Procter & Gamble , Johnson & Johnson in dock for ‘profiteering’ from pads

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The government has launched an anti-profiteering investigation against the makers and the suppliers of top sanitary pad brands Whisper, Stayfree and Sofy for allegedly not passing due benefits of tax cuts on to consumers Acting on prima facie evidence, the Director General of Anti-Profiteering (DGAP) has started the investigation against sanitary pad manufacturers Procter & Gamble (P&G) and Johnson & Johnson (J&J) among others, sources said, adding that the suppliers are also being probed. “The standing committee functioning under the National Anti-Profiteering Authority (NAA) has referred the case to the DGAP for detailed investigation after finding prima facie evidence of profiteering against the sanitary pad makers. It has found merit in the complaints received from consumers as well as field,” a government source told DNA Money.

 “As per the initial evidence, the benefit of the tax cut on sanitary pads announced by the Goods and Services Tax (GST) Council in July was not entirely passed on to consumers by these firms,” said another source. The tax rates on sanitary pads were cut from 12 per cent to nil which became applicable from July 27. However, contrary to the expectation that the prices would be cut by 12 per cent, rates were reduced by a mere 2.5 per cent to 6.5 per cent. “We have not received any notice from the authorities on this,” a P&G spokesperson said in an e-mail reply. The key players in the Rs 4,500-crore sanitary pad market have argued that it is difficult to pass on the benefit of the entire 12 per cent to consumers in absence of input tax credit on raw material.

“We have already passed on the benefits arising out of the exemption of GST to all our customers and have reduced prices on our products in Stayfree, Carefree napkins and OB tampons with effect from July 27 itself. FIHA, the industry body representing the companies in the sanitary napkins category in India, has consistently highlighted that the exempt status of the finished product of sanitary napkins from GST effectively denies input tax credit to companies on the inputs that go into the manufacturing, distribution and promotion of these products in India. As a result, companies in this area will only be able to pass on to the customers the net benefit of this exemption. Our position is consistent with that of FIHA…,” a J&J spokesperson said in an e-mail response, adding that the firm has not received communication in this regard.

The GST anti-profiteering rules provide for passing on the benefits of GST rate cuts to the recipient by way of a commensurate reduction in prices, irrespective of whether firms get input tax credit or not. The DGAP has to submit its investigation report to the anti-profiteering watchdog NAA within maximum six months. The final decision to levy a penalty will be taken by the NAA after hearing the firms as well as the complainants in the case.

The NAA is the adjudicating body set up by the government to monitor whether the reduction or the benefit of input tax credit is reaching consumers by way of appropriate reduction in prices. The NAA has the authority to order the business concerned to reduce the prices and return the undue benefit availed by it along with interest to the recipient of the goods or services. If the undue benefit cannot be passed on to the recipient, it can ask the firm to transfer the amount to the Consumer Welfare Fund. In extreme cases, the NAA can impose a penalty on the defaulting business entity or can cancel its registration under GST.

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