Full Text
HIGH COURT OF DELHI
Date of Decision: 23rd September, 2025
SHARMA TRADING COMPANY .....Petitioner
Through: Mr. Vipul Agrawal, Nodal Counsel.
Through: Mr. Kumar Visalaksh, Mr. Arihant Tater, Mr. Ajitesh Dayal Singh and Mr. Saurabh Dugar, Advs.
Mr. Ripudaman Bhardwaj, CGSC
Mr. Ruchesh Sinha, SSC/ Nodal Counsel
JUDGMENT
1. This hearing has been done through hybrid mode.
2. The present petition has been filed by the Petitioner– M/s Sharma Trading Company, who is a distributor of M/s Hindustan Unilever Limited (hereinafter, ‘HUL’). The petition challenges Section 171 of the Central Goods and Service Tax Act, 2017 (hereinafter, ‘the Act, 2017’) and the corresponding Rule 126 of the Central Goods and Service Tax Rules, 2017 (hereinafter, ‘the Rules, 2017’) on the ground of being unconstitutional, ultra vires of Article 14 and Article 19 of the Constitution of India.
3. In addition, the petition also challenges the order dated 7th September, 2018 (hereinafter, ‘the impugned order’) passed by the National Anti- Profiteering Authority (hereinafter, ‘NAPA’), as also the Investigation Report dated 16th March, 2018 furnished by the Director General of Anti-Profiteering under Rule 129 (6) of the Rules, 2017.
4. The Coordinate bench of this Court, vide judgment dated 29th January, 2024 in a batch of matters with the lead matter being W.P.(C)7743/2019 titled Reckitt Benckiser India Pvt. Ltd. v. Union of India upheld the Constitutional validity of Section 171 of the Act, 2017 and Rules 122, 124, 126, 127, 129, 133 and 134 of the Rules, 2017. While deciding the said cases, the Court observed that the specific orders, which have been passed in each of the matters have to be adjudicated on merits. The relevant portions of the said judgment are set out below:
on matters not covered by the complaint or the reference order of the Commission, and an interpretation to the contrary would render the entire purpose of investigation nugatory. The High Court of Delhi in Cadila Healthcare Ltd. &Anr. vs. CCI & Ors., (2018) SCCOnline Del 11229, relying on the judgment of the Supreme Court in Excel Crop Care (supra) has clarified in express terms that the scope of investigation by the Director General is not restricted to the matter stated in the Complaint and includes other allied as well as unenumerated matters. Consequently, the expansion of investigation or proceedings beyond the scope of the complaint is not ultra vires the statute.
ACKNOWLEDGMENT
162. Before parting with the present batch of matters, this Court places on record its appreciation for the assistance rendered by all the learned counsel, who appeared, in particular, Mr. Amar Dave, learned Amicus Curiae, Mr. V. Lakshmikumaran and Mr. Zoheb Hossain, Advocates as they filed not only multiple written submissions but also ensured that hearing in the present batch of matters (exceeding 100 cases) was conducted in an orderly and proper manner.
TO SUM UP
163. Keeping in view the aforesaid conclusions, the constitutional validity of Section 171 of Act, 2017 as well as Rules 122, 124, 126, 127, 129, 133 and 134 of the Rules, 2017 is upheld. This Court clarifies that it is possible that there may be cases of arbitrary exercise of power under the anti-profiteering mechanism by enlarging the scope of the proceedings beyond the jurisdiction or on account of not considering the genuine basis of variations in other factors such as cost escalations on account of which the reduction stands offset, skewed input credit situations etc. However, the remedy for the same is to set aside such orders on merits. What will be struck down in such cases will not be the provision itself which invests such power on the concerned authority but the erroneous application of the power.”
5. Thus, insofar as the prayer for striking down the said provisions of the Act, 2017 and Rules, 2017 is concerned, the same would no longer survive before this Court.
6. On facts, however, the matters have to be examined separately. Before proceeding to do so, it would be relevant to note that NAPA, which was originally notified under the Act, 2017 was thereafter substituted by the Competition Commission of India (hereinafter, ‘CCI’) vide Notification NO. 23/2022- Central Tax dated 23rd November, 2022. When this Notification was issued, the various provisions of the Rules, 2017 were omitted/amended.
