Abbott Healthcare Private Limited & ... vs Union Of India & Ors. on 29 January, 2024

1. Outcome

The Delhi High Court upheld the constitutional validity of Section 171 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) and Rules 122, 124, 126, 127, 129, 133, and 134 of the Central Goods and Services Tax Rules, 2017 (CGST Rules, 2017). The Court clarified that while the statutory provisions are valid, individual orders passed by the National Anti-Profiteering Authority (NAA) may be challenged on merits if there is an arbitrary exercise of power.

2. Core Issue

The core issue was the constitutional validity of the anti-profiteering provisions under Section 171 of the CGST Act, 2017, and related Rules, specifically challenging them on grounds of:
* Lack of legislative competence of Parliament.
* Excessive delegation of essential legislative functions.
* Vagueness and ambiguity of terms like "commensurate reduction."
* Violation of fundamental rights, including the right to trade (Article 19(1)(g)) and property (Article 300A), by acting as a price-fixing mechanism.
* Absence of a fixed time period for price reduction.
* Lack of appellate mechanism and judicial oversight.
* Improper composition of the National Anti-Profiteering Authority (NAA) due to absence of judicial members and scope for governmental interference.
* Ultra vires imposition of interest and penalty through rules.
* Illegal expansion of investigation beyond the scope of the complaint.
* Incorrect comparison of pre-GST and post-GST taxes.

3. Key Facts

• A batch of writ petitions was filed by companies across diverse sectors (hospitality, FMCG, real estate) challenging the anti-profiteering provisions.
• The petitioners had been issued notices proposing or orders imposing penalties by the NAA for allegedly not passing on the benefit of reduced tax rates or Input Tax Credit (ITC) to consumers.
• The petitioners contended that the transition to GST, while intended to benefit consumers, led to arbitrary application of anti-profiteering measures.
• Specific concerns were raised regarding the methodology adopted by the NAA/DGAP for the real estate sector, arguing it led to inconsistent benefits for similarly placed flat-buyers.
• Petitioners also highlighted issues with rounding off prices for low-value FMCG products under Legal Metrology rules, making exact "commensurate reduction" challenging.
• The Union of India, through its various departments, and an Amicus Curiae, defended the constitutional validity of the provisions, emphasizing consumer welfare and legislative intent behind GST.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Petitioners):
* Legislative Competence & Excessive Delegation: Section 171 and rules are beyond Parliament's power under Article 246A; they are in the nature of tax/financial exaction without explicit statutory authorization for subordinate legislation. They suffer from excessive delegation as essential legislative functions (like defining "commensurate reduction" and methodology) are delegated to the Executive and then to NAA without clear guidelines, violating Articles 14 and 19(1)(g).
* Vagueness & Arbitrariness: The terms "commensurate" and "profiteering" are undefined, granting unfettered discretion to NAA. NAA's inconsistent approaches across industries and products (e.g., real estate methodology) prove its arbitrariness.
* Price-Fixing: The provisions amount to price-fixing, violating Article 19(1)(g) (right to trade) and Article 300A (right to property), as they disregard other commercial factors affecting pricing (input costs, demand-supply, etc.).
* Indefinite Obligation: No fixed time period for maintaining reduced prices, leading to indefinite obligations, which is arbitrary and unreasonable.
* Modes of Benefit Passage: Mandating only price reduction as a mode to pass benefits is arbitrary; other methods like increasing grammage (accepted previously by NAA) should be allowed.
* No Appeal Mechanism: Absence of a statutory appellate mechanism against NAA orders signifies lack of judicial oversight, making the law unconstitutional.
* NAA Composition: Rule 124 (appointment/terms) and Rule 122 (constitution) are not in consonance with Article 50, allowing governmental interference. Absence of a judicial member in NAA, a quasi-judicial body, renders it illegal, citing Supreme Court precedents on tribunal composition.
* Penalty & Interest: Levy of penalty and interest under Rules 127 and 133 is ultra vires without corresponding substantive provisions in the Act. Section 171(3A) introducing penalty is retrospective.
* Comparison of Taxes: Section 171 applies only to GST rate reductions/ITC under the CGST Act, 2017, not to a comparison with a basket of pre-GST indirect taxes, which is impractical due to state-wise variations.
* Illegally Constituted NAA: NAA was constituted by an administrative order, not a gazetted notification as required by Section 171(2) read with Section 2(80) and Section 166.
* Investigation Scope: DGAP illegally expanded investigation beyond the original complaint scope.
* Rounding off: Legal Metrology rules make it impossible to pass on minute benefits for low-priced FMCG products.

