Nestle found guilty of profiteering on Maggi noodles under Section 171 CGST Act despite GST rate reduction

NAPA held that respondent violated Section 171 of CGST Act, 2017 by not passing GST rate reduction benefit from 18% to 12% on Maggi noodles to consumers. Despite tax reduction, respondent increased base price from Rs. 3.96 to Rs. 4.17 per pack, resulting in profiteering of Rs. 0.24 per pack. NAPA determined total profiteering quantum at Rs. 90,778 and directed respondent to reduce prices commensurate with tax reduction, refund Rs. 2,253 to applicant with 18% interest, and imposed penalty under Section 122(1)(i) for issuing incorrect tax invoices.

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Issues Involved:
1. Whether the benefit accrued due to reduction in the rate of tax of one product can be passed on via another product or notRs.
2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in this caseRs.
3. If yes, then what was the quantum of profiteeringRs.

Issue-Wise Detailed Analysis:

1. Whether the benefit accrued due to reduction in the rate of tax of one product can be passed on via another product or notRs.

The Respondent contended that the benefit of GST rate reduction on the 35 Gms. Maggi Noodles pack (MRP Rs. 5/-) was passed on through other packs of Maggi Noodles with different grammage. Specifically, the Respondent claimed that reducing the price of the 70 Gms. pack (MRP Rs. 12/-) by 92 paise to Rs. 11/- sufficed for passing on the GST rate reduction benefit. However, the DGAP concluded that the Maggi Noodle packs of 35 Gms. and 70 Gms. are distinct products, and the benefit available to the buyer of one item cannot be denied by offering more than the required benefit to the buyer of another item. The law does not provide for such adjustments, and the benefit must be passed on to each recipient individually.

2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in this caseRs.

Section 171 of the CGST Act mandates that any reduction in the rate of tax on any supply of goods or services must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation revealed that the Respondent increased the base price of the 35 Gms. Maggi Noodles pack from Rs. 3.96/- to Rs. 4.17/- after the GST rate was reduced from 18% to 12%. This increase in base price meant the product was sold at the same cum-tax price of Rs. 4.67/- per pack, thereby not passing the benefit of the tax reduction to the consumer. The Respondent's actions were found to be in violation of Section 171 of the CGST Act, 2017.

3. If yes, then what was the quantum of profiteeringRs.

The DGAP calculated the total amount of profiteering as Rs. 90,778/-, which includes Rs. 2,253/- charged from Applicant No.1. The calculation was based on the difference between the commensurate price per unit (Rs. 4.43/-) and the actual price charged (Rs. 4.67/-), multiplied by the quantity sold during the period from 15.11.2017 to 28.02.2018. The Respondent was directed to refund Rs. 2,253/- to Applicant No.1 with 18% interest per annum and deposit the balance amount of Rs. 88,525/- along with interest in the respective Central or State Consumer Welfare Fund within three months.

Conclusion:

The Respondent was found to have violated the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of GST rate reduction to the consumers. The benefit of tax reduction on one product cannot be passed on via another product. The total profiteered amount was determined to be Rs. 90,778/-. The Respondent was ordered to refund the profiteered amount to Applicant No.1 and deposit the remaining amount in the Consumer Welfare Fund. Additionally, a Show Cause Notice was issued to the Respondent for imposition of penalty under Section 122 of the CGST Act, 2017. The Commissioner of State Tax, Uttar Pradesh, was directed to monitor compliance with this order.

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