Delhi High Court Upholds Anti-Profiteering Measures under GST Law
Sharma Trading Company loses plea against GST profiteering charges; Court emphasizes consumer rights over promotional schemes
In a significant ruling, the Delhi High Court dismissed a petition by Sharma Trading Company, reinforcing the mandate that benefits from the reduction of GST rates must be passed on to consumers as price reductions, rather than through promotional schemes or increased product quantity. The court, comprising Justices Prathiba M. Singh and Shail Jain, upheld the constitutional validity of Section 171 of the Central Goods and Services Tax Act, 2017, and related rules, reiterating the importance of consumer welfare in the GST framework.
The petitioner, Sharma Trading Company, a distributor for Hindustan Unilever Limited (HUL), challenged the constitutionality of Section 171 of the GST Act and the corresponding anti-profiteering rules. The case arose from a complaint alleging that the petitioner failed to pass on the benefits of a GST rate reduction from 28% to 18% on a product, Vaseline VTM 400 ML, to consumers. The National Anti-Profiteering Authority (NAPA) had earlier ruled that Sharma Trading Company profiteered by not reducing the product's price despite the GST cut, instead increasing the base price, thereby negating the tax benefit.
The court emphasized that merely increasing the quantity of a product or launching promotional schemes does not fulfill the obligation of passing on tax benefits to consumers. It cited the precedent set in Reckitt Benckiser India Pvt. Ltd. v. Union of India, which clarified that any benefit from reduced GST rates must be directly reflected in the price, rather than in the form of increased product volume or other promotions.
The High Court directed that the profiteered amount of Rs. 5,55,126/- be deposited into the Consumer Welfare Fund. It noted that the amount had already been deposited with the Directorate General of Anti Profiteering and converted into a fixed deposit, instructing that the realized amount from the deposit be transferred to the fund.
The court refrained from imposing a penalty on Sharma Trading Company, as penalty proceedings in similar cases were withdrawn following legal clarifications. It underscored the legislative intent to ensure tax reductions benefit consumers and to prevent businesses from circumventing this through alternative schemes.
Bottom Line:
Goods and Services Tax (GST) - Anti-profiteering measures under Section 171 of the Central Goods and Services Tax Act, 2017 - Benefit of reduction in GST rate must be passed on to the consumers by way of commensurate reduction in price. Merely increasing the quantity of the product or launching promotional schemes cannot substitute this obligation.
Statutory provision(s): Central Goods and Services Tax Act, 2017 - Section 171, Central Goods and Services Tax Rules, 2017 - Rules 122, 124, 126, 127, 129, 133, 134, Legal Metrology (Packaged Commodities) Rules, 2011
Sharma Trading Company v. Union of India, (Delhi)(DB) : Law Finder Doc Id # 2785847
