Pricing strategies of 50 companies under NAA lens

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The anti-profiteering body under the goods and services tax framework is seeking details on pricing strategies from consumer goods companies and over-the-counter (OTC) drug makers to check whether they have passed on the benefits of reduced GST rates to consumers.

National Anti-profiteering Authority (NAA) has issued letters to various companies including Mankind Pharma, Johnson & Johnson, Nirma and Colgate Pamolive in the last few weeks, questioning their pricing strategies, people familiar with the matter told ET.

A prominent Ayurveda-focused FMCG company, too, was asked for an explanation, sources said.

“The focus is on sectors that directly impact the consumers, like FMCG, pharma and real estate,” said a person with direct knowledge of the matter.

“Letters seeking details were issued to at least 50 companies in last week alone, and sales heads of these companies were asked to give details of their cost accounting,” the person said. In the past, some companies, including Patanjali Ayurved, Hindustan Unilever (HUL), Procter & Gamble (P&G), Nestle and Hardcastle Restaurants, had been either slapped with a fine or questioned for apparently failing to pass on the benefits of a tax rate reduction to consumers.

Industry insiders said many companies are finding it difficult to first calculate the amount of benefits accrued due to GST.

In some cases, they said, companies had offered discounts on old stocks when GST was introduced. These discounts were later discontinued. Hence there was not much difference in retail prices when GST rates were cut, they said.

“Calculating how much benefits should be passed on to customers due to GST is proving difficult for several companies as in some cases discounts were being offered on products which were merely discontinued and due to which prices remained unchanged,” said Sachin Menon, national head, indirect tax, at KPMG India. “Also there are different views on whether companies can pass on the benefits in kind — that is, increase the grammage,” he said.

Many companies, including some of the biggest FMCG and pharma players, claim that while they had passed on the benefits of GST, often the retailer or wholesaler had not done so.

“Elongated supply chains spanning across manufacturers, distributors, wholesalers, retailers, modern trade, etc. make it difficult for manufacturers to ensure that the benefits of rate reductions are passed on in respect of pipeline stock to consumers,” said M S Mani, partner at Deloitte India.

CALCULATION TROUBLE
Industry insiders said many companies are finding it difficult to first calculate the amount of benefits accrued owing to goods and services tax.