7. Thereafter, vide Notification No. 18/2024 dated 30th September, 2024, the Principa Bench of the GST Appellate Tribunal has now been empowered to discharge the functions which were earlier being discharged by NAPA. The said Notification No. 18/2024 is as under:-
8. The Court is now informed that the Anti Profiteering Wing of the Principal Bench of GST Appellate Tribunal has now been constituted and is looking into anti profiteering matters.
9. It is also brought to the notice of this Court that vide another Notification No. 19/2024– Central Tax issued on 30th September, 2024, the cut-off date has been fixed as 1st April, 2025, as the date from which the Authority referred to in Section 171 of the Act, 2017, is not to accept any request for examination of anti-profiteering. Thus, it is only complaints prior to 1st April, 2025 that can be considered by the Principal Bench of GST Appellate Tribunal, insofar as antiprofiteering complaints are concerned.
10. Coming to the facts of the present case, the background of the case is that the Petitioner is a partnership firm and is engaged in the business of sale of goods as a distributor. It is a stockist of HUL and deals with various products, one of which is Vaseline VTM 400 ML (hereinafter, ‘the subject product’).
11. It is a matter of common knowledge that the GST Regime came into effect from 01st July, 2017. In respect of the subject product, initially, the GST payable from 01st July, 2017 was 28%. Thereafter, Notification No. 41/2017- Central Tax (Rate) was issued on 14th November, 2017, amending the rate of GST from 28% to 18%.
12. At the time when these reductions took place, anti-profiteering measures were introduced to ensure that the benefit of reduction in rates of GST or the benefit of input tax credit would be passed on to the consumer by way of commensurate reduction in the rate/price. The anti-profiteering measures were thus meant to be in public interest to avoid unjust enrichment by manufacturers, retailers and other goods and service providers.
13. A complaint was filed against the Petitioner in respect of the subject product, stating that the Petitioner continued to charge the same amount, despite the reduction in rate of GST. This complaint was considered by the NAPA, which was the competent authority at the relevant point of time to deal with such complaints. Thereafter, the Investigation Report dated 16th March, 2018 was furnished by the Director General of Anti-Profiteering under Rule 129 (6) of the Rules, 2017.
14. Vide the impugned order, NAPA held that the Petitioner had profiteered by not passing on the benefit availed by the reduction in GST rates to the consumers. NAPA came to such a conclusion after analysing the factual position in the case. The same is evident from a perusal of the impugned order, which reads as under:
Respondent. The same price was charged by him on all the transactions made by him between 15.11.2017 to 7.12.2017. The base price was reduced by Rs. 2/- w.e.f. 8.12.2018 by the HUL after which sale price of Rs. 211.82/- was charged by the Respondent whereby there was excess realisation of Rs. 12.11/- per unit. The Respondent has further admitted that he had sold 10 units of the product to the Applicant NO. 1 vide invoice No. GSA25066 dated 26.9.2017 on which the base price was charged as Rs. 166.90/- and the sale price including the GST @ 28% was realised as Rs. 213.63/-. It is also acknowledged by the Respondent that he had sold 20 units of the product to the above Applicant vide invoice No. GSA37782 dated 15.11.2017 in which the base price was shown as Rs. 181.05/- and the selling price was Rs. 213.63/and hence the base price was enhanced by Rs. 14.15/- per unit by the Respondent. It has further been acknowledged by the Respondent that the above Applicant had purchased 11 units of the product from the Respondent vide invoice No. GSA42046 dated 28.11.2017 in which again an amount of Rs. 14.15/- per unit was over charged from him. The Respondent was also aware that the rate of tax had been reduced from 28% to 18% w.e.f. 15.11.2017 on the above product which has been correctly charged by him in the above 3 tax invoices issued by him to the above Applicant. Therefore, it is established from the record as well as the admission of the Respondent himself that he had resorted to profiteering by increasing the base price in violation of the provisions of Section 171 of the above Act and had thus not passed on the benefit of reduction in the rate of tax by commensurately reducing the price of his product rather the base price was increased by him exactly by the same amount by which the tax had been reduced. The Respondent has claimed that the HUL had changed the base price in its software and hence he was bound to charge the increased base price at the time of issuing invoices. However, the Respondent being a registered dealer having GSTIN 08AAEFS7072E1Z[4] under the CGST/SGST Acts 2017 was fully aware of the reduction in the rate of tax of the product issued vide Notification NO. 41/2017- Central Tax (Rate) dated 14.11.2017, with effect from 15.11.2017 and Section 171 of the above Act and hence he was legally bound not to charge the enhanced base price resulting in negation of the effect of reduction in the rate of tax and thus he cannot escape his accountability of passing on the benefit of the reduction in the rate of tax to his customers. The Respondent has also not produced any evidence to show that he had objected to the increase made by the HUL in the base price or under what provisions of the above Acts he was bound to follow the instructions given to him by the HUL vide it's letter dated 21.11.2017, vide which the excess amount of ITC was credited by him to the HUL in respect of the above product, in contravention of the provisions of Section 171 of the Act and also charge the increased base price. Thus it is established that he had profiteered to the extent of Rs. 5,50,370/- on account of the increased base price charged by him including GST from 15.11.2017 to 31.1.2018 as has been mentioned in the table shown in para 6 supra. It has also been proved that the Respondent had profiteered an amount of Rs. 184/- @ Rs 16.69/- per unit including GST @ 18% by supplying 11 units of the product to the Applicant No. 1 on 28.11.2017, therefore, he has violated the provisions of Section 171 of the above Act.”