Revenue (Respondents) & Amicus Curiae:
* Legislative Competence: Section 171 falls "with respect to" GST under Article 246A, which includes all ancillary, incidental, and necessary matters, thus within Parliament's competence. It's a consumer welfare measure, not a taxing provision.
* No Excessive Delegation: The legislative policy is clear: benefits of tax reduction/ITC must be passed on via commensurate price reduction. "Commensurate" has a clear meaning (suitable, proportionate). Minutiae can be delegated. Rule 126 allows NAA to determine methodology, which is permissible, and NAA has issued guidelines.
* Consumer Welfare & Unjust Enrichment: The provisions prevent unjust enrichment by suppliers, ensuring tax revenue foregone by the government benefits consumers, aligning with DPSP (Articles 38, 39(b) & (c)).
* Not Price-Fixing: Section 171 concerns only the indirect-tax component of price, not the base price, allowing suppliers flexibility to set prices based on commercial factors. It's a regulatory measure for tax compliance, not a market intervention.
* No Fixed Time Period: Given the dynamic nature of commercial factors, a fixed time period for reduced prices is impractical and not required by the Act's intent. The obligation exists as long as the tax benefit accrues.
* No Vested Right to Appeal: Appeal is a creature of statute; its absence does not render the provision unconstitutional, especially when judicial review under Article 226/227 is available.
* No Judicial Member Required: NAA performs fact-finding and quasi-judicial functions, but it does not replace traditional courts. Not every quasi-judicial body requires a judicial member.
* Penalty & Interest Valid: Section 171 is wide enough to imply penalty and interest. Section 164 of the Act empowers the government to make rules for penalties. Penalty proceedings for periods prior to Section 171(3A) introduction have been withdrawn, making that aspect infructuous. GST collected on profiteered amounts is rightly included.
* Comparison of Taxes: The anti-profiteering mechanism inherently requires comparing pre-GST and post-GST tax burdens (including ITC) to assess the impact of the new regime on pricing, aligning with the "One Nation One Tax" objective.
* Validly Constituted NAA: NAA was constituted by notification under Rule 122, which was gazetted and laid before Parliament, fulfilling statutory requirements.
* Expansion of Investigation: Section 171 and Rule 129 ("any supply of goods or services") permit DGAP to expand investigations beyond specific complaints to ensure full compliance and consumer protection.
* Time Limits Directory: Time limits for DGAP reports are directory, not mandatory, as the rules provide no consequence for non-compliance and the objective is consumer welfare.

5. Court’s Reasoning

The High Court systematically addressed each challenge:

