Unicharm India Pvt. Ltd. vs Union Of India & Ors. on 29 January, 2024

Here's a summary of the judgment Unicharm India Pvt. Ltd. vs Union Of India & Ors. on 29 January, 2024, structured as requested:

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), which deal with anti-profiteering measures. The Court clarified that while arbitrary exercise of power under these provisions could lead to individual orders being set aside on merits, the provisions themselves are not unconstitutional.

2. Core Issue

The core issue was the constitutional validity of the anti-profiteering provisions of the CGST Act, 2017 and CGST Rules, 2017, primarily challenged on grounds of legislative competence, excessive delegation, vagueness, violation of fundamental rights (including trade and property rights), lack of appellate mechanism, and flawed procedural aspects.

3. Key Facts

• A large number of writ petitions were filed by companies across diverse business sectors (e.g., hospitality, Fast-Moving Consumer Goods (FMCG), real estate) challenging the anti-profiteering framework.
• The petitioners had received notices proposing imposition or final orders imposing penalties from the National Anti-Profiteering Authority (NAA) for not passing on the commensurate benefit of tax rate reduction or Input Tax Credit (ITC) to consumers, along with interest.
• The Court decided to address the constitutional validity of the provisions first, before examining the merits of individual orders.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Petitioners):
* Legislative Competence: Argued that Section 171 is a tax/financial exaction beyond Parliament's power under Article 246A of the Constitution.
* Excessive Delegation: Contended that Section 171 and its Rules suffer from excessive delegation by delegating essential legislative functions (like determining methodology for profiteering) to the Executive/NAA without sufficient guidelines, violating the principle of 'delegatus non potest delegare'.
* Vagueness & Arbitrariness: Asserted that terms like "commensurate" and "profiteering" are vague, leading to unfettered discretion for NAA, and that the methodologies adopted (e.g., for real estate) were inconsistent and flawed, violating Articles 14 and 19(1)(g).
* Price-fixing: Maintained that Section 171 acts as a price-fixing mechanism, infringing upon their right to trade and business under Article 19(1)(g) and property rights under Article 300A, as it ignores commercial factors impacting pricing.
* Undefined Time Period: Highlighted the absence of a fixed time period for which reduced prices must be maintained, rendering the obligation indefinite.
* Mode of Benefit Transfer: Argued that mandating only price reduction is arbitrary, and other methods (like increasing grammage for FMCG products) should be allowed, especially given legal impossibility of minuscule price reductions due to rounding-off rules.
* Lack of Appellate Mechanism: Pointed out the absence of a statutory appeal against NAA orders, leading to lack of judicial oversight.
* Composition of NAA: Alleged that the NAA, performing quasi-judicial functions, lacks a judicial member, rendering its constitution illegal and violating Article 50. Also challenged the Chairman's casting vote provision in Rule 134(2).
* Constitution of NAA: Questioned the constitution of NAA via an administrative order rather than a gazetted notification as per Section 171(2) and 166.
* Limitation: Argued that DGAP reports and NAA orders were time-barred under Rules 129(6) and 133.
* Scope of Investigation: Contended that DGAP unlawfully expanded investigations beyond the scope of initial complaints.
* Levy of Penalty & Interest: Challenged the levy of penalty and interest under rules without specific substantive empowering provisions in the Act, arguing that Section 171(3A) introducing penalty was retrospective.
* Comparison of Tax Regimes: Submitted that Section 171 applies only to GST reductions, not a comparison between pre-GST (basket of indirect taxes) and post-GST rates.
* Section 64A Sale of Goods Act: Referred to Section 64A of the Sale of Goods Act, 1930, to argue that parties are free to agree on prices post-tax reduction.

Revenue (Respondents) & Amicus Curiae:
* Consumer Welfare & Legislative Intent: Emphasized that anti-profiteering measures are a consumer welfare initiative to ensure benefits of GST (ITC and rate reduction) are passed on, preventing unjust enrichment, and fulfilling Directive Principles of State Policy (Articles 38, 39(b), (c)).
* Legislative Competence: Stated that Section 171 is not a taxing provision but an ancillary/incidental measure to GST, falling well within Parliament's power under Article 246A (laws "with respect to" goods and services tax).
* No Excessive Delegation: Argued that Section 171 lays down a clear legislative policy ("commensurate reduction in prices") and that the power to determine methodology can be delegated to an expert body like NAA (Rule 126). Rules are subject to parliamentary oversight.
* Not Price-fixing: Explained that Section 171 only regulates the tax component of the price, not the base price, allowing suppliers commercial freedom. Any increase in base price to offset tax benefits could be scrutinized.
* No Fixed Time Period: Maintained that fixing a time period for price reduction is not feasible due to the dynamic nature of tax changes and market forces.
* Mode of Benefit Transfer: Asserted that "commensurate reduction in prices" implies direct price reduction; alternative methods like increasing grammage or offering discounts are not a substitute. Legal Metrology rules allow for appropriate price adjustments.
* No Right to Appeal: Argued that appeal is a statutory right, and its absence does not render the law unconstitutional, especially since judicial review under Article 226/227 is available.
* Composition of NAA: Contended that NAA is a fact-finding, quasi-judicial body with domain experts, not replacing a High Court, thus not mandating a judicial member. Highlighted that many other quasi-judicial bodies also lack judicial members. The casting vote is a common procedural device.
* Constitution of NAA: Clarified that NAA was duly constituted by notification via Rules, 2017, and laid before Parliament, satisfying statutory requirements.
* Time Limits are Directory: Argued that the timelines for DGAP reports and NAA orders are directory, not mandatory, given the beneficial nature of the legislation and the absence of consequences for non-adherence.
* Expansion of Investigation: Supported DGAP's power to expand investigations beyond initial complaints, citing wide wording of the Act and precedents from Competition Law.
* Levy of Penalty & Interest: Asserted that Section 171 (implicitly) and Section 164 (explicitly) empower the government to prescribe penalty and interest as necessary deterrents. Penalty notices for periods prior to Section 171(3A) were withdrawn.
* GST on Profiteered Amount: Argued that GST collected on the additional realization (the profiteered amount) is rightly included as it represents revenue the government intended to forgo.

