NAA finds J&J dis­trib­u­tor guilty of prof­i­teer­ing, seeks amount with in­ter­est

The Hindu Business Line - - NEWS -

The Na­tional Anti-prof­i­teer­ing Au­thor­ity (NAA) has re­jected the con­tention of Johnson & Johnson (J&J) that it was pass­ing the ben­e­fit of lower GST (Goods and Ser­vices tax) rate, and up­held al­le­ga­tions of prof­i­teer­ing against one of its dis­trib­u­tors.

The mat­ter in­volves a com­plaint that Delhi-based dis­trib­u­tor — JP and Sons — had not passed on the ben­e­fit of GST rate re­duc­tion from 28 to 18 per cent with ef­fect from Novem­ber 15, 2017, by main­tain­ing the same Max­i­mum Re­tail Price (MRP), which he was charg­ing be­fore the said date in case of the two prod­ucts — Johnson & Johnson Baby Sham­poo 100 ml and Johnson & Johnson Baby Pow­der 200 gm. It was also al­leged that in­stead of re­duc­tion, the base prices of these prod­ucts were in­creased on Novem­ber 15, 2017, and thus the said dis­trib­u­tor had in­dulged in prof­i­teer­ing.

J&J did not re­spond to Busi­nessLine queries.

The dis­trib­u­tor, in his de­fence said billing was pro­vided and fully con­trolled by J&J and he couldn't make any mod­i­fi­ca­tions in the billing soft­ware and sold these prod­ucts on the MRPs which were up­loaded in the soft­ware.

Soft­ware control

It was claimed that once the base prices had been in­creased by J&J with ef­fect from Novem­ber 15, 2017, in the soft­ware, he had no op­tion ex­cept to charge these prices and there­fore, he was not li­able for prof­i­teer­ing.

J&J was also is­sued no­tice to clar­ify upon the claims made by the dis­trib­u­tor in re­spect of the control on the soft­ware and in­crease in the base prices made by it af­ter Novem­ber 14, 2017. The com­pany, in its sub­mis­sion, said that it had in fact low­ered the base prices af­ter re­duc­tion in the rate of tax from 28 to 18 per cent.

Af­ter screen­ing by the Stand­ing Com­mit­tee and in­ves­ti­ga­tion by Di­rec­tor-Gen­eral of Anti-Prof­i­teer­ing (DGAP), the au­thor­ity con­sid­ered the ma­te­ri­als placed be­fore it and held that there is no doubt that the dis­trib­u­tor had in­creased the base prices of the above prod­ucts from Novem­ber 15, 2017, whereas he was re­quired not to in­crease them and af­ter charg­ing GST 18 per cent which meant he has in­dulged in prof­i­teer­ing.

Lack of ev­i­dence

The NAA held that the dis­trib­u­tor had also not pro­duced any ev­i­dence to show that he had made any cor­re­spon­dence with J&J to in­form it that he was bound to re­duce the prices due to re­duc­tion in the rate of tax and J&J should ei­ther not in­crease the base prices or com­pen­sate him for the ben­e­fit he was bound to pass on to his cus­tomers, there­fore, it is quite ap­par­ent that he had de­lib­er­ately charged the en­hanced prices with an in­ten­tion to pocket the amount which he was bound to pass on to the re­cip­i­ents. Ac­cord­ingly, it was asked to deposit the prof­i­teer­ing amount of over ₹5 lakh, along with in­ter­est, with the con­sumer wel­fare fund.

Prac­ti­cal dif­fi­cul­ties

Ac­cord­ing to Harpreet Singh, Partner at KPMG, it is clear that ar­gu­ments such as base price of prod­uct rose due to in­crease in cost at the time when rates were re­duced, and it could not pass the muster of anti-prof­i­teer­ing scru­tiny, un­less the same was backed by ad­e­quate and ro­bust doc­u­men­ta­tion in the form of agree­ments, e-mail cor­re­spon­dence etc.

“The or­der clearly es­tab­lishes that cit­ing prac­ti­cal dif­fi­cul­ties such as chang­ing the MRP, lack of control on billing soft­ware, in­crease of base price by man­u­fac­turer etc. would not be ac­cept­able while de­ter­min­ing whether profit has been ad­e­quately passed on or not,” he added.

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