• Presumption of Constitutionality: The Court emphasized that there is a strong presumption of constitutionality for statutes, especially economic and tax laws, which are viewed with greater latitude.
• Legislative Competence (Article 246A): Held that "with respect to goods and services tax" in Article 246A is broad enough to include ancillary and necessary matters like anti-profiteering measures. Section 171 aims to prevent unjust enrichment from tax revenue foregone by the government for consumer welfare, thus falling within this legislative domain. It aligns with Directive Principles of State Policy (Articles 38, 39(b), 39(c)).
• Excessive Delegation:
  • Found Section 171 to be a "complete code" with a clear legislative policy: benefits of tax reduction/ITC must be passed on by "commensurate reduction in prices." The term "commensurate" is clear and understood by courts in various contexts.
  • The power delegated to the Central Government to prescribe NAA's powers/functions (Section 171(3)) and then to NAA itself to determine methodology (Rule 126) is not excessive delegation. Parliament retained oversight through Section 166 requiring rules to be laid before it. The principle of delegatus non potest delegare does not apply as the delegation was intended.
  • Acknowledged that specific methodologies cannot be uniform across all industries due to varying facts. NAA's flexibility to determine methodology case-by-case, so long as it's fair and reasonable, is valid.
• Not Price-Fixing (Article 19(1)(g) & 300A):
  • Clarified that Section 171 is not a price-fixing mechanism. It only addresses the tax component of the price. Suppliers remain free to set base prices based on commercial factors.
  • The obligation is to pass on the actual saving in tax to the consumer. Any increase in base price due to commercial factors must be genuinely justified and not a pretext to circumvent the anti-profiteering mandate. This is a rebuttable presumption.
  • Rejected reliance on foreign anti-profiteering laws (Australia, Malaysia) as they were primarily price control mechanisms, unlike Section 171.
• Modes of Benefit Passage: Upheld that price reduction is the mandated method. Other forms like increasing grammage or discounts are not contemplated by the express provisions and would dilute the consumer's right to direct benefit.
• Legal Impossibility for FMCG: Ruled that Legal Metrology (Packaged Commodities) Rules, 2011, which allow rounding off MRP to the nearest rupee or 50 paisa, enable price reduction even for low-priced products, so no "legal impossibility" exists.
• Indefinite Obligation: Agreed that no fixed time period is feasible for the application of reduced prices. The obligation exists as long as the direct relation between tax reduction/ITC benefit and prices exists, without offsetting factors.
• Section 64A of Sale of Goods Act: Held it inapplicable as it confers discretion on the buyer, while Section 171 imposes a positive obligation on the supplier. GST laws are independent, and contracts violating public policy (consumer benefit) would be void.
• Possibility of Abuse: Reiterate that a statutory provision cannot be struck down merely on the hypothetical possibility of abuse of power; the remedy lies in challenging individual arbitrary orders on merits.
• Comparison of Pre-GST and Post-GST Taxes: Rejected the argument that Section 171 does not allow comparison with pre-GST indirect taxes. Doing so would defeat the core intent of the GST regime, which subsumed various taxes to eliminate cascading effects and benefit consumers.
• No Vested Right to Appeal: Reaffirmed that an appeal is a creature of statute, and its absence does not invalidate the enactment. Decisions of NAA are subject to judicial review under Article 226/227, which provides sufficient oversight.
• NAA Composition (Judicial Member): Held that NAA's functions are primarily fact-finding and domain-expert driven. It does not replace any judicial function previously exercised by courts. Therefore, a judicial member is not a constitutional requirement for NAA. The reliance on precedents for tribunals supplanting High Courts was distinguished.
• Governmental Interference (Rule 124): Found Rule 124 in consonance with Article 50. Selection and termination processes for NAA members involve the Goods and Services Tax Council (a constitutional body), which safeguards against undue governmental interference.
• Penalty and Interest (Rule 133): Ruled that Section 171 is broad enough, read with Section 164 (power to make rules, including for penalties), to allow for the levy of interest and penalty. These provisions act as a necessary deterrent against profiteering. The issue of retrospective penalty under Section 171(3A) was deemed infructuous as such notices had been withdrawn. Inclusion of GST collected on the additional realization in the profiteered amount was also upheld.
• Time Limits for DGAP Report: Held that the time limits prescribed for DGAP reports in Rule 129(6) are directory, not mandatory, as no consequences for delay are specified, and strictly enforcing them would harm consumer welfare.
• Expansion of Investigation: Upheld DGAP's power to expand investigation beyond the initial complaint. The broad wording "any supply of goods or services" in Rule 129(2) allows for comprehensive investigation, supported by Supreme Court precedents on similar investigative powers in other regulatory bodies (e.g., Competition Act).

