Delhi High Court has upheld that cosmetic maker L’Oreal did profiteering while not giving out the benefit of GST rationalisation. Accordingly, it has directed the company to deposit the profiteered amount with the tax department. However, it stayed the interest payment and penalty proceedings.

The court has also observed that Section 171 of GST law, which deals with profiteering, is not a charging or a taxing provision but a consumer welfare provision.

“This Court directs the petitioner to deposit the principal profiteered amount after deducting the GST imposed on the net profiteered amount (which has already been deposited by the petitioner with the Department) in six equated instalments of 10, commencing 10th October, 2022,” a division bench of Justices Manmohan and Dinesh Kumar Sharma said in a recent order.

Penalty, probe stayed

Further it said that the interest amount to be paid by the company as well as the penalty proceedings and further investigation by National Anti-Profiteering Authority (NAA) in respect of other products sold by the petitioner are stayed till further orders. “At the cost of repetition, it is emphasised that the views in the present order are prima facie and shall not prejudice either of the parties at the final hearing of the present case,” the bench said.

The ruling has come at a time, when NAA is going to be subsumed in Competition Commission of India after extended term is coming to end this year. NAA was set up as a statutory mechanism under GST Act. It was assigned to ensure that the commensurate benefits of the reduction in GST rates on goods and services done by the GST Council and of the Input tax credit are passed on to the recipients by way of commensurate reduction in the prices by the suppliers. 

Implementation of Section 171

The authority works for implementation of section 171. This section deals with anti-profiteering measure and prescribes any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. Complaints in this regard can be filed with NAA.

For consumer benefit

In its observation on section 171, the bench said that it is an incidental provision in the CGST/SGST Acts, for the purpose of ensuring that the object of these Acts, namely, eliminating the cascading effect of taxation on the consumer is achieved and any benefit of rate reduction of taxes or input tax credit benefit is passed on to the recipient without the middleman taking advantage of the Governments forgoing their taxes for the end consumer. In that sense, this provision is in the nature of a consumer welfare provision. 

It was also of the view that the under Section 171 any benefit of reduction in rate of taxes or benefit of input tax credit on any supply of goods or services can only be by way of commensurate reduction in prices.

Source: The Hindu Business Line 
https://www.thehindubusinessline.com/economy/gst-rate-rationalisation-delhi-hc-asks-loreal-to-deposit-profiteered-amount/article65992267.ece