What is the National Anti-Profiteering Authority and what has it done so far?
Sai Krishna Muthyanolla
April 9, 2020
The National Anti-Profiteering Authority was set up to ensure that the benefits of GST rate cut are passed on to the customers in the form of reduction in prices by various businesses. But what is this authority and what has it done so far?
Inan order passed on 12 March 2020, The National Anti-Profiteering Authority has directedPatanjali Ayurveda Ltd. to pay up Rs.75.08 crores for not passing the benefitof reduced Goods & Services Tax (GST) rates to its customers. As per thisorder, the company is required to deposit the amount along with 18% GST intothe consumer welfare funds of the Centre & States, within a period of threemonths.
So,what is the purpose of National Anti-Profiteering Authority (NAA) and what is theirjurisdiction? Here is a detailed explainer. We also look at few prominentorders issued by the NAA.
NAA
constituted to ensure GST benefits are passed onto customers
TheNAA was established under Section
171 of the Central Goods and Services Tax Act, 2017.  As per the provisions, any reduction of GSTrates or the benefit of input tax credit needs to be passed on to the customersin the form of reduction in prices. The wilful
action of not passing the benefits to the recipients isconsidered as profiteering.
Theidea of setting up NAA, is to oversee and ensure that the registered personstransfer the benefits to the final recipients.
On 16 November, 2017, the Union Cabinet has approved the creation of the posts of Chairman & Technical members of NAA under GST.  This was done in the backdrop of the reduction in the GST rates across multiple items in November, post the introduction of GST in July’2017.
Fromthe midnight of 14 November 2017, the GST rates of around 178 items werereduced from 28% to 18%. Many other goods had the rates reduced from 18% to12%, while few others were completely exempted. The NAA was thus constituted toensure that the consumers benefit from this sharp fall in GST rates.
NAA
is authorized to take action against the violators
TheNational Anti-Profiteering Authority (NAA) comprises of a five-membercommittee. This includes a Chairman and four technical Members.
As per Rule 137, of CGST Rules, 2017 – Anti Profiteering Authority ceases to exist after a period of two years, unless recommended otherwise by GST council. However, the tenure of NAA was extended by GST council by two more years in its meeting on 21 June, 2019.
Thecomplaints by consumers can be registered online via NAA’s portal. Theredressal process of complaints is based on jurisdiction. Those that are localin nature are first sent to a State-level committee for screening, while theones at national level are sent directly to the Standing committee. An instanceof profiteering that relates to an item of mass consumption which hasramifications across the country are also sent directly to the Standingcommittee.
Basedon the merit of the complaint, the respective committees will refer the casefor further investigation to ‘Directorate General of Safeguards’, who conductthe investigation and submit the report with NAA. In case NAA finds that thecompany has not passed on the GST benefits, it would be directed to within astipulated timeline to either:
So
far, a total of 125 orders issued by NAA
Asper the list of orders provided on NAA
Portal, there are a total of 125 orders from the time it wasconstituted. In the current year i.e. 2020, 16 orders were issued including therecent one regarding Patanjali Ayurveda ltd. In 2018, 29 orders were issued whilein 2019, a total of 80 orders were issued.
Responding
to a question in Lok Sabha on 02 July 2019, the Minister ofFinance, has stated that as on 20 June 2019, a total of 67 orders were passed  by NAA. This figure tallies with the list oforders provided on NAA portal, as on that date.
Further,the Minister also stated that out of these 67 cases as on 20June2019, 26 cases were confirmed as instances of profiteering by businesses, withthe profiteering amounting to Rs. 600.51 crores. As on date, further 58 orderswere issued, after the response in Lok Sabha.
Asper a
response given by Minister of Finance on 22December2017, a total of 70 complaints were received by NAA.
Whereasin 2018, 360 complaints were received by NAA, as per the information provided in Lok Sabha on 08 January 2019. There is no information available onthe number of complaints received in 2019 and 2020.
Some of the prominent orders issued by NAA:
NAA
fines Hindustan Unilever for 223 crores for profiteering
Inone of its first high profile orders, NAA found India’s largest FMCG company,Hindustan Uniliver (HUL) guilty of profiteering from the revision in GST ratesand not transferring the benefits to the consumers.
As per the order issued on 24 December  2018, HUL is alleged to have profiteered to an extent of Rs. 383 crores after the rate cut in November 2017. The case was initially filed by an anonymous applicant via email and later other complaints were received by NAA. As per the applicant, the GST rate was reduced from 28% to 18% on a large number of products related to HUL’s product line. It was also alleged that HUL has increased the base price to counterbalance the fall in GST rates. During the investigation, HUL has contended the valuation of amount of profiteering as well as the actions it took in respect to pass on the benefits to the consumers across its wide range of products.
SinceHUL has proactively
deposited Rs.160 crores to Central Consumer Welfare fund, it has beenasked to deposit a further Rs. 223 crores in 50:50 ratio to central and stateconsumer welfare funds. The official copy of this order is not available on NAA portal.  Since then, HUL has filed a case against theorder in Delhi High Court but the high court has refused to stay the order.
