GST Anti-Profiteering Body Rules HUL Made Unjust Profit Of Rs 535 Crore

The anti-profiteering authority has ruled that India’s largest consumer goods company profiteered to the extent of Rs 535 crore against the company’s claim of Rs 160 crore.

According to the order of National Anti-Profiteering Authority posted on its website today, Hindustan Unilever Ltd. profiteered Rs 419.67 crore due to sales realisation following an increase in base prices after a cut in goods and services tax rate cut in two slabs—from 28 percent to 18 percent and 18 percent to 12 percent.

The Directorate General of Anti-Profiteering’s investigation found that HUL’s 900 stock keeping units were impacted by GST rate reductions—for 505 such units out of 900, HUL had adjusted price and grammage.

Company’s Claim:

The company told the anti-profiteering authority that it passed the benefit of Rs 118.67 crore through additional grammage, of which:

• Rs 66.90 crore was directly proportional to the reduction in tax rates.
• Rs 39.08 crore is in excess of rate cut.
• Rs 12.69 crore was less than GST rate reductions.

The FMCG major claimed a deduction of Rs 118.67 crore from the amount calculated by the directorate general, but it was found most of the extra grammage provided by the company was introduced pre-GST, and only Rs 68.77 crore can be allowed to be deducted from the profiteered amount for benefit passed to customers.

Directorate’s Other Findings

• HUL availed transition credit of Rs 76.06 crore but didn’t pass this benefit to consumers by reducing prices.
• Company’s redistribution stockists wrongly availed input tax credit of Rs 36.19 crore at 28 percent GST, when it was was cut, on several items, to 18 percent.
• About Rs 6.47 lakh couldn’t be availed from seven such stockists, which the company has been asked to pay for.

Have Gone By Spirit Of Law: HUL

HUL, in response to BloombergQuint’s emailed queries, said that it’s studying the order and will explore all possible options. “HUL has since suo moto deposited Rs 160 crore (including Rs 36 crore on behalf of our redistribution stockists) into the Government’s Consumer Welfare Fund,” it said. The manufacturer also said it had kept the government informed on how it passed on the GST benefits to consumers.

In the absence of a framework or methodology to determine the way GST rate reductions or increase in input tax credits should be passed on across the value chain, any decision that doesn’t consider the overall cost, weight, size, package aspects may be challenged provided the intention of the law is satisfied, said MS Mani, partner at Deloitte India.

The break up for the profiteered sum, according to the National Anti-Profiteering Authority:

Rs 419.67 crore + Rs 36.19 crore + Rs 6.47 lakh = Rs 455.92 crore.

After inclusion of availed transition credit of Rs 78.97 crore = Rs 535 crore.

From Rs 455.92 crore:

• HUL has been allowed to deduct Rs 68.77 crore for providing extra grams to customers.
• The company has been allowed to deduct Rs 3.80 crore for supplies made to Central Police Force and Central Railway Police Force, for which GST wasn’t charged.
• From the remaining Rs 383.35 crore, half of the amount would have to be transferred to Consumer Welfare Fund, and half would be deposited in Consumer Welfare Fund of respective states where the business was carried out.
• Since HUL has already transferred Rs 160 crore to the welfare fund, it must transfer an additional Rs 31.45 crore to the Centre’s consumer welfare fund.

“The order has allowed adjustment where the benefit of GST was passed through increased grammage, which is positive for the industry,” said Abhishek Jain, an indirect tax partner at EY India.