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L’Oreal India Pvt Ltd Vs. union of India And Ors.

Case Title

L’Oreal India Pvt Ltd Vs. Union of India And Ors.

Court

Delhi  High Court

Honourable judges

Justice Manmohan

Justice Dinesh Kumar Sharma

Citation

2022 (10) GSTPanacea 682 HC Delhi

W.P.(C) 969/2020

Judgment Date

06th October 2022

The accompanying writ petition has been filed challenging the order dated 23rd June 2022, passed by Respondent No.2 in order No. 26/2022, and the notice dated 1st June 2022. The petitioner also seeks to challenge Section 171 of the CGST Act, Chapter XV of the CGST Rules, more particularly Rules 126, 127, and 133 of the CGST Rules, as unconstitutional, ultra vires, and violative of Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. The learned senior counsel for the petitioner submitted that the National Anti-Profiteering Authority (NAA) lacks suo moto powers, and therefore, the application filed by the Secretary, NAA, to the Standing Committee seeking initiation of proceedings under Section 171 is not a valid initiation of proceedings against the petitioner for examining whether there is any profiteering or not. He contended that the NAA is not netting the benefit of rate reduction extended in some products against those where the petitioner has not extended the benefit of rate reduction by way of commensurate reduction in prices, thus, while being punished for non-compliance in some areas, the petitioner is not being rewarded for compliance in others. He stated that although in some products they have not been able to grant commensurate reduction in prices, they have attempted to pass on the benefit by increasing the grammage of the product. Additionally, he highlighted that the petitioner has provided post-sale discounts (Ex.GST) amounting to Rs.73.59 crores, and argued that this amount should be deducted from the total profiteered sum. The contention is that the punitive measures being applied by the NAA do not take into account the overall impact of the petitioner’s actions, failing to recognize efforts to comply with the spirit of the law by compensating for the lack of price reductions through other means, such as increased product quantity or substantial post-sale discounts. This argument underscores the complexity of applying anti-profiteering rules and the need for a more nuanced approach that considers all factors influencing the pricing and sale of products under the GST framework. The petitioner’s challenge to the constitutional validity of the CGST provisions and rules highlights broader concerns about the balance between regulatory oversight and business autonomy, questioning whether the current framework adequately protects the rights of businesses while ensuring consumer benefits from tax rate reductions are passed on effectively.

Learned senior counsel for the petitioner further contended that the increase in customs duty on certain products should be excluded from the calculations. He supported this argument with illustrations showing that when comparing invoices issued from 15th November 2017 to 30th November 2017 with those raised in March 2018, the actual sale price per unit, including GST, had remained the same during both periods. He also argued that the amount of profiteering attributable to GST collected should be excluded. On the other hand, learned counsel for the NAA contended that Section 171 of the GST Act confers broad powers on the NAA to examine “any supply of goods or services” by any registered person to determine whether the reduction in the tax rate or the benefit of input tax credits has been passed on to the recipient through a commensurate reduction in prices. He argued that while the rules provide a mechanism for recipients, interested parties, or a Commissioner to make a written application in a prescribed form for examination by the Standing Committee and the Screening Committee, this procedure does not limit the original power conferred on the NAA by Section 171. He maintained that the NAA retains the authority to examine whether the benefits of input tax credits or tax rate reductions have been passed on appropriately. He emphasized that the statutory term “any” should be given its broadest possible interpretation, indicating inclusivity of “all” or “every” instance. He argued that the NAA’s authority includes the ability to initiate investigations in the larger interest of consumers and the public, and the argument that the NAA lacks suo moto powers to do so should be rejected. This discourse highlights the fundamental legal contention over the scope and execution of the NAA’s mandate under the GST framework, with significant implications for the balance between regulatory oversight and the operational freedoms of businesses. The petitioner’s position questions the inclusivity of customs duty considerations and the role of collected GST in profit calculations, advocating for a more nuanced approach that reflects the actual business scenario. Conversely, the NAA’s stance underscores its broad regulatory mandate aimed at ensuring consumer benefits from tax rate reductions are effectively realized, stressing the importance of comprehensive oversight in maintaining fair market practices.

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