Will HUL’s GST provision set precedent for others?
MUMBAI:The HUL HAS DECIDED TO VOLUNTARILY DECLARE TO THE CBDT THAT AN ESTIMATED ₹119 CR WORTH OF BENEFITS NEEDED TO GO TO CONSUMERS
decision to set aside funds to compensate consumers for excess taxes that Hindustan Unilever Ltd collected has set a precedent for other firms.
India’s largest consumer packaged goods firm set aside ₹119 crore in the December quarter to be paid to the government because it could not immediately change prices after GST on several products were reduced on November 15. The company has offered to release the money to the Consumer Welfare Fund, run by the government’s Department of Consumer Affairs.
HUL received a notice for profiteering this week, Mint reported on January 17. The GST anti-profiteering authority, set up to ensure benefits of tax cuts are passed on to consumers, has been sending notices to companies to ensure that companies don’t quietly pocket savings from GST.
Other large firms are now considering making similar provisions because they were unable to cut prices immediately for end consumers, tax experts say.
“What HUL made as a provi“However, sion is more from an audit perspective to make sure that they do not show this money as profit but as payment to be made to the government,” said Anita Rastogi, partner at PwC India.
Under GST rules the central government notified in June last year, any excess profits that a manufacturer should not be making on lowered taxes should be credited to the Consumer Welfare Fund. But there is little clarity on how this transfer should happen and under what circumstances.
“If money is collected (by a company, as profits) without passing on the tax benefits, that it will go to the consumer, and if not possible, then the consumer welfare fund,” Sachin Menon, partner and head, indirect tax, at KPMG said in an interview. guidelines governing this are yet to be issued,” he said.
“Actions were initiated immediately but it takes time,” Srinivas Phatak, chief financial officer at HUL said on January 17 in an earnings briefing. “There are pipeline stocks. We advised modern trade retailers to pass on the rate reductions, and these were passed very quickly.”
HUL is now waiting for instructions from the Centre on what to do with this money. Given the ambiguity in anti-profiteering definitions and rules, HUL said it decided to be proactive and voluntarily declared to the Central Board of Excise and Customs that it estimated ₹119 crore worth of benefits needed to go to its consumers. Other companies may do the same.
“HUL has said that it was not able to pass on all benefits immediately, so other companies would have faced the same issue,” Rastogi said. “After this situation with HUL, most of the large FMCG and also non-FMCG firms have started to hold board meetings to figure out how to deal with this situation before the DGS (Directorate General of Safeguards) issues them a notice.”