P&G profiteered Rs 250 cr from GST rate cuts, says DGAP report

Procter and Gamble (P&G), a top consumer goods firm, has been charged with profiteering in a probe conducted by the Director General of Anti-Profiteering (DGAP).

The company, which sells Tide detergent, Gillette razors, Head and Shoulder shampoos among other products, is found to have profiteered a total of around Rs 250 crore by not passing the benefit of tax rate cuts onto its customers, sources said.

The DGAP has submitted its investigation report to the National Anti-Profiteering Authority (NAA), which will now hear the case. In a similar case, four months ago the NAA had held the country's top FMCG firm Hindustan Unilever Ltd (HUL) guilty of profiteering Rs 456 crore but later lowered the amount to Rs 383 crore. The case is being heard by Delhi High Court.

The investigation in the latest case started about six months back on a complaint by a customer who said that the P&G had not reduced the maximum retail price (MRP) of its products after the government cut the GST rates on many FMCG items from 28% to 18%.

The tax rate cuts were announced by the Goods and Services Tax (GST) Council on about 200 fast moving consumer goods (FMCG) items to provide relief to consumers on November 15, 2017.

As per the provisions of Section 171 of the Central GST (CGST) Act, 2017, if there is any reduction in the rate of tax or benefit of Input Tax Credit (ITC) is made available to the company, the same shall be passed on to consumers in the form of commensurate reduction. If it is not possible to do so, the amount so realised shall be deposited in the Consumer Welfare Fund (CWF).

The DGAP in its investigation report submitted to the authority has disallowed the benefit through increase in grammage saying that the law allows any company to pass on the benefit in the form of price cuts only, sources said. According to the company, the benefit of GST rate cuts has been passed on to the customers in the form of grammage increase wherever it's not possible to reduce the price.

"As a responsible corporate, P&G has always been committed to passing the net benefit of GST rate reduction to the consumers. We have passed the net benefit and communicated the same via advertising in mass media to help increase awareness with the consumers, shoppers and retailers. We will continue to cooperate with the authorities in this matter and provide clarifications. We hope that the concerned authorities will appreciate the procedure followed to pass on the GST benefit and will take a just view of the matter", said a P&G spokesperson in a response to an e-mail query by DNA Money.

The NAA is likely to come up with a final order in the case within three months. If the NAA finds the company guilty, it can order them to reduce prices from retrospective effect, return the due amount to the customers, impose a penalty, or in extreme cases, it can even cancel the firm's registration. In case the customers cannot be identified, it can also ask the company to deposit the profiteered amount to the CWF of the government.

In the new GST regime, the apex anti-profiteering body NAA under the administrative control of the finance ministry to protect consumers' interest, with DGAP as investigation arm and complaints mechanism via several state-level screening committees and a national standing committee.

The respective state screening committees, after collecting prima facie evidence, send the report to the national standing committee. The national-level committee then refers the case to the DGAP for investigation. DGAP gets three months (extendable by another three months) to submit its report to the NAA, which comes up with the final order.