NEW DELHI : The National Anti-profiteering Authority (NAA) has held that the local unit of Johnson & Johnson has profiteered by ₹230.4 crore by failing to pass on the benefit of goods and services tax cut on some products and ordered the company to deposit the amount in a consumer welfare fund with interest.

The order, signed on Monday by NAA chairman B.N. Sharma, gave the US-based company three months to deposit the amount along with 18% interest in the national consumer welfare fund and in similar funds set up at state levels. If the company defaults on the payment, the money could be recovered by central and state GST officials, the order said. The authority also said the company was “apparently liable" for penalty and directed officials to issue a notice on why penalty should not be imposed.

Johnson & Johnson (J&J) did not respond to Mint’s query on the NAA order.

The probe spanned the period from 15 November 2017 till end of December 2018.

The anti-profiteering provision in the CGST Act says that benefits of tax rate cuts or tax rebates should be passed on to consumers by way of commensurate reduction in prices. However, there is no bar on companies to raise prices of items that are not regulated under the Essential Commodities Act.

Companies are free to raise prices depending on market dynamics after complying with the CGST Act requirement of immediately passing on the benefit to consumers following a cut in goods and services tax (GST). The law does not specify a lock-in period to maintain the reduced price. Some companies in the past have responded to tax cuts by increasing the quantum of a product sold to avoid practically difficult price reductions.

The director general of anti-profiteering (DGAP), the investigating wing of the NAA, said in its report that J&J raised the base price of certain products when the tax rate was cut. “The DGAP concluded that the amount of net higher sales realization due to increase in the base prices of the impacted products despite the reduction of GST rate from 28% to 18% or in other words, the profiteered amount, came to ₹230.4 crore," the NAA order said.

By raising the base price of products, the benefit of tax rate cut was not passed on to consumers, the agency claimed.

In November 2017, the GST Council announced one of its biggest rounds of tax rate cuts so far when it moved 178 items from the 28% slab to 18% slab. The items covered included consumer products such as shampoos, cosmetics, hair oil, goggles, shaving preparations and equipment like bulldozers and excavators. After that, the DGAP looked into several complaints of profiteering by consumer goods manufacturers and their dealers. Consumer goods makers have a long supply chain, making sudden price changes immediately after a tax cut hard for them to implement.

The NAA seeks to make sure that consumers benefit from the revenue the government sacrifices.

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