Patanjali distributors come under GST lens

Mumbai: After penalising Patanjali for not passing on tax cuts to customers, the National Anti-profiteering Authority (NAA) has begun investigating the consumer goods company’s distributors to check if they pocketed the difference, said people with knowledge of the matter.The NAA has issued notices to about 10 of Patanjali’s biggest distributors over the past month for not reducing prices in line with cuts in goods and services tax (GST), they said. The government has made several reductions in GST since it was introduced on July 1, 2017, in order to lower the prices of goods of mass use.Patanjali has already been asked to pay Rs 150 crore by the NAA. Investigations in the matter are ongoing and it is learnt that the company may appeal against the decision. Patanjali’s spokesperson didn’t respond to queries.Hindustan Unilever, Procter & Gamble, Johnson & Johnson and Hardcastle Restaurants, a franchisee of fast food chain McDonald’s, have been penalised or investigated for similar reasons.The authority is also examining whether prices on consumer goods and pharmaceuticals held by distributors and stockists on June 30, 2017, were reduced after GST kicked in the next day. The notices seek details of prices charged on products, particularly cosmetics.“The (distributor) was legally bound to pass on the benefit of reduction in the GST rate to customers which he has not as it is apparent from the invoices,” according to one of the notices that ET reviewed. 68177134 Tax experts said there’s no prescribed formula to determine whether benefits have been passed on to customers.“As of now, there is no methodology that the government or NAA has prescribed to arrive at antiprofiteering and so several companies are facing a challenge,” said Abhishek A Rastogi, partner, Khaitan & Co. “For many distributors, the change in GST and the tweak in the rates also meant that it created a lot of complications to not just calculate but also pass on the benefits.”Tax exports pointed out that there have been multiple changes over a period of time. Prices may not have been changed due to lack of understanding or clarity. Also, many companies were uncertain about the time taken to get tax credits and doubts persisted about whether benefits should be passed on to consumers before they received the money from the government.In many cases, some companies changed product composition to avoid breaching anti-profiteering norms, said people aware of the matter. “So, a 100 gram cream would become 110 grams. And when details are sought, the companies would say these are two different products and hence prices before and after GST are not comparable,” said one of them.Most major companies are finding it difficult to ascertain whether distributors passed on the reduced levies.“Once the stock is sold to the distributor, the companies do not have much control over the pricing of the same and many of them have pointed this fact out to the NAA,” said a person close to the development. “The NAA is asking companies to produce at least some letters wherein they have advised their trade partners to pass on the benefit to consumers.”

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