5. Court’s Reasoning

• Principles for Constitutional Adjudication: Reiterated that a statute is presumed constitutional unless there's a clear transgression of legislative competence or fundamental rights. Economic laws are viewed with greater latitude, and the possibility of abuse is not a ground for striking down a law.
• GST as a Paradigm Shift: Acknowledged the consumer-centric nature of the CGST Act, 2017, aimed at simplifying taxes, eliminating cascading effects, and ensuring benefits reach consumers.
• Section 171 - Consumer Welfare & Unjust Enrichment: Held that Section 171 is a consumer welfare regulatory measure, embodying the principle against unjust enrichment. The amounts foregone by the government (tax reduction or ITC) must be passed on to consumers. "Commensurate" implies an equivalent or near-equivalent reduction in price, reflecting the actual tax saving. This objective aligns with Directive Principles (Articles 38, 39(b),(c)).
• Legislative Competence under Article 246A: Ruled that Section 171 falls within Parliament's legislative power under Article 246A ("with respect to goods and services tax"), as it is an ancillary and necessary aspect of the GST regime and a social welfare measure.
• No Excessive Delegation: Found that Section 171 sets out a clear legislative policy, providing sufficient "navigational tools" and checks. Rule 126, which allows NAA to "determine" methodology on a case-by-case basis (rather than "prescribe" a fixed one), is valid. The Rules being laid before Parliament ensures legislative control. The 'delegatus non potest delegare' principle does not apply.
• Not a Price-Fixing Mechanism: Concluded that Section 171 only pertains to the indirect-tax component of prices, not overall price fixation. Suppliers retain freedom to adjust base prices based on commercial factors, but any such adjustment must not be a pretext for retaining tax benefits. The presumption of price reduction is rebuttable with cogent justification for other cost increases.
• Foreign Law References Misconceived: Distinguished Australian and Malaysian anti-profiteering laws as being price control/profit regulation mechanisms, which differ from Section 171's focus on passing on tax benefits.
• No Fixed Methodology: Held that a fixed/uniform methodology for determining profiteering is impractical due to varying industry and case-specific facts. NAA must determine suitable methodology case-by-case.
  • Specific to Real Estate: While upholding the principle, the Court noted that NAA's current methodology (ITC to turnover ratio) for real estate might be flawed. It suggested a methodology of calculating total project savings due to GST and dividing by total area to arrive at a per-square-foot benefit for buyers, which would ensure equitable benefits. This would be considered during merits hearing.
• Legislature's Prerogative on Benefit Transfer: Affirmed that the Legislature has the prerogative to mandate the specific manner (commensurate price reduction) for passing on benefits. Other indirect methods like increasing grammage or offering discounts are not permissible alternatives under Section 171. Legal Metrology rules (for rounding off MRPs) make price reductions feasible.
• No Fixed Time Period: Agreed that fixing a specific time period for applying the reduced price is neither proper nor feasible, as the obligation exists as long as the tax reduction/ITC benefit persists and is not legitimately offset by other factors.
• Section 64A of Sale of Goods Act Inapplicable: Ruled that Section 64A of the Sale of Goods Act, 1930, which grants a buyer discretion to reduce the contract price, does not override Section 171 of the CGST Act, 2017, which imposes a positive obligation on the supplier. Contracts violating this public policy are void.
• Possibility of Abuse: Reaffirmed the principle that the possibility of abuse of statutory power is not a ground to strike down the provision itself; remedies exist to challenge individual instances of arbitrary application on merits.
• Comparison of Tax Regimes: Held that failing to compare pre-GST (basket of indirect taxes) with post-GST (single tax) would negate the fundamental intent of the CGST Act, 2017, which aimed to subsume multiple taxes and eliminate cascading effects.
• No Vested Right of Appeal: Concluded that the right to appeal is a creature of statute, and its absence does not render the law unconstitutional, especially when judicial review under Article 226/227 is available.
• No Judicial Member in NAA: Held that NAA is primarily a fact-finding body performing functions requiring domain expertise, and it does not displace any judicial function previously vested in High Courts. Therefore, the requirement for a judicial member (as applicable to tribunals replacing courts) does not apply. The casting vote provision was noted but not detailed, as it was stated to be unused. The constitution of NAA by notification was found to be valid.
• Rule 124 (Appointment of NAA Members): Found it in consonance with Article 50, as the selection committee is constituted by the Goods and Services Tax Council (a constitutional body), ensuring independence and preventing governmental interference.
• Rule 133 (Interest and Penalty): Held that Section 171 (implicitly) and Section 164 (explicitly) provide sufficient power to the Central Government to prescribe interest and penalty to deter profiteering, thus making Rule 133(3)(b) & (d) intra vires. The issue of retrospective penalty under Section 171(3A) became infructuous as NAA had withdrawn such notices.
• Inclusion of GST in Profiteered Amount: Upheld the inclusion of GST collected on the additional realization (profiteered amount) in the total profiteered amount, as it reflects the revenue foregone by the government for the benefit of consumers.
• DGAP Time Limit is Directory: Concluded that the time limits for DGAP to furnish reports are directory, not mandatory, as the Rules do not prescribe consequences for delay, and the anti-profiteering provisions are beneficial consumer welfare legislation.
• Expansion of Investigation Valid: Affirmed that the scope of investigation can extend beyond the initial complaint, given the wide wording of Section 171 and Rule 129, and precedents in competition law, to ensure the consumer welfare objective is not defeated.

