Delhi High Court: Increasing Product Quantity Without Price Cut is Deceptive

Delhi High Court: Increasing Product Quantity Without Price Cut is Deceptive

Issue: Whether a business complies with the anti-profiteering requirements of the GST Act by merely increasing the product quantity or offering freebies without commensurately reducing the Maximum Retail Price (MRP), following a reduction in the GST rate.

Facts:

• The National Anti-Profiteering Authority (NAPA) issued orders against the Petitioner, Sharma Trading Company (a distributor of HUL products), alleging profiteering.
• The complaint alleged that the tax benefit from a GST rate reduction was not passed on to consumers.
• The Petitioner contended that commercial schemes, such as increasing quantity or freebies, justified maintaining the original price.
• NAPA’s order found that the Petitioner profiteered by increasing the base price of the product (Vaseline VTM 400 ML) to offset the GST rate reduction.

Decision:

The Delhi High Court upheld the constitutional validity of the anti-profiteering regime (Section 171 of the CGST Act) and ruled that merely increasing the product quantity or offering freebies without reducing the price amounts to deception and violates the mandatory requirement to pass on tax benefits held that when GST rates are reduced, the benefit must be passed directly to consumers through a corresponding reduction in the product’s price, and simply increasing the product quantity without reducing the maximum retail price (MRP) amounts to dece1ption].

Key TakeDowns:

• Price Reduction is Mandatory: The Court emphasized that the benefit of a GST rate reduction must be passed on to the recipient by way of a commensurate reduction in prices, and not by complex schemes that curtail consumer choice.
• Profiteering Defined: The practice of increasing the base price to offset the GST rate reduction and keep the MRP constant was explicitly held to be a violation of Section 171 of the CGST Act.
• Commensurate Benefit: The benefit must be passed on at the level of each supply and calculated SKU-wise (Stock Keeping Unit), and failure to do so results in liability to pay the profiteered amount with interest. * NAPA Powers Upheld: The ruling affirmed that the powers of the Director General of Anti-Profiteering (DGAP) under the rules are wide and are necessary to achieve the welfare objective of consumer protection.