Introduction
The Goods and Services Tax (GST) regime in India incorporates Section 171 of the Central Goods and Services Tax (CGST) Act, 2017, which mandates that any reduction in the tax rate or the benefit of Input Tax Credit must be passed on to the recipient by way of a commensurate reduction in prices. Organizations across the supply chain, including manufacturers and distributors, are obligated to ensure that these benefits reach the ultimate consumer. The Principal Bench of the Hon’ble GST Appellate Tribunal (GSTAT), New Delhi, recently addressed a critical dispute regarding whether a distributor can shift the blame to a manufacturer for failing to reduce prices after a GST rate cut. The ruling in DGAP v. Raj & Co. reported in [2025] 34 Centax 69 (Tri. – GST – Delhi) underscores the independent accountability of distributors in anti-profiteering matters.
Analysis of the Case
The case originated from a complaint filed with the Secretary National Anti-Profiteering Authority (hereinafter “NAA”), alleging that M/s Raj & Co. (hereinafter “the respondent”), a distributor for M/s L’Oreal India Pvt. Ltd., failed to pass on the benefit of a GST rate reduction on cosmetic products. Effective November 15, 2017, the GST rate on these items was reduced from 28% to 18% vide Notification No. 41/2017 – Central Tax (Rate). That the proceedings arose consequent to a reduction in the applicable rate of GST on the subject goods, during which period the Respondent-distributor continued to supply the goods at prices which, on comparison with the pre-rate reduction pricing, reflected no commensurate decrease. The investigation was therefore initiated to examine compliance with the mandate of Section 171 of the CGST Act. That upon scrutiny of the pricing data, invoices, and transactional records, it was observed that despite the tax rate reduction, the base price charged by the Respondent remained substantially unchanged, resulting in retention of the tax benefit which ought to have been passed on to recipients by way of price reduction. That during the course of adjudication, the Respondent sought to justify the pricing pattern by contending that the prices were determined through manufacturer-controlled software systems and that it lacked independent authority to effect downward revision of prices. The said explanation was examined in light of the contractual terms governing the distributorship arrangement. That the Hon’ble Tribunal, upon consideration of the material on record, concluded that the Respondent possessed sufficient commercial flexibility under the governing agreement, including the ability to extend discounts or sell below the recommended price, and therefore held that the continued pricing without commensurate reduction squarely attracted the mischief of profiteering. Despite this reduction, the investigation by the Director General of Anti-Profiteering (DGAP) revealed that the distributor increased the base price of products, thereby keeping the Maximum Retail Price (MRP) unchanged. For the period between April 1, 2018, and December 31, 2018, the DGAP determined that the distributor had profiteered an amount of ₹3,31,879 by not commensurately reducing selling prices.
Issue before the Hon’ble GSTAT
Whether the Respondent, i.e., M/s Raj & Company, a distributor of M/s. L’oreal India Pvt. Ltd profiteered an amount of Rs. 3,31,879/- only, by not passing the benefit of reduction in the Rate of GST for the product sale, from 28% to 18% with effect from 15.11.2017, for the period 01.04.2018 to 31.12.2018?
Core Contentions of the Respondent
The distributor respondent, raised two primary defense to contest the allegations of profiteering:
- Manufacturer Control via Software: The Respondent contended that all sales were processed through L’Oreal’s proprietary software, “Suvidha,” which fixed the rates and left no scope for manual manipulation or price changes by the distributor.
- Double Jeopardy: The Respondent argued that since L’Oreal India Pvt. Ltd. had already been penalized and found guilty of profiteering for the same period, penalizing the distributor would amount to a duplication of the profiteered amount.
Clarification on the Distributor Autonomy
The GSTAT rejected these contentions, emphasizing the independent legal status of the distributor under the GST framework:
- Discretion to Offer Discounts: Upon reviewing the Distribution Agreement, the Hon’ble Tribunal noted that while the manufacturer sets the MRP, the distributor is expressly entitled to sell products at prices lower than the MRP and offer discounts at its own discretion.
- Independent Supplier Responsibility: The Hon’ble Tribunal held that as a separately registered entity under GST, the distributor is an independent supplier. Therefore, the distributor cannot blame the manufacturer’s software for its own failure to fulfill the statutory obligation under Section 171.
- No Duplication of Profiteering: The DGAP clarified that profiteering by the manufacturer was calculated based on its sales to the distributor, whereas the distributor’s profiteering was calculated based on its subsequent sales to ultimate consumers. Thus, there was no doubling of the confirmed amount.
GSTAT's Final Ruling
That the Hon’ble Tribunal has categorically held that where a reduction in the rate of tax is not accompanied by a commensurate reduction in prices, an initial presumption of profiteering legitimately arises under Section 171 of the CGST Act. In the present case, the Respondent failed to adduce any cogent, clear, and unambiguous material sufficient to rebut such presumption, thereby attracting the finding of contravention. That the Hon’ble Tribunal further recorded that the Respondent-distributor enjoyed adequate commercial and contractual discretion, including the authority to extend discounts or revise prices downward. In view thereof, the defence premised on adherence to the manufacturer’s pricing policy or system-driven price fixation was expressly rejected as untenable, it being held that internal commercial arrangements cannot dilute or override statutory obligations. The Respondent was directed to:
- Deposit the profiteered amount of ₹3,31,879 into the Consumer Welfare Fund.
- Pay interest at the rate of 18% p.a. from the date of collection until the date of deposit.
AMLEGALS Remarks
That ruling unequivocally holds that the obligation to pass on the benefit of tax rate reduction under the anti-profiteering framework is non-delegable. The Hon’ble Tribunal observed that each registered supplier in the supply chain bears an independent statutory responsibility to ensure commensurate price reduction. A distributor cannot evade such obligation by attributing pricing control to the manufacturer or to software systems. The Hon’ble Tribunal further records that the Respondent-distributor possessed sufficient legal and commercial discretion under the governing distribution agreement, including the authority to offer discounts or sell below the recommended price. In these circumstances, the defence that prices were fixed through manufacturer-controlled software was expressly rejected as untenable, the Hon’ble Tribunal holding that such internal arrangements do not dilute statutory duties. Consequently, in the admitted position of GST rate reduction and absence of any commensurate reduction in selling price, the Hon’ble Tribunal held that an initial presumption of profiteering validly arose in favour of the investigating agency. In the absence of cogent rebuttal, the Respondent was found guilty of contravention of Section 171 and directed to deposit the determined profiteered amount along with applicable interest.
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