15. The findings in the impugned order, as can be seen above is that the Maximum Retail Price (hereinafter, ‘MRP’) of the subject product continued to remain the same, i.e., Rs. 213/- prior to and after the reduction of GST rates on 14th November, 2017. A perusal of the figures stated in the impugned order would show that the base price which was earlier Rs.158.66 per unit was increased to Rs.172.77 per unit after the reduction in GST. Thus, the benefit availed due to the reduction in rate of GST by 10% was not passed on to the consumers and the base price was in fact increased by Rs. 14.11/-.
16. This was thus held by NAPA to be contrary to Section 171 of the Act, 2017 and hence, NAPA came to the conclusion that penalty would be liable to be levied upon the Petitioner.
17. Accordingly, in the impugned order, the profiteered amount has been determined as Rs.5,50,186/- which has been directed to be deposited to the consumer funds, along with interest at 18%. The relevant portion of the impugned order is further extracted herein below:
18. In addition, NAPA has also proposed to impose penalty upon the Petitioner for the profiteering. The operative portion on this issue is as under:
19. Challenging the finding in impugned order, ld. Counsel for the Petitioner has argued that the grammage/quantity of the subject product was increased by 100 ml after the change in GST Rates on 14th November, 2017 and therefore, the amount charged by the Petitioner would be justified, in as much as if the quantity of the subject product increases, the price can also be increased.
20. The Court has considered this submission and is of the opinion that the same would not be a valid stand. In Reckitt Benckiser (supra) is concerned, it has been categorically observed 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 relevant observations are as under:
on to the consumer. In Dr.Ashwani Kumar vs. Union of India, (2020) 13 SCC 585, the Supreme court has held as under:-
131. In the present instance, 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.
132. Further, 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, cannot be said to be manifestly arbitrary. No fundamental or other rights of any of the petitioners are being affected in any manner by requiring that the benefit in reduction of tax rate or Input Tax Credits, be passed on to the recipients by way of commensurate reduction in prices.
133. This Court is in agreement with the submission of Mr. Zoheb Hossain, learned counsel for the Respondents, that the benefit of tax reduction has to be passed on at the level of each supply of SKU to each buyer and in case it is not passed on, the profiteered amount has to be calculated on each SKU.
134. The contention of the learned counsel for the Petitioners that it is legally impossible to pass on the benefits by reducing the price of goods in cases of low priced products is untenable in law. As pointed out by Mr.Zoheb Hossain, learned counsel for the Respondents, the provisions of the Legal Metrology (Packaged Commodities) Rules, 2011 are applicable. In cases for period prior to 31st December, 2017, the erstwhile Rule 2(m) of the Legal Metrology (Packaged Commodities) Rules, 2011 which provided detailed instructions for rounding off of the MRP would be applicable. Similarly, Rule 6(1)(e) of the above Rules as amended in 2017 with effect from 01st January, 2018 to 31st March, 2022 provides that the retail price of the package shall clearly indicate that it is the MRP inclusive of all taxes and the price in rupees and paise be rounded off to the nearest rupee or 50 paise would be applicable. Consequently, there would be no legal impossibility in reducing the MRP even in such cases. There is nothing inconsistent in Section 171 with such rounding off.”
21. While commercial realities have to be taken into consideration in such matters, 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.
