J&J charged with profiteering from GST reduction

In an anti-profiteering probe against top sanitary napkin companies, the Director General of Anti-Profiteering (DGAP) has indicted Johnson & Johnson (J&J) for profiteering from Goods & Services Tax (GST) rate cuts.

"J&J, the makers of Stayfree and Carefree napkins, profiteered around Rs 40 crore from the tax cuts announced by the government," sources said quoting the DGAP report.

However, Procter & Gamble (P&G) and Unicharm, manufacturers of Whisper and Sofy, respectively, have been cleared of the profiteering charges in this case. Separately, P&G was charged with Rs 250 crore of profiteering in a case related to its FMCG business. This was reported DNA Money on Monday.

The probe was launched by the government's GST anti-profiteering probe agency, DGAP, in October last year against the makers and suppliers of top sanitary pad brands such as Whisper, Stayfree and Sofy after ground reports by the finance ministry showed that the firms were not passing due benefits of tax cuts to customers. The tax rates on sanitary pads were cut from 12% to nil, which became applicable from July 27, 2018. The decision was hailed by activists as a big step towards empowerment of women from economically weaker section.

"The firms ought to have slashed the prices by 3% after adjusting for loss on account of Input Tax Credit (ITC). J&J did not pass the tax benefit while P&G and Unicharm had done that," a source said.

Manufacturing of sanitary napkins became expensive for the companies due to lack of ITC. ITC benefit was withdrawn after sanitary pads became zero rated. Out of 12%, about 9% would be adjusted in the absence of ITC on raw material, while the remaining 3% had to be passed on to customers.

The investigation report on J&J and Unicharm has been submitted to National Anti-Profiteering Authority (NAA). The report on P&G is likely to be submitted shortly, sources said. The NAA will soon start hearing the cases, sources said.

"We at Johnson & Johnson, have passed on the net benefits arising out of the exemption of GST on sanitary napkins, thereby fully complying with the applicable regulations. We have reduced prices on our products in Stayfree, Carefree napkins and OB tampons. Further, as pioneers of this category in India and aligned with the objective of the GST exemption to make sanitary pads affordable and accessible to more women,'' a J&J spokesperson said in an e-mail response.

The GST anti-profiteering rules provide for passing on the benefits of GST rate cuts to the recipient by way of a commensurate reduction in prices.

The final decision in the case will be taken by the NAA after hearing the firms as well as the complainants in the case. The NAA is the adjudicating body set up by the government to monitor whether the reduction or the benefit of ITC is reaching consumers by way of appropriate reduction in prices.

The NAA has the authority to order the business concerned to reduce the prices and 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 ask the firm to transfer the amount to the Consumer Welfare Fund. In extreme cases, the NAA can impose a penalty on the defaulting business entity or can cancel its registration under GST.

UNDER SCANNER

• Rs 40 crore – Johnson & Johnson allegedly profiteered from GST rate cuts
   
• Rs 250 crore – P&G was charged for profiteering in a case related to FMCG business