The Goods and Services Tax Appellate Tribunal (GSTAT) has ruled that instant noodle maker CG Foods, manufacturer of the Wai Wai brand, unlawfully profiteered ₹90.9 lakh ($1.1 million) by failing to pass on the benefit of a goods and services tax (GST) rate cut to consumers.
The tribunal directed CG Foods to deposit the profiteering amount into the Consumer Welfare Fund. It also ordered the company to submit a compliance report to tax authorities within four months.
The Delhi bench of the tribunal, in its order last week upheld findings by the Directorate General of Anti-Profiteering (DGAP) that the company increased base prices of instant noodles even after the GST rate on the product was reduced from to 12% from 18% with effect from Nov. 15, 2017.
The violation was found to have occurred between November 2017 and December 2018.
“The respondent has failed to establish any cogent basis for increasing the base prices of the subject goods despite the reduction of GST rate from 18% to 12%.”
Under Section 171 of the Central GST Act, businesses are required to pass on any reduction in tax rates or input tax credits to consumers by way of commensurate price reductions.
The tribunal cited invoice data showing that the post-tax commensurate price for a carton of Wai Wai Chicken Noodles should have been ₹226.66, while the company charged ₹237.57, treating the difference as excess recovery from buyers.
The company argued that it faced sustained cost pressures during the relevant period, including increases in wheat flour, palm oil, spices, packaging materials and freight costs. The company also said intense competition in the instant noodles market restricted pricing flexibility and noted that its maximum retail price (MRP) had not been raised.
Rejecting the defence, the tribunal held that most of the cited cost increases pre-dated the GST rate cut and could not justify a post-reduction increase in base prices. Relying on a Delhi High Court ruling in Reckitt Benckiser India Pvt Ltd v. Union of India, the bench said the company failed to establish any “cogent basis” for the price hike.
However, the bench declined to impose interest or penalties, noting that the statutory provisions enabling such levies came into force only after the period during which the violation occurred.