22. In this case, the stock which was lying with the Petitioner of 1288 units was the oldest stock, prior to the notification of 14th November, 2017. Some explanation is sought to be given by the Petitioner for not reducing the price, by relying upon some scheme that had been launched by them, wherein the subject product was given with a Dove soap bar as a free product. The said scheme has been illustrated by the Petitioner in the petition in following manner:
23. In the opinion of this Court, the rationale behind reduction in GST rates is to ensure that the consumer gets the benefit of the said reduction. A deadline, once fixed by way of notifications, cannot be sought to be violated merely on the ground that some special scheme is being launched or the product is being sought to be given free with some other product or the grammage or the quantity of the product is being increased.
24. This Court is of the opinion that all schemes which may have been in operation, ought to have been recalibrated with the reduction in GST rates. There may be some transitional problems, 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 term MRP means `Maximum Retail Price’ and thus sale below the said price is permissible. It is only sale above the said price which is impermissible. But to ensure that the GST benefit is not passed on, 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.
25. Further, while the constitutional validity of the provisions of the 2017, Act, as also the concurrent Rules, 2017, including Section 171 has already been upheld by the judgment of Reckitt Benckiser (supra), this Court wishes to further press upon the legislative intent and rationale behind the said provision, as also the anti-profiteering regime.
26. Section 171 of the Act, 2017, read with Chapter XV of the Rules, 2017, both titled as ‘Anti-Profiteering Measure’, stipulate the structural mechanism and functions of the three-tier Anti-Profiteering Authorities. Section 171(2) provides for the constitution of ‘National Anti-Profiteering Authority’. In consonance with the Act, 2017, the Rules specify provisions regarding the composition of the authority inter alia, other functions imperative for its functioning.
27. The anti-profiteering measures enshrined in the GST law provide an institutional mechanism to ensure that the full benefits of input tax credits and reduced GST rates on supply of goods or services flow to the consumers. This institutional framework comprises of the ‘authority’ under Section 171.
28. Hence, in the event the ‘authority’ confirms there is a necessity to apply anti profiteering measures, it has the power to order the supplier / business concerned to reduce its prices or 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 be ordered to be deposited in the Consumer Welfare Fund. In extreme cases, the ‘authority’ can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.
29. Thus, it is clear that the purpose of the ‘anti-profiteering mechanism’ is to safeguard consumers' interests and guarantee that businesses would transfer the benefits of lower tax rates and input tax credits to the final consumers.
30. In light of the above discussion both on facts as also on law, this Court is of the opinion that the impugned order deserves to be upheld. Accordingly the amount of Rs. 5,55,126/- shall be transferred to the Consumer Welfare Fund.
31. At this stage, it is submitted on behalf of the Petitioner that the said amount was already deposited in the account of Directorate General of Anti Profiteering, New Delhi, and the same was converted into FDR in terms of the order dated 6th December, 2018, passed by this Court. The proof of deposit has also been furnished by the Petitioner. Let the same be taken on record.
32. In view thereof, let the amount realized from the FDR be transferred to the Consumer Welfare Fund. The details of the account are set out below: Account Name – Central Bank of India Account Number – 3000058471 IFSC – CBIN0282169
33. Insofar as the imposition of penalty is concerned, the penalty proceedings would not be applicable in view of the observation of the Court in Reckitt Benckiser India (P) Ltd. (supra) which is as under:
154. Section 164 of the Act, 2017 gives power to the Government to make rules for carrying out provisions of the Act and in particular to provide for penalty. Section 164 of the Act, 2017 is reproduced hereinbelow:-
in respect of which provisions are to be or may be made by rules. (3) The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act come into force. (4) Any rules made under sub-section (1) or sub-section (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees.”
155. Accordingly, Rule 133(3)(b)&(d) of the Rules, 2017 which empower the authority to levy interest @ 18% from the date of collection of the higher amount till the date of the return of such amount as well as imposition of penalty are intra vires and within the Rule making power of the Central Government.
156. Moreover, as pointed out by Mr. Zoheb Hossain, the show cause notices initiating penalty proceedings in relation to violation of Section 171(1) prior to the coming into force of Section 171(3A), have been withdrawn by NAA and penalty proceedings in all such cases are not being pressed. Consequently, this issue has become infructuous.
34. Accordingly, the petition is disposed of in these terms. Pending applications, if any, are also disposed of.
PRATHIBA M. SINGH JUDGE SHAIL JAIN JUDGE SEPTEMBER 23, 2025/kp/ss (corrected and released on 26th September, 2025)