6. Statutory References

• The Constitution of India:
  • Article 14 (Equality before law)
  • Article 19(1)(g) (Freedom to practice any profession, or to carry on any occupation, trade or business)
  • Article 38 (State to secure a social order for the promotion of welfare of the people)
  • Article 39(b) (Distribution of material resources to subserve common good)
  • Article 39(c) (Prevention of concentration of wealth)
  • Article 50 (Separation of judiciary from executive)
  • Article 245 (Extent of laws made by Parliament and by the Legislatures of States)
  • Article 246 (Subject-matter of laws made by Parliament and by the Legislatures of States)
  • Article 246A (Special provision with respect to goods and services tax)
  • Article 254 (Inconsistency between laws made by Parliament and laws made by the Legislatures of States)
  • Article 279A (Goods and Services Tax Council)
  • Article 300A (Persons not to be deprived of property save by authority of law)
  • Article 226 (Power of High Courts to issue certain writs)
• Central Goods and Services Tax Act, 2017:
  • Section 2(62) (Definition of "input tax")
  • Section 2(63) (Definition of "input tax credit")
  • Section 2(80) (Definition of "notification")
  • Section 2(108) (Definition of "recipient")
  • Section 9 (Levy and collection)
  • Section 57 (Goods and Services Tax Consumer Welfare Fund)
  • Section 122 (Penalty for certain offences)
  • Section 164 (Power of Government to make rules)
  • Section 166 (Laying of rules and regulations before Parliament)
  • Section 171 (Anti-profiteering measure) and its sub-sections (1), (2), (3), (3A)
• Central Goods and Services Tax Rules, 2017:
  • Rule 122 (Constitution of the Authority)
  • Rule 124 (Appointment, salary, allowances and other terms and conditions of service of the Chairman and Members of the Authority)
  • Rule 126 (Power to determine the methodology and procedure)
  • Rule 127 (Duties of the Authority)
  • Rule 129 (Initiation and conduct of proceedings)
  • Rule 133 (Order of the Authority)
  • Rule 134 (Decision to be taken by the majority)
• Other Acts:
  • Finance Act, 2019, Section 112
  • Sale of Goods Act, 1930, Section 64A
  • Legal Metrology Act, 2009
  • Legal Metrology (Packaged Commodities) Rules, 2011, Rules 2(m), 6(1)(e)
  • Customs Tariff Act, 1975, Section 9A
  • Competition Act, 2002, Section 19(3)
  • Insolvency and Bankruptcy Code, 2016
  • Central Excise Act
  • Service-Tax statute
  • Sales-tax Acts
  • Securities and Exchange Board of India Act, 1992, Section 4(1)
  • Income Tax Act, 1961
  • All-India Services Act, 1951
  • Tribunal Reforms (Rationalisation and Conditions of Service) Ordinance, 2021
  • Finance Act, 2017, Sections 184, 186(2)

