Sharma Trading Company Vs Union of India & Ors. (Delhi High Court)
The petitioner, Sharma Trading Company, a distributor of Hindustan Unilever Ltd. (HUL), challenged the constitutional validity of Section 171 of the Central Goods and Services Tax Act, 2017 (CGST Act) and Rule 126 of the CGST Rules, 2017. These provisions form the backbone of the anti-profiteering mechanism under GST, mandating that businesses pass on benefits of tax rate reductions or input tax credits to consumers through commensurate price reductions.
The company also challenged an order of the National Anti-Profiteering Authority (NAPA) dated 7 September 2018, which held that the petitioner had profiteered by failing to reduce the price of Vaseline VTM 400 ml after GST was reduced from 28% to 18% with effect from 15 November 2017.
Constitutional Challenge
The Court noted that the issue of constitutional validity had already been decided in Reckitt Benckiser India Pvt. Ltd. v. Union of India (2024), where Section 171 and related Rules were upheld. The Court in Reckitt Benckiser held that:
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Section 171 was a consumer welfare measure and not arbitrary.
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The scope of investigation under Rule 129 was broad, allowing the Director General of Anti-Profiteering (DGAP) to examine any supply of goods or services, even beyond the original complaint.
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The benefit of reduced tax rates or ITC must be passed on strictly as price reduction, not through free products, extra quantity, or promotional schemes.
The Court relied on Excel Crop Care Ltd. v. CCI (2017) 8 SCC 47 and Cadila Healthcare Ltd. v. CCI (2018 SCC OnLine Del 11229) to emphasize that investigation powers of statutory authorities are not confined to the complaint alone.
Accordingly, Sharma Trading’s constitutional challenge was rejected.