Jubilant
Food Works found guilty of not passing GST cut benefit of Rs. 41.42 crores
Inan order issued on 31 January 2019, NAA has observed that Jubilant Food Works which isthe operator of Domino’s Pizza chain in India, is guilty of not passing theGST-cut benefit to the tune of Rs. 41.42 crores on the sale of certain Pizzaproducts. This is in response to an email complaint filed by a customer thatthe prices for two of its products i.e. ‘Domino’s Stuffed Garlic Bread’ and ‘MediumVeg. Pizza’ were not reduced, despite the reduction of GST to 5% from 18%.  The GST on restaurants was reduced to 5% in 2018.
NAAhas stated that Jubilant Food Works did not pass on the benefits of therate-cut and quantified the amount to Rs. 41.42 crores.
NAAhas ordered the below actions:
NAAhas also issued a show cause notice to Jubilant Food Works to explain whypenalty should not be imposed on the company.
Abbott
Healthcare found profiteering to the tune of Rs. 96.59 lakhs
On05 March 2019, NAA issued an order to Abbott Healthcare stating that is it guilty of not passing the benefits ofGST tax rate cuts to an amount totalling Rs. 96.59 lakhs.  This is about their product ‘Melaglow Rich(Nianamide) Depigmentation & Glow Restoration Cream’.
Aspart of the investigation, it was found that the tax rate on the product was30.06% in pre-GST regime, which was reduced to 28% in the initial GST rollout,and further reduced to 18% on 15 November 2017. During this period, the baseprice increased from Rs. 202.06 to Rs. 230.90, thereby resulting in an increasein selling price and hence not passing of the benefit of tax reduction to thecustomers.
Anamount of  Rs. 96.59 lakhs for the period01 July 2017 to 31 July 2018 is estimated to be the profit amount. This Mumbai basedcompany was directed by NAA to deposit the amount to the Consumer Welfare Fundof the Centre & states along with 18% interest. Abbott Healthcare haschallenged this order in the court and obtained a
stay from Delhi High Court.
McDonalds
franchisee Hardcastle Restaurants found guilty of profiteering Rs. 7.49 crores
HardcastleRestaurants is a franchisee of fast food chain McDonald’s and NAA has found itto be guilty of not passing the GST rate cut benefits of Rs.7.49 crores to thecustomers, as per its order on 16November 2018.
Acomplaint was filed accusing the restaurant of keeping the prices same in-spiteof a reduction in GST rate from 18% to 5% w.e.f. from 15November 2017.As part of the investigation, Directorate General of Anti-Profiteering (DGAP)has found out that the restaurant has not transferred the benefit of the rates cutand also did not pass on the benefits from Input Tax Credit availed by them.This comes up to a total of Rs. 7.49 crores. This includes the extra GST whichthe customers were forced to pay due to the increase in the basic prices.
Hencethe NAA has asked Hardcastle Restaurants to:
Thisorder was challenged in the court and the Bombay High Court set
aside the ruling of NAA. The contention of the company wasaround the fact that the NAA order was pronounced by four members of authority,while only 3 were hearing the case.
Patanjali
Ayurveda fined Rs. 75.08 crores by NAA
Inits latest order,the NAA fined Patanjali Ayurveda Ltd Rs.75.08 crores. The NAA stated that thebenefits from the rate change from 28% to 18% as well as that of 18% to 12% inNovember 2017 have not been passed on to the consumers. Patanjali has alsoincreased the price of their washing powder, after GST reduction.
Duringthe investigation, Patanjali has contested that they have borne the increase incost due to reduction of GST and have not increased their product pricesaccordingly. However, NAA did not accept this argument stating that it was thebusiness call of Patanjali not to increase the price of the product and thatcannot be used as an excuse for denying consumers the benefit of reduced GST.  It has instructed Patanjali Ayurveda todeposit the fine amount of Rs. 75.08 crores along with 18% GST to Central andState consumer welfare funds.
Pendency
of cases a key reason for extension, with litigations also a matter of concern
NAAwas initially set up for a period of two years. The initial presumption wasthat this period would be enough to check the implementation of passing on thebenefits of GST tax reductions. It was also initially thought that this wouldbe limited to few large companies. However, complaints were received fromnearly all the sectors which has resulted in a large number of pendingcomplaints. Hence NAA tenure was extended by two more years.
Thelack of a framework for compliance has resulted in many of the businesses notpassing on the rate cut benefit to the customers, resulting in increase in thenumber of cases.
Mostof the orders being issued by NAA are being challenged in different courts, andsome of them are currently pending in courts. The lack of an appellatemechanism within the executive, to file an on the orders of NAA, leaves thebusinesses the only option of approaching courts.
Thefollowing steps could help in reducing the number of pending cases as well asmitigate the scope of non-compliance.