The Delhi High Court on March 4 stayed the National Anti-profiteering Authority (NAA) order directing Johnson & Johnson to deposit more than Rs 230 crore it allegedly profiteered by not passing on benefits of GST reduction in over 306 items, including baby products, through commensurate price cut.

It said that prima facie the methodology used by NAA to arrive at its finding of profiteering was flawed.

A bench of Justices Vipin Sanghi and Sanjeev Narula also restrained the NAA and the Centre from initiating any penalty proceedings against healthcare major Johnson & Johnson.

The NAA, in its December 23 order last year, had held that the company did not pass on the benefit of reduction in tax rate from November 2017 to December 2018 and hence, profiteered an amount of Rs 230 crore in contravention of the Central Goods and Services Tax (CGST) Act.

The court issued notice to the Centre, NAA and DG of Anti-Profiteering seeking their stand on the company’s petition challenging the direction to deposit the allegedly profiteered amount in a consumer welfare fund.

What is the purpose of NAA?

Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit should be passed on to the recipient by way of commensurate reduction in prices. However, it has been the experience of many countries that when GST was introduced there has been a marked increase in inflation and the prices of the commodities. This happened in spite of the availability of the tax credit right from the production stage to the final consumption stage which should have actually reduced the final prices. This was happening because the suppliers were not passing on the commensurate benefits to the consumer and thereby indulging in illegal profiteering.

The National Anti-profiteering Authority (NAA) was constituted by the central government to examine whether additional input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in prices to the recipients. The action of not passing on such benefits to the recipient amounts to “profiteering”.

 The NAA is the statutory mechanism under the GST law to check the unfair profiteering activities by the registered suppliers under GST law.

The formation of NAA comes in the background of rate-reduction of a large number of items by the GST Council in its 22nd meeting at Guwahati in 2017. At the meeting, the Council had reduced rates of more than 200 items. This has made tremendous price reduction effect and the consumers will benefit only if the registered suppliers under GST law are reducing the prices of respective items immediately.

What are the functions of NAA?

* The Authority’s main function is to ensure that the registered suppliers under GST law are not profiteering by charging higher prices from recipients in the name of GST.

* The legal mandate of NAA is to examine and check such profiteering activities and recommend punitive actions, including cancellation of registration.

* The chairman along with four technical members and with help of the Standing Committee, Screening Committee in every state and the Directorate General of Anti-Profiteering in the Central Board of Indirect taxes & Customs (CBIC), work together on the anti-profiteering front.

* The NAA holds regular meetings with the Zonal Screening Committees and the Chief Commissioners of Central Tax to stress upon consumer awareness programmes.

* It has launched a helpline to resolve the queries of citizens regarding registration of complaints against profiteering.

DG of Anti-Profiteering

The Directorate General of Anti-Profiteering is the investigating arm in the anti-profiteering mechanism.

It is mandated to conduct investigation to determine whether the benefit of reduction in the rate of tax or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices.

It shall complete the investigation within a period of six months of the receipt of the reference from the Standing Committee or within such extended period not exceeding a further period of three months for reasons to be recorded in writing as may be allowed by the Authority.

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