Anti-profiteering crackdown: McDonald’s, Honda, HUL dealer caught in net; firms’ balance sheets under scanner now

Anti-profiteering, Anti-profiteering crackdown, mcdonalds, hul, honda, hul dealer caught, honda dealer caught, balance sheet, balance sheets under scanner The firms that have received notices from the DG-S include not only a large franchisee of multinational fast-food chain McDonald’s and a multi-brand retailer but even a Jaipur-based cosmetics trader.

The government had said the goods and services tax (GST) law’s ‘anti-profiteering’ clause will seldom be invoked and used only in cases of mass importance and of a national import, but barely a month into its existence, the Director-General of Safeguards (DG-S), the investigating arm of the authority concerned, has already got cracking. The firms that have received notices from the DG-S include not only a large franchisee of multinational fast-food chain McDonald’s and a multi-brand retailer but even a Jaipur-based cosmetics trader. In what indicated that the National Anti-Profiteering Authority (NAA) may not have a lenient and non-intrusive approach, it has even questioned the extent of price reduction in a couple of cases. Also, the DG-S has sought a volume of information from these firms including balance-sheets and profit and loss account statements for 2016-17, GST returns for July-December, details of invoice-wise outward taxable supplies, two sample invoices for sale and purchase of goods and price lists before and after November 15. Tax experts said complying with these notices could be cumbersome for businesses; also, they pointed out, the manufacturer/trader firms cannot always be faulted for the distribution chain not passing on the price cuts to the consumer.

Finance secretary Hasmukh Adhia had earlier said that the NAA would investigate only those cases that have mass impact and not small cases of alleged undue profits. The anti-profiteering mechanism that comprises the NAA, DG-S and a standing committee at the national level and screening committees at states, is tasked to ensure that a reduction in tax incidence due to rate cuts or the benefit of input tax credit has been passed on to customers by way of commensurate reduction in prices. If the authority confirms the necessity of applying anti-profiteering measures, it has the power to order the business concerned to reduce its prices or return the undue benefit availed along with interest to the recipient of the goods or service.

If the undue benefit cannot be passed on to the recipient, it can be ordered to be deposited in the consumer welfare fund within a stipulated time. The authority can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST, the government said, and added that the constitution of the authority is expected to bolster consumer confidence. The finance ministry told Parliament last week that the Centre has received 169 complaints of profiteering after introduction till December. Additionally, the state-level screening committees have also received nearly 70 complaints so far, with Andhra Pradesh and Rajasthan topping the list with receipt of 5 complaints each.

When GST was to be launched, government officials had said that it would not inflate prices of essential and mass consumption goods because more than half of the items in the consumer price index basket was exempt from the new tax and another 15% was under the lowest rate of 5%. Also, since the tax’s launch in July, hundreds of items have seen rate cuts. But inflation data released by the government showed that GST has fanned inflation in the short run. “Though the anti-profiteering provisions were enshrined in the law from the beginning, computation methodologies are missing from the agenda of government. In the absence of clear regulation on the subject matter, not only the industry but GST officers are also clueless about modus operandi of disposal of notices. This is bound to push litigation in the coming months,” said Rajat Mohan, partner, AMRG & Associates.

Jaipur-based trader Sharma Trading, a Bareilly-based authorised dealer of Honda cars and Haryana-based real-estate developer Pyramid Infratech are among the firms that have been slapped notices by DG-S. The complaint against McDonald’s franchisee relates to the price of ‘McCafe Regular Latte’ which allegedly didn’t change despite a GST rate reduction to 5% from 18% on November 15. As many as 36 complainants petitioned the standing committee under NAA that builder Pyramid Infratech was charging 12% GST over and above the cost of the flats despite availing input tax credit (ITC) under GST. “The mechanism for calculating input cost, which is one of the parameters for arriving at sale price, isn’t that complicated. The investigation should bring out whether suspension of ITC to restaurants was responsible for McDonald’s to not reduce price. This would also lay out the template for future profiteering cases,” Tanushree Roy, director-GST at Nangia & Co said.

A Jaipur-based complainant said that a dealer had charged 18% on Hindustan Lever’s “Vaseline” even after the GST Council had reduced the applicable tax rate. A complaint that served as the basis of the notice to Lifestyle International said that the firm the firm did not reduce the price of a cosmetic product commensurate with the GST rate cut. A Bareilly-based car dealer Vrandavaneshwaree Automotive received a notice for not fully passing on the benefit of reduced rate on a Honda car. “The action seems to designed to act as a deterrent for businesses by initiating investigation against big firms. While the government has often said that the anti-profiteering provision would be used sparingly, the result of these investigation would clarify on several aspects of the provision,” Bipin Sapra, tax partner, EY said.

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