Profiteering watchdog under the Goods & Services (GST) regime, National Anti-profiteering Authority (NAA) on Wednesday held that Nestle’s methodology of passing reduction in the tax was arbitrary. Accordingly, NAA upheld allegation of profiteering of Rs 90 crore.

The Company said that it is studying the order and will consider appropriate action as advised.

The authority has asked the company to deposit Rs 73.14 out of Rs 89.73 crore of profiteering as remaining amount has already been deposited. Since the recipients are not identifiable, the amount will be deposited with Consumer Welfare Funds of Centre and States within three months.

According to the authority, narration of facts established the fact that the company denied thee the benefit of tax reduction to the customers and this is contravention of the law. “He (the company) is also liable for imposition of the penalty,” the order said and accordingly it has been decided to issue a show cause notice.

Company’s response

In a statement the company said that Nestlé India prides itself in being a responsible, responsive and fully compliant corporate citizen. “We have taken appropriate measures to pass on commensurate benefits of GST to our consumers In absence of specific rules or regulations on profiteering, for rate changes effective 15 Nov, 2017 & 25 Jan, 2018 impacting our products, Nestlé India adopted the spirit of GST law, by adopting a reasonable, pragmatic and market sustainable approach to pass commensurate GST rate reduction benefits. With this as the underlying spirit, Nestlé India approached NAA, to clarify on the methodology to be followed and in turn explained our methodology,” it said.

It claimed that the benefits largely have been passed on by way of reduction of Maximum Retail Price (MRP) or by way of increase in grammage. Further, on SKUs where it was not practicable to pass on the benefits, say for example NESCAFE single serve packs for INR 2/- or MAGGI Noodles INR 5/- packs, the benefit has been passed on other pack sizes within the same product category. 

In some situations where the benefit could not be passed on instantly by reduction in MRP or increase in grammage, the amount was set aside, to be subsequently passed on and was not reckoned either in our sales or profits. At our request, the authority through its communication had advised us to provisionally deposit the amount computed by us amounting to around INR 16.5 crore in the Consumer Welfare Fund, which had been done by us suo moto.

The information regarding passing of GST rate reduction benefit together with substantiations had been provided to the (NAA). However, “we are disappointed that NAA has not accepted the methodology adopted by us to pass on the GST rate reduction benefit,” it said.

The case

Known for its packaged food brands such as Maggi, Kitkat and Nescafe, among others, the company was facing allegations of profiteering after rate of GST was lowered on over 175 products with effect from November 15, 2017. It was alleged that the company has not passed the benefit of rate reductions to the consumers.

 

Last year the matter was investigated by DG-AP (Director General-Anti profiteering) and it found the allegation true in certain products. Rules say, anti-profiteering provisions get applied if the benefit of reduction un rate of tax on any supply of goods or services or the benefit of input tax credit is not passed on to the recipient by way of commensurate reduction in prices. An application to invoke anti profiteering provisions can be made by an interested party or a Commissioner or any other person.

Last year the company deposited Rs 16.58 crore in the Consumer Welfare Fund. It was done after the Company request NAA which in turn advised the company to provisionally deposit the amount computed by it, suo moto.

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