In a setback for more than 100 firms, including Hindustan Unilever (HUL), Nestle, Patanjali, and Philips, the Delhi High Court has affirmed the legitimacy of anti-profiteering provisions under the Central Goods and Services Tax (CGST) Act and related rules.
The court clarified that pertinent sections of the law stipulate that any tax rate reduction or the advantages of input tax credit (ITC) must be conveyed to consumers through a "commensurate reduction in prices." Failure to willfully pass on these benefits will be considered as 'profiteering.'
The bench emphasized that these legal provisions do not function as a price-fixing mechanism and do not infringe upon Article 19 or Article 300A of the Constitution.
Sandeep Sehgal, a partner at AKM Global, commented, "The court’s ruling adeptly balances the interests of businesses, consumers, and the tax regime. It nudges companies towards adopting equitable pricing practices while ensuring consumers receive the full benefits of GST adjustments."
Abhishek Rastogi, founder of Rastogi Chamber and counsel for some petitioners, mentioned that the companies challenged the constitutional validity based on the absence of a formula for determining profiteering. However, the court ruled that no formula could be enacted for this purpose.
While acknowledging the possibility of companies raising prices due to cost escalation, the court did not rule out arbitrary exercise of power under the anti-profiteering mechanism.
Pushpendra Dixit, tax head at PVR-Inox, anticipated a wave of petitions challenging the court's decision. Adarsh Somani, a partner at Economic Laws Practice, highlighted that the court has only decided on the constitutional validity, and the assessment of the merits of profiteering cases will be addressed separately.
The National Anti-Profiteering Authority (NAA), established in 2017, tasked with ensuring companies pass on ITC and GST benefits to consumers, was dissolved in December 2022. The Competition Commission of India (CCI) has since taken over profiteering cases.
