NestleNSE -0.01 % India is in the process of depositing a transition amount in the consumer welfare fund for not immediately passing on benefits under the goods and services tax (GST), the latest in a line of companies including Hindustan Unilever that have been making such payments after the National Anti-profiteering Authority called on them to do so. Nestle didn’t give details of the amount involved.
In November last year, GST on 178 daily use products including chocolates and cocoa-based products was slashed to 18% from 28% as the government sought to ease the burden on consumers hit by price increases on account of the new tax regime. The government had pushed companies to reduce prices in line with the cuts and ensure the benefits of the move were passed on to consumers.
Nestle said it had made sure to exclude such amounts from its accounting. “In situations where the benefit could not be passed on instantly by reduction in MRP (maximum retail price) or increase in grammage, the amount was set aside to be subsequently passed on and was not reckoned either in sales or in profit,” a Nestle spokesperson said in an email.
The Directorate General of Safeguards (DGS), which has been entrusted with looking into anti-profiteering matters, has been calling on companies that didn’t immediately pass on the benefits of lower GST to do so. In the event that this wasn’t possible on account of stocks having already entered the retail channel with older, higher price tags, companies are required to pay the difference to the central fund.
The Nestle spokesperson said it hadn’t received any notice from the anti-profiteering authority for not passing on the benefits of lower taxes under GST and said it was doing so of its own volition.
“At our request, the authority through its communication has advised us to provisionally deposit the amount computed by us, suo moto, in the consumer welfare fund to be constituted under central GST and furnish the necessary documents,” the spokesperson said. “While we were in the process of taking the next steps to pass on the benefits to consumers, we had a discussion with National Anti-profiteering Authority, which was constructive and we decided to deposit, suo moto, the amount which was set aside.”
The maker of KitKat chocolates, Nescafe coffee and Maggi noodles said the company has taken appropriate measures to pass on the benefits of lower GST to consumers.
Tax experts said there should be a framework to pass on such profits to the government if companies are unable to reduce prices immediately after tax cuts.
“There should be a mechanism for voluntary payment to the government on account of GST benefit,” said Pratik Jain, indirect tax leader, PwC. At times it is not commercially feasible to reduce price immediately, particularly for stock with preprinted prices, Jain said, adding that some guidance on compliance required by manufacturers in case of reduction in GST rates is needed, particularly for goods already with retailers.
Hindustan Unilever said in January that it will pay .`119 crore as GST benefit accrued to the government toward the consumer safeguard fund after it received a notice from the anti-profiteering body for not passing on the benefits of lower GST rates to the consumer.
Last month, DGS sent notices to Jubilant FoodWorks under the anti-profiteering rules for not passing on tax reduction benefits to Domino’s Pizza customers. Earlier, DGS had sent notices under these regulations to Hardcastle Restaurants, which runs McDonald’s restaurants in west and south India, retailer Lifestyle International and auto firm Honda Motor.
Soon after the GST rates were reduced, companies began releasing ads informing consumers about revised prices, and putting in place software to monitor billing and invoicing at retail stores.