Increasing the grammage of various products instead of an outright price cut post a reduction in GST rates won’t result in flouting the anti-profiteering clause under the GST norms. However, the benefits have to passed onto the consumers at the SKU level.
According to B N Sharma, chairman of the National Anti-Profiteering Authority (NAA), who was talking to various members of the Merchants’ Chamber of Commerce and Industry at an interactive session in Kolkata, although the law mandates that companies have to cut prices on goods if the GST is lowered for those products, in “spirit of the legislative intent”, it is also acceptable to the NAA if companies resort to increase the volume of the product.
“However, the grammage increase has to be proportionate to the benefit arising of the tax rate cut; there should be time element in it – for example, GST rate is reduced in January and the company increases its grammage in April – that is not acceptable; and it should not be clubbed with any ongoing business promotions,” Sharma said.
Besides, Sharma said that companies cannot claim to have passed the benefits of GST to consumers by reducing prices of some products while the prices of the other products from the same company remain at pre-revision levels.
“The benefits should be extended to all the products and not just to some products”, he said.
Even companies which are incurring losses have to comply with these norms and pass the benefits of GST rate cuts to the consumer.
Moreover, the benefit has to be passed onto the consumers at the SKU level rather than a few limited product pack sizes.
SKU or stock keeping unit refers to individual packages which can be same or different products. For example, a shampoo sachet of a particular brand and a 100 ml bottle of the same product from the same brand are two SKUs.
However, he clarified that NAA is not a price regulator and companies are at will to increase prices post any reduction in GST rates but it should be justified.
While responding to a query, Sharma said that any price increase which occurs just immediately after a rate reduction would “attract trouble”.
“There can be rise in inputs costs and other factors which may require revision of price but it can’t be that your input prices go up on the very midnight when GST rates are slashed”, he said.
He suggested that the benefits occurring on account of lowering of GST rates should be practised right from the supplying and manufacturing stage.
Several companies form the FMCG, pharmaceuticals and other sectors are under the NAPA scanner on account of alleged tax evasion or non-compliance to the anti-profiteering clause in GST.