FMCG giant faces massive fine

Massive fine of INR 90 crore slapped on Nestle

Nestle, a prominent player in the FMCG field was slapped with a huge fine of INR 90 crore by the NAA (National Anti-Profiteering Authority) after its questionable GST rate-cut methodology came under fire. The MNC recieved the fine on charges that it was not passing on the benefits of the rate-cut to it's consumers.

The move was described by the NAA as, "illogical, arbitrary, and illegal, which has resulted in unfairness and inequality while passing on the benefit of tax reduction".

The brand is prominent in the Indian market due to its ownership over several FMCG companies like Maggi, for noodles; Milkybar, for chocolates; Nescafe, for coffee and so forth. As such, the FMCG giant had already deposited INR 16.5 crore towards the Consumer Welfare fund but the brand's illegal move in regards to the rate-cut policy has resulted in the requirement of an additional INR 73 crore to be paid within the next 3 months.

The benefit of rate reduction was originally meant to be distributed among all SKUs (Stock Keeping Units) but Nestle was accused of not distributing the benefits to some SKUs while showing preferential treatment to other SKUs under it. 

The benefits of reduction in income tax credit should have originally been passed on to the recipients by means of reduction in prices as per the Anti-Profiteering rules under GST. However, Nestle failed to do so, thereby resulting in the offense.

When approached by the Business Standard, Nestle India's spokesperson responded to the issue by refuting the issue raised by the NAA and claiming that the benefits from the GST rate-cut had indeed been passed on to the subsidiary SKUs. Furthermore, he added that SKUs where the benefits were not applicable were skipped over but their benefits had been added to other SKUs. For instance, as the benefits of the rate reduction could not be added to single serve Nescafe packs worth INR 2 and Maggi packets worth INR 5; they had instead been added to other products in the same category but with different pack sizes.

Nestle further added that the information regarding the rate-cut benefits had already been provided to the NAA but had been rejected by the body on grounds of the methodology adopted by the brand, being unacceptable in the eyes of the NAA.

The GST committee had lowered the rates of over 175 products as of November 2017 and the FMCG giant had been slapped with the massive fine as a consequence of indulging in profiteering instead of passing on the benefits.