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Grammage benefit to HUL brings relief to industry

WEIGHT LEEWAY: NAA’s decision may impact other FMCG firms, including Nestle, facing anti-profiteering probe

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National Anti-Profiteering Authority’s (NAA) decision to allow Hindustan Unilever Ltd (HUL) to pass on the benefit of price cuts to consumers through an increase in weight of a pack instead of lowering its price has come as a big relief to the industry.

The decision is also likely to impact other FMCG companies such as Nestle and Patanjali facing anti-profiteering probe, even though the NAA has termed the relief granted to HUL as an exception rather than a rule.

The NAA recently found the country’s largest fast-moving consumer goods (FMCG) firm guilty of profiteering Rs 456 crore, but lowered the amount to be recovered to Rs 383 crore on account of benefit of grammage (increase of weight in grams). The firm was found to have not passed on the tax cuts announced by the Goods and Services (GST) Council in November 2017 and January 2018. 

However, the anti-profiteering watchdog allowed passing of the GST benefits to its customers through increased grammage worth Rs 69 crore instead of lowering prices.

The FMCG major had demanded that it be allowed to pass on the benefit through an increase in grammage as “it couldn’t reduce the maximum retail price on products in the supply chain after the GST Council reduced rates in November.” GST Council had reduced the tax on about 200 items by 10% by reducing it from 28% to 18%.

The NAA in its order said the deduction has been given due to the fact that the anti-profiteering measures have been incorporated in the tax laws for the first time, and HUL has tried to pass on the benefit of tax reductions by increasing the quantity of its products. “However, in future in case there is any reduction in the rate of tax or benefit of ITC is made available, the same shall be passed on in the shape of commensurate reduction as per the provisions of Section 171 of the Central GST Act, and in case it is not possible to do so the amount so realised shall be deposited in the Consumer Welfare Fund (CWF),” the NAA order said.

Director General of Anti-profiteering (DGAP) in its investigation report submitted to NAA had disallowed any such benefit, saying the law allows any company to pass on the benefit in the form of price cuts only, as per Section 171 of the Central GST Act, 2017.

HUL was allowed the deductions by the anti-profiteering watchdog on account of grammage on three conditions. 

First, the benefit of more grammage was given to the consumers as soon as there were price changes and the benefit was commensurate with the rate changes. Thirdly, to prove the cause-effect relationship between the GST rate reductions and grammar increase, it should not be a continuation of any ongoing business promotion activity.

The company had claimed a total deduction of Rs 118.68 crore on account of additional grammage passed to the customers in respect of 335 products. 

Big cos facing anti-profiteering probe

Fine (as per DGAP probe)

Rs 100 cr – Nestle

Rs 150 cr – Patanjali

Rs 41 cr – Jubilant FoodWorks

Rs 7.5 cr – Hardcastle Restaurants

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