P&G, J&J face GST heat on sanitary napkins

Procter & Gamble (P&G) and Johnson & Johnson (J&J), the makers of the top selling brands of sanitary pads Whisper and Stayfree, among others, are under the scanner of the anti-profiteering authority and may have to cough up huge penalties if found guilty of profiteering.

Goods and Services Tax (GST) Council, in its meeting on July 21, had decided to exempt sanitary napkins from the indirect tax. Earlier, it used to attract GST at the rate of 12%.

The government is examining if the manufacturers of sanitary pads are passing the benefit of rate reduction to the consumers, sources said. Whisper, Stayfree, Carefree, Kortex and She are some of the popular brands of sanitary pads sold in the country.

"Initial reports suggest that a large section of customers is not getting the benefit of the recent GST reduction. In many cases, the benefit may not be commensurate with the rate cut," a senior official of Central Board of Indirect taxes & Customs official told DNA Money. However, the companies have denied it.

The National Anti-Profiteering Authority (NAA) is looking into the matter and will take action after a probe by its investigative arm, sources said.

According to the GST anti-profiteering rules, benefits of input tax credit should have been passed on to the recipient by way of a commensurate reduction in prices. "This is irrespective of whether firms get input tax credit or not," another finance ministry official said.

The new rate cut came into effect from July 27.

Though the firms have issued advertisements announcing rate reduction, a number of shopkeepers continue to sell the sanitary pads at old rates. "We haven't got any communication from the manufacturers to lower the cost of the existing stock. We can't reduce the cost at our end as it impacts our margins. There is no intimation about the new stock," said a chemist at Central Market in South Delhi's Safdarjung Enclave area.

An advertisement by P&G issued a couple of days back shows a rate reduction of about 2.5% to 6.5% as compared to the price cut of 12% announced by the GST Council.

"As a responsible corporate, P&G is committed to passing the net help of GST rate reduction to the customers. Post the decision of the GST Council, starting July 27, we passed on the net benefit of the GST exemption on sanitary napkins to the trade and communicated it to both trade and consumers," said a P&G spokesperson in an e-mail reply when contacted.

A Johnson & Johnson spokesperson said, "We have passed on the net benefits arising out of the exemption of GST on sanitary napkins, thereby fully complying with the applicable regulations."

The finance ministry has directed the field officials to conduct checks and give their report to the Standing Committee of NAA. "The committee after screening the field reports as well as complaints will forward the cases over the next few weeks to the Director General of Safeguards for investigation. NAA on the basis of the DG Safeguards report will decide on penalty or any other action against the companies if found guilty," the source said.

In the event NAA confirms there is a necessity to apply anti-profiteering measures, it has the authority to order the supplier or business concerned to reduce its prices or return the undue benefit availed by it along with interest to the recipient of the goods or services. If the undue benefit cannot be passed on to the recipient, it can be ordered to be deposited in the Consumer Welfare Fund. In extreme cases, the NAA can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.

The government will also examine if there is any significant benefit of rate reduction to the consumer, sources said. The manufacturers have reportedly told the finance ministry that exempting sanitary pads from GST doesn't result in a significant cost benefit to consumers. The reason is that the companies won't get input tax credit for the raw material.

Federation of Indian Chambers of Commerce and Industry (Ficci) has suggested levying GST at a nominal rate. In a letter to the finance minister, the industry chamber has also said that the decision on sanitary pads is against the Make in India campaign, as it offers an unfair competitive advantage to importers which is contrary to the spirit of a level playing field in the domestic market.