A latte, a foundation cream, a body lotion and a car: Consumers are angry that prices of these items have not come down after tax rates were lowered. That’s landed companies, including the operator of McDonald’s outlets, in the crosshairs of India's new anti-profiteering law.
The government issued notices to burger chain’s franchisee Hardcastle Restaurants Pvt. Ltd, retailer Lifestyle India Pvt. Ltd. and a Honda car dealer, among others, for not passing on the Goods and Services Tax benefits to consumers, according to information on Director General of Safeguards’ website. The complaints were referred by the standing committee on anti-profiteering for a detailed probe.
The investigating agency asked the companies to disclose:
- Profit and loss statements for the year ended March.
- GST returns for July to December.
- Input tax credit register
- Price list before rates on more than 200 items were reduced from Nov. 15.
The new nationwide tax regime has an anti-profiteering clause that allows consumers to complain against companies not passing on the benefits of reduced rates or input tax credit. Shiv Pratap Shukla, minister of state for finance, informed Parliament that 169 such complaints were received against suppliers of goods or services till Dec. 26.
Two people complained against Hardcastle Restaurants Pvt. Ltd., which runs McDonald’s outlets in south and west India, for not reducing the price of ‘McCafe Regular Latte’. That’s after the GST Council cut tax on restaurants to 5 percent from 18 percent.
Along with copies of the documents sought, the company has to reply to DG Safeguards by Jan. 12 if it admits to not passing the GST rate reduction or benefit of input credit to consumers. The company also has to find the quantum of benefit not passed on to customers.
Hardcastle Restaurants, in an emailed response to BloombergQuint, said it hasn’t received any such communication. “As a law-abiding corporate citizen, we are compliant with all applicable laws, and will respond to any such query as and when it is received by us.”
A consumer complained against the operator of apparel and lifestyle stores for not fully passing on the benefit of tax reduction on ‘Maybelline FIT Me Foundation’ even after GST was lowered to 18 percent from 28 percent. DG Safeguards initiated a probe against the retail chain.
The company has been asked to respond by Jan. 12 if it admits to profiteering, and by calculating the benefit not passed on to customers.
The benefit of reduction in GST rates has been passed on to the customers wherever applicable, the company told BloombergQuint in an emailed statement. “Lifestyle International is providing the details that have been called for by the authorities and are extending full co-operation in the matter,” the statement added.
Sharma Trading Company
DG Safeguards issued a notice to a Jaipur dealer of consumer goods maker Hindustan Unilever Ltd. on Dec. 29 for not passing the GST rate cut on Vaseline VTM lotion. The tax rate was reduced to 18 percent from 28 percent effective Nov. 15.
“HUL is committed to ensuring that the benefits because of reduction in GST rates are passed on to the end consumers. We have communicated to the trader to pass on the benefits,” HUL told BloombergQuint in an emailed statement.
Most of the products in the form of lower prices or increased grammage have already started landing in the market, HUL said adding that the company has been communicating the changes widely through advertisements.
Pyramid Infratech Pvt. Ltd.
Thirty-six homebuyers have accused the company of not passing on the benefit of input tax credit. Customers have to pay 12 percent GST on an under-construction home, while developers get input tax credit for it. The company had to respond by Jan. 1 on whether it didn’t pass on the benefit to homebuyers.
A dealer of Honda Cars India – Vrandavaneshwaree Automotive Ltd. – was also served a notice by the DG Safeguards on a complaint that firm didn’t appropriately reduce the cost of a car after the GST was implemented. The complaint said pre-GST levies like excise, central sales tax and VAT were not cut before imposing the new nationwide tax.
Emails sent to Sharma Trading Company, Pyramid Infratech and Vrandavaneshwaree Automotive remained unanswered.
Watch this interview with Bipin Sapra, partner at EY on how the government will determine whether a firm has profiteered or not.