JnJ to pay Rs 230 crore fine for not passing GST rate cut benefits to customers

New Delhi: Healthcare major, Johnson and Johnson (JnJ) recently landed in soup after the National Anti-profiteering Authority (NAA) found that its local unit made a profit to the tune of Rs 230.4 crores by not passing the benefit of goods and services tax(GST)cut on some products. The Authority directed the firm to deposit the penalty amount in a consumer welfare fund within three-months time.

Notably, in November 2017, the GST Council announced one of its biggest rounds of tax rate cuts so far when it moved 178 items from the 28 per cent slab to 18 per cent slab. Later, the DGAP looked into several complaints of profiteering by consumer goods manufacturers and their dealers. One such inquiry was conducted by the Authority between November 2017 and December 2018.

After the inquiry, the Director-General of Anti-profiteering (DGAP), an investing arm of NAA, concluded that despite the reduction in the GST rate from 28% to 18% on some of their products, the company had net higher sales realisation, primarily owing to increase in the base price of products. In other words, JnJ had raised the base price of certain products when the tax rate was cut.

“The DGAP concluded that the amount of net higher sales realization due to increase in the base prices of the impacted products despite the reduction of GST rate from 28% to 18% or in other words, the profiteered amount, came to Rs 230.4 crore,” the NAA order said.

The authority noted, "the respondent (J&J) denied the benefit of tax reduction to customers in contravention of Section 17(1) of CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the Act."

The Authority further observed that the methodology adopted by JnJ to pass on GST rate-cut benefit was 'unreasonable, arbitrary, and incorrect, and hence cannot be accepted'.

As per the anti-profiteering rules under GST, "benefits of input tax credit should have been passed on to the recipient by way of commensurate reduction in prices."

Subsequently, the order signed by B.N. Sharma, Chairman, NAA was issued directing the firm to deposit the amount along with 18 per cent interest in the national consumer welfare fund.