against the amount of Rs. 30.85 Crores deposited by him on 05.03.2018 in the CWF and hence he was willing to deposit the balance amount of Rs. 5.34 Crores in the above Fund. The DGAP has also stated that the Respondent had claimed that since there were no guidelines prescribed for determination of the profiteered amount he had calculated the impact on the sales realizations after deducting the various expenses and deployments due to the action taken by him after the rate reductions. The Respondent had also quoted the statement issued by the Indian Accounting Standards Board that ‘Profit was a general term for the excess of revenue over related cost’, and also cited the two judgements of the Hon’ble Supreme Court passed in the cases of Badridas Daga v. CIT 34 ITR 10 (SC) and CIT v. Meghalaya Steels Ltd. (2016) 67 taxmann.com 158 (SC] in his support. The DGAP has also claimed that the Respondent had interpreted the term “commensurate reduction” as ‘accounting for commensurate costs that were incurred as a result of GST rate reduction’. The DGAP has also stated that the Respondent had claimed that he could not have used the old MRPs printed packing material as the MRPs had been reduced and therefore, he was entitled to claim deduction of the value of the written off packaging material from the higher sales realization. The DGAP has further stated that the Respondent had claimed deductions due to the reduction in the area-based exemptions on the SKUs which were impacted by the rate reductions and which were being manufactured in his units based in Uttarakhand, Himachal Pradesh and Assam as they were entitled to budgetary support or the refund granted under the DIPP Notification No. 10(1)/2017-DBA-II/NER dated 05.10.2017, which was calculated with reference to the CGST/IGST paid after utilization of the ITC and the higher was the amount of CGST/IGST paid, the higher was the refund which reduced his cost of production. The DGAP has also informed that the Respondent had submitted that before 15.11.2017, his units were entitled to proportionate refund of 58% of the CGST paid @ 14% but now due to the reduction in the GST rate from 28% to 18%, the proportionate refund of 58% was to be computed for CGST paid @ 9% which had reduced his entitlement for refund and increased the cost of production. The DGAP has also supplied summary of the suo moto calculation of the profiteered amount made by the Respondent in the Table as under:-
TABLE
(Amount in Rs. Crores)