7. Precedents Cited

• By Petitioners:
  • Ahmedabad Urban Development Authority v. Sharakumar Jayantikumar Pasawala, (1992) 3 SCC 285
  • V.V.S. Sugars v. Govt. of A.P., (1999) 4 SCC 192
  • Ramesh Birch vs. Union of India, 1989 Supp SCC 430
  • Barium Chemicals Ltd. & Ors. v Company Law Board & Ors., AIR 1967 SC 295
  • Madras Bar Association v. Union of India, (2015) 8 SCC 583
  • Madras Bar Association v. Union of India, (2010) 11 SCC 1
  • L. Chandra Kumar v. Union of India, (1997) 3 SCC 261
  • Indian Carbon Limited v. State of Assam, (1997) 6 SCC 479
  • Shree Bhagwati Steel Rolling Mills v. CCE, 2015 (326) E.L.T. 209 (SC) (also 2016 (3) SCC 643)
  • CIT vs. B.C. Srinivasa Setty, (1981) 2 SCC 460
  • CCE vs. Larsen & Toubro Ltd., (2016) 1 SCC 170
  • Ankit Kumar Bajoria vs. M/s Hindustan Unilever Ltd., Case No.20/2018 (NAA order)
  • Vatika Limited, Case No. 64/2019 (NAA order)
  • Emaar MGF Land Ltd, Case No. 26/2020 (NAA order)
• By Respondents / Amicus Curiae / Court's Reasoning:
  • Pioneer Urban Land and Infrastructure Ltd. vs. Union of India, (2019) 8 SCC 416
  • State of M.P. v. Rakesh Kohli, (2012) 6 SCC 312
  • R. K. Garg v. Union of India, 1981 (4) SCC 675
  • Steelworth Ltd. vs. State of Assam, [1962] Supp (2) SCR 589
  • Gopal Narain vs. State of U.P., [AIR 1964 SC 370]
  • Ganga Sugar Corp. Ltd. vs. State of U.P., [(1980) 1 SCC 223]
  • Lohia Machines Ltd. vs. Union of India, (1985) 2 SCC 197
  • Pt. Banarsi Das Bhanot vs. State of Madhya Pradesh, AIR 1958 SC 909
  • Sita Ram Bishambher Dayal vs. State of U.P., (1972) 4 SCC 485
  • Bhatnagars & Co. Ltd. vs. Union of India, AIR 1957 SC 478
  • Mohmedalli and Ors. vs. Union of India and Ors., AIR 1964 SC 980
  • M.K. Papiah vs. Excise Commr., (1975) 1 SCC 492
  • McDowell & Co. Ltd. v. CTO, (1985) 3 SCC 230
  • Diwan General and Sugar Mills Pvt. Ltd. & Ors. vs. Union of India, AIR (1959) SC 626
  • Union of India vs. Cynamide India Ltd., (1987) 2 SCC 720
  • Madras Bar Association v. Union of India & Anr., (2021) SCC OnLine SC 463
  • M. Ramnarain (P) Ltd. v. State Trading Corpn. of India Ltd., (1983) 3 SCC 75
  • Gujarat Agro Industries Co. Ltd. v. Municipal Corpn. of the City of Ahmedabad, (1999) 4 SCC 468
  • CCI v. SAIL, (2010) 10 SCC 744
  • Union of India vs. R. Gandhi, (2010) 11 SCC 1
  • Rojer Mathews vs. South Indian Bank, (2019) SCC OnLine SC 1456
  • Clariant International Ltd. & Anr. vs. Securities and Exchange Board of India, (2004) 8 SCC 524
  • Namit Sharma vs. Union of India, (2013) 1 SCC 745 (initial judgment)
  • Union of India vs. Namit Sharma, (2013) 10 SCC 359 (review judgment)
  • Namit Sharma vs. Union of India, (2013) 1 SCC 745
  • Hinsa Virodhak Sangh v. Mirzapur Moti Kuresh Jamat, [(2008) 5 SCC 33]
  • Govt. of A.P. v. P. Laxmi Devi, [(2008) 4 SCC 720]
  • Union of India vs. VKC Footsteps India (P) Ltd., 2021 SCC OnLine SC 706
  • Re The Delhi Laws Act, AIR (1951) SC 332
  • Welfare Association, A.R.P., Maharashtra Vs. Ranjit P. Gohil, (2003) 9 SCC 358
  • Chaturbhai M. Patel v. Union of India, [AIR 1960 SC 424]
  • R.S. Joshi, Sales Tax Officer, Gujarat & Ors. vs. Ajit Mills Limited & Anr., (1977) 4 SCC 98
  • Sahni Silk Mills (P) Ltd. v. ESI Corpn., (1994) 5 SCC 346
  • D.S. Grewal v. State of Punjab, 1958 SCC OnLine SC 9
  • Maganlal Chhaganlal (P) Ltd. Vs. Municipal Corporation of Greater Bombay & Ors., (1974) 2 SCC 402
  • Collector of Customs v. Nathella Sampathu Chetty, 1962 SCC OnLine SC 30
  • Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536
  • State of Rajasthan v. Union of India, [(1977) 3 SCC 592]
  • Commr., H.R.E. v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954 SCR 1005]
  • Dhanjibhai Ramjibhai vs. State of Gujarat, (1985) 2 SCC 5
  • Chairman & MD, BPL Ltd. vs. S.P. Gururaja and Ors., (2003) 8 SCC 567
  • Dr.Ashwani Kumar vs. Union of India, (2020) 13 SCC 585
  • P.T. Rajan Vs. T.P.M. Sahir and Ors., (2003) 8 SCC 498
  • Excel Crop Care Ltd. vs. Competition Commission of India, (2017) 8 SCC 47
  • Cadila Healthcare Ltd. & Anr. vs. CCI & Ors., (2018) SCCOnline Del 11229
  • Kondiba Dagadu Kadam v. Savitribai Sopan Gujar, (1999) 3 SCC 722
  • Kashmir Singh v. Harnam Singh, (2008) 12 SCC 796
  • Wing Commander Shyam Naithani vs. Union of India and Ors., W.P.(C) 6483/2021 & connected matters, 2022 SCC OnLine Del 769
  • United Commercial Bank Ltd. v. Their Workmen, AIR 1951 SC 230
  • UP Power Corporation Ltd. v. Virenddra Lal, (2013) 10 SCC 39
  • Shiv Shakti Coop. Housing Society v. Swaraj Developers, (2003) 6 SCC 659
  • P.K. Chinnasamy v. Govt. of T.N., (1987) 4 SCC 601
  • Centre for PIL v. Housing & Urban Development Corpn. Ltd., (2017) 3 SCC 605
  • Dinesh v. State of Rajasthan, (2006) 3 SCC 771
  • Vimala (K.) v. Veeraswamy (K.), (1991) 2 SCC 375