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Denying GST input credit, tax cut benefits: Decoy or actual customers, profiteering charge is difficult to stick

Fast moving consumer goods (FMCG) majors have been in the eye of storm charged with profiteering. The anti-profiteering authority constituted under the Goods and Services Tax Act, (GST) suspects Proctor & Gamble (P&G) of not passing on the benefits of the GST input credit and tax reduction on goods manufactured by it to the consumers to the tune of Rs 250 crore . Earlier, its competitor Hindustan Unilever (HUL) was in the dock for profiteering to a larger extent.

Now there are reports that the GST officials are going to fan out to different stores across the country as decoy customers, make a purchase of the product of a FMCG major suspected of profiteering, only to return the product forthwith. The sanction for this strategy is contained in the provision of the GST law that allows GST officials to buy and procure a bill (even a cancelled one will do) with a view to trapping the seller and hauling him over coals for profiteering.

One wonders about the wisdom of this law and strategy. Why return the goods post-haste and thus alert the seller who in turn might alert his brethren? After all, the government can afford to allocate a few rupees for such entrapment purchases, as it were. It should not grudge the officials a packet of detergent powder or biscuit!

 Denying GST input credit, tax cut benefits: Decoy or actual customers, profiteering charge is difficult to stick

Representational image. News18.

When Central Excise and Income-Tax officials could be rewarded with a percentage of the haul they catch even though they are only doing their duty, the GST officials should not be begrudged their small free purchases made at government expense. Be that as it may.

What about the local kirana stores who even today totes up the total purchases on a piece of paper that at best acts as a kachcha receipt? In the event, the GST officials would be perceived to be harassing FMCG majors selling through big retail stores — punishing the organised sector and leaving the unorganised alone. A kachcha bill may not stand legal or judicial scrutiny.

It is said the official purchases have become necessary in the light of consumer apathy — they are not coming out in large numbers with complaints of profiteering. Consumer's apathy is understandable given the fact that nobody will take the trouble of pursuing such complaints given small stakes. After all, a tube of toothpaste costing Rs 100 might have a GST component of say Rs 15. At any rate, discerning customers have learnt the art of buying from right places and at the right time. There are offers galore.

Use of a particular bank’s card at a particular retailer’s store begets a given percentage of discount. A particular store might give a substantial discount on purchase of a given volume in terms of overall bill. Bundled products also get them a substantial discount. The buy-one-get-two offers also lull the customers into complacency on the profiteering front.

Both HUL and P&G have been earnestly pleading that they do not profit and that there is bound to be a lag between rate cut on inputs or finished products. The passing on of the benefits accruing from such cuts to the consumers given the fact that at any point of time, there are huge quantities of unsold stock lying with millions of retailers across the country.

It is not humanly possible to instantly halt them in their tracks, ask them to paste a fresh sticker on the package or arrange for a return of the unsold packets to the factory for revised MRP. There is considerable merit in this argument. It is only on stocks awaiting dispatch from the factory as well as on future production such instant action can and should be taken.

Only petrol bunks and jewellers are amenable to herd practices in terms of pricing. Jewellers across the country maintain the same basic metal price scrupulously just as petrol bunks across a state maintain the same fuel prices. These two are unique if not esoteric products and thus amenable to such regimentation. The FMCG defies such regimentation by the sheer bewildering number of small traders strewn across the country with whom communication is difficult and instantaneous communication well-nigh impossible.

Even otherwise, profiteering is extremely difficult to prove. GST input credits and final duty are not the only counters or considerations in price fixation. There can be a wage hike. There can be increase in overheads. No businessman is bound to guard the price line except in industries hemmed in by price control. In this day and age, there is hardly any. Only competition can check avarice.

(The writer is a senior columnist and tweets @smurlidharan)

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Updated Date: Apr 26, 2019 16:52:43 IST