After GST Rate Cut, Non-Reduction Of Price Can't Be Justified By Secretly Increasing Product Quantity At Same MRP : Delhi High Court

The Delhi High Court has made it clear that when GST rates applicable on a given product are reduced by the GST Council, its benefit should trickle down to the end consumer by reduction in prices of such products.

A division bench of Justices Prathiba M. Singh and Shail Jain observed that letting manufacturers increase the quantity of the product while charging the same MRP will defeat the purpose of rate-cuts.

“The benefits extended to the consumer are also of utmost importance. The purpose of reduction in GST is to make products and services more cost effective for the consumers. The said purpose would be defeated if the price is kept the same and some unknown quantity is increased in the product, even without the consumer requesting for the increased quantity product,” it observed.

The Court was dealing with the petition filed by Sharma Trading Company, a distributor of M/s Hindustan Unilever Limited, in 2018 challenging action against it by the National Anti-Profiteering Authority, on a complaint that despite reduction in rate of GST on Vaseline product, the Petitioner(HUL distributor) continued to charge the same amount.

The HUL distributor argued that the quantity of the subject product was increased by 100 ml after the change in GST Rates and therefore, the amount charged by it would be justified.

The Court rejected this stand citing Reckitt Benckiser India Pvt. Ltd. v. Union of India (2024) where a coordinate bench has held that increase in volume or weight or supply of additional free material by any schemes would not be sufficient to satisfy the requirement of passing on the benefit availed to the consumers.

“The legislative mandate is that reduction of the tax rate or the benefit of Input Tax Credit must not only be reflected in reduction of prices but it must also reach the recipient of the goods or services. Such a mandate cannot be tampered with by the supplier by substituting the benefit in the form of reduction of actual price with any other form such as increase in volume or weight or by supply of additional or free material or festival discount like 'Diwali Dhamaka' or cross-subsidisation…the requirement that the benefit of the rate reduction and Input Tax Credit reach the final consumer by way of 'cash in hand' through commensurate reduction in prices…” it was held therein.

Treading on the same path, the High Court said while the manufacturers may face some transitional problems in view of pre-existing stock of old MRP, it added,

“however, the purpose of the reduction in GST rates cannot be defeated. Such problems are nothing but those for which the manufacturers and retailers ought to be prepared for. For eg., upon immediate reduction of GST rates, the product MRP may be the same, but the GST component has to be reduced, even if it means that the product is being sold for less than the MRP.”

The Court added,

“increasing the quantity of the product unknowingly and charging the same MRP is nothing but deception. The consumer's choice is being curtailed. The non-reduction of price cannot be sought to be justified on the ground that the quantity has been increased or that there was some scheme which justifies the increase in price. In the opinion of this Court, such an approach would defeat the entire purpose of reduction of GST rates and the same cannot be permitted.”

Appearance: Mr. Vipul Agrawal, Nodal Counsel for Petitioner; Mr. Kumar Visalaksh, Mr. Arihant Tater, Mr. Ajitesh Dayal Singh and Mr. Saurabh Dugar, Advs. Mr. Ripudaman Bhardwaj, CGSC with Mr. Kushagra Kumar and Mr. Amit Rana, Advs. Mr. Ruchesh Sinha, SSC/ Nodal Counsel with Ms. Upasn Vashisth, Adv. for Respondents

Case title: M/s Sharma Trading Company v. Union of India

Case no.: W.P.(C) 13194/2018