Delhi High Court orders Loreal to deposit profited principal amount

The Delhi High Court ordered Loreal to deposit the principal profited after deducting the GST imposed on the net profit in six equal installments.

The division bench of Judge Manmohan and Judge Dinesh Kumar Sharma observed that the amount of interest to be paid by the department as well as the sanction procedure and the investigation by the National Anti-Profit Authority (NAA) concerning other products sold by Loreal have been suspended until further orders .

The Court noted that under section 171, any benefit of a tax rate reduction or input tax credit on any supply of goods or services can only be through a proportional price reduction.

“Where a law clearly provides a way of doing something and an obligation is imposed on the supplier to extend the benefit of the price reduction by means of a proportional price reduction, the supplier cannot insist that instead of reducing prices, it will give extra grammage of the product,” the court said.

The petitioner, Loreal, challenged Article 171 of the CGST Law, Chapter XV of the CGST Rules, more specifically Rules 126, 127 and 133 of the CGST Rules as being unconstitutional, ultra vires and contrary to Articles 14, 19(1 ) (g), 265 & 300A of the Constitution of India.

The petitioner argued that the petition filed by the Secretary of the NAA with the Standing Committee requesting the commencement of proceedings under Section 171 was not a valid commencement of proceedings against the petitioner for purposes of consider whether there was profit or not.

The Petitioner argued that NAA was not recovering the benefit of the rate reduction because it had extended the benefit of the rate reduction to certain products as opposed to those for which the Petitioner had not extended the benefit of the reduction. of the rate to the products in question by means of a proportional price reduction. Therefore, while he is punished for being a “bad boy”, he is not rewarded for being a “good boy”.

The petitioner argued that although he was unable to grant a commensurate price reduction for certain products, he tried to pass on the benefit by increasing the weight of the product.

The petitioner requested that an increase in customs duties on certain products be excluded. In support of the argument, the petitioner has given certain illustrations from which it emerges that by comparing the invoices issued during the period from 15 November 2017 to 30 November 2017 with the invoice issued in March 2018, the actual sale unit price, including GST, remained the same in both periods. The GST profit collected by him should be excluded.

The NAA argued that Section 171 of the GST gives the NAA sweeping powers to review “any supply of goods or services” by any registered person and to review whether the reduction in the rate of tax or the benefit of input tax credits was passed on to the recipient through a proportional price reduction or not.

The ANA said that even assuming the rules provide a mechanism by which a beneficiary or other interested party or a commissioner can submit a written request in a prescribed form, it must be reviewed by the standing committee and the committee. Selection. However, this procedure does not in any way interfere with the original power conferred on the ANA by section 171, to examine whether the input tax credits granted to a registered person or the reduction of the tax rate on any supply of goods or services, have been passed on to the beneficiary through a proportional reduction in price or not. The NAA does not have suo moto authority to file a claim or initiate an investigation that would be in the overall interest of consumers and the public and therefore deserves to be denied.

The NAA argued that the petitioner had collected excess base prices from its customers, which they were not required to pay because of the reduction in the tax rate. The petitioner also forced them to pay additional GST on these excess base prices, which they should not have paid.

The court observed that section 171 is not an imputation or taxation provision. On the contrary, it is an incidental provision of the CGST/SGST laws aimed at ensuring the elimination of the cascading effect of taxation on the consumer. This further ensures that any benefit from a tax rate reduction or ITC benefit is passed on to the beneficiary without the intermediary benefiting from the government waiving its taxes for the end consumer.

The court was of the prima facie view that the after-sales rebate was not granted because of the reduction in the GST rate and, therefore, did not constitute a proportionate price reduction as required by section 171.

Case Title: Loreal India Private Limited v Union Of India

Reference: WP(C) 12557/2022

Citation: 2022 LiveLaw (Del) 941

Counsel for the applicant: lead lawyer Mukul Rohatgi with lawyers V. Lakshmikumaran, Karan Sachdev and Agrim Arora

Counsel for the Respondent: Lawyer Uma Prasuna Bachu

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