GST 2.0 lapses: FMCG products spark blame game between companies & distributors

New Delhi: Some lapses have emerged in passing the GST benefits to consumers in FMCG products, leading to companies and distributors blaming each other for the issues with select packs on certain channels even as the government plans action against erring firms and distributor partners. While some companies said the lapses and delays are at the distributors' end, distributors have alleged that some companies have selectively increased base prices of certain packs.

“Distributors can pass only what shows in the system from the companies’ end,” the chief of a large distributor entity told ET on the condition of anonymity. “A few large brands have increased base prices of some of their packs, which is not translating to lower prices,” the person alleged.

The lapses are particularly being called out in packs of Rs 20 and below, industry and trade executives said. Government officials said the Central Board of Indirect taxes and Customs (CBIC) may initiate action against brands and ecommerce platforms where base prices were raised after the goods and service tax (GST) rate cuts. There is enough provision in the law to initiate action, they added.

Also read: FMCG's magic price points do a disappearing act as GST 2.0 kicks in

Gaps Transitory
Executives at FMCG companies such as HUL, Colgate-Palmolive, Himalaya Wellness and Perfetti Van Melle said all benefits are being passed on to consumers and said any gaps with respect to new packs and pricing are transitory. Almost all big FMCG companies have released advertisements announcing new prices of stocks manufactured with reduced prices. “For a limited period, products with both the old and new MRPs may be available in the market, and consumers are advised to ask for revised MRPs before purchase,” said a spokesperson for Hindustan Unilever (HUL), India’s largest consumer goods company. “Trade partners have been communicated to ensure that the benefits of GST rate reductions are passed on to the end consumers.”

The maker of Lux soap and Brooke Bond tea said it has passed on GST benefits to consumers “by either reducing prices or providing higher weight/volume, as applicable, to avoid odd pricing and coinage-related challenges and to ensure pricing simplicity.”

India’s largest oral care company Colgate-Palmolive, too, said it implemented the price reduction and passed the full benefit to its channel partners on existing inventory effective September 22 when the new GST rates were rolled out. “Consumers should expect to see the new prices on our new market packs by early November," said Prabha Narasimhan, managing director of Colgate-Palmolive (India).

The Central Consumer Protection Authority (CCPA), which is monitoring consumer complaints, has forwarded about 2,000 complaints to the CBIC.


Lens on ecomm platforms
The Department of Revenue is likely to discuss the course of action at the start of the coming week, officials said.

A separate team from CBIC is examining transactions on ecommerce platforms, where a majority of grievances have been reported by consumers. Many said the reductions in GST did not lead to lower prices for daily essentials and grocery staples.

“Many large portals have upgraded the rate list according to the new tax regime, some problems are product specific,” an official said.

The Centre has already sent communications to about 800 brands and companies to fix the lapses before October 20, in cases where technical glitches and system upgrades are being blamed.

The distributor quoted above said a large number of regional FMCG brands are taking more time to align it to the new GST rates.

Price point trouble
On September 30, the Delhi High Court had said increasing quantity without reducing the MRP after GST cuts amounts to “deception”, as the purpose of tax cut is to make products and services more cost effective for 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,” the court ruling said.

This could pose a challenge for packs selling at popular price points. Company executives cited “practical difficulties” in price drops of low unit packs.

A spokesperson for Perfetti Van Melle India said its product portfolio is primarily anchored in widely accessible price points, particularly Re 1.

“We are passing on the benefits of the GST reforms across our entire portfolio, through price reduction in some products and increased grammage in others,” the person said.

Manish Mishra, partner and head - indirect tax at law firm JSA Advocates & Solicitors, said: “There are practical considerations which need to be factored, especially for the FMCG sector where price reduction may not always be feasible given that the goods on offer may be high on volumes but low in terms of per unit price.”

A spokesperson for Himalaya Wellness said it “has been proactive and transparent in implementing the GST rate reductions,” adding that the maker of Neem face wash and soap issued detailed circulars to all distribution partners ahead of the notifications.

“We have ensured our direct retail channels immediately reflect the new pricing structure and ensured that all the invoices from September 22 reflected the applicable GST 2.0 rate reductions,” the person said.