6. Statutory References

• Constitution of India: Articles 14, 19(1)(g), 38, 39(b), 39(c), 50, 226, 245, 246, 246A, 254, 279A, 300A, Seventh Schedule.
• Central Goods and Services Tax Act, 2017: Sections 2(62), 2(63), 2(80), 2(108), 9, 57, 122, 164, 166, 171 (including sub-sections 171(1), 171(2), 171(3), 171(3A) and Explanation).
• Central Goods and Services Tax Rules, 2017: Rules 122, 124, 126, 127, 129, 129(6), 133, 133(1), 133(3)(b), 133(3)(c), 133(3)(d), 133(3)(e), 133(5), 134, 134(2).
• Other Acts/Rules: Sale of Goods Act, 1930 (Section 64A), Legal Metrology Act, 2009, Legal Metrology (Packaged Commodities) Rules, 2011 (Rules 2(m), 6(1)(e)), Competition Act, 2002 (Section 19(3)), Customs Tariff Act, 1975 (Section 9A), Finance Act, 2019 (Section 112), Insolvency and Bankruptcy Code, 2016, Central Excise Act, Service-Tax statute, Sales-tax Acts, Income Tax Act, 1961, Securities and Exchange Board of India Act, 1992 (Section 4(1)), Tribunal Reforms (Rationalisation and Conditions of Service) Ordinance, 2021, Finance Act, 2017 (Sections 184, 186(2)), All-India Services Act, 1951.

7. Precedents Cited

• Supreme Court of India:

  • 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
  • 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) / (2016) 3 SCC 643
  • 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
  • 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
  • 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
  • Dr.Ashwani Kumar vs. Union of India, (2020) 13 SCC 585
  • 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
  • Kondiba Dagadu Kadam v. Savitribai Sopan Gujar (1999) 3 SCC 722
  • Kashmir Singh v. Harnam Singh (2008) 12 SCC 796
  • Shiv Shakti Coop. Housing Society v. Swaraj Developers, (2003) 6 SCC 659
  • Namit Sharma vs. Union of India, (2013) 1 SCC 745
  • Union of India vs. Namit Sharma, (2013) 10 SCC 359 (review petition)
  • 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
  • Hinsa Virodhak Sangh v. Mirzapur Moti Kuresh Jamat [(2008) 5 SCC 33]
  • Govt. of A.P. v. P. Laxmi Devi [(2008) 4 SCC 720]
  • Morey v. Doud [1957 SCC OnLine US SC 105 : 1 L Ed 2d 1485 : 354 US 457 (1957)]
  • Secy. of Agriculture v. Central Roig Refining Co. [1950 SCC OnLine US SC 14 : 94 L Ed 381 : 338 US 604 (1950)]
  • Re The Delhi Laws Act AIR (1951) SC 332
  • 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
  • Dhanjibhai Ramjibhai vs. State of Gujarat (1985) 2 SCC 5
  • Chairman & MD, BPL Ltd. vs. S.P. Gururaja and Ors., (2003) 8 SCC 567
  • Union of India vs. VKC Footsteps India (P) Ltd., 2021 SCC OnLine SC 706
  • 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 : (1960) 2 SCR 362]
  • 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
  • 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
  • Clariant International Ltd. & Anr. vs. Securities and Exchange Board of India (2004) 8 SCC 524
  • Union of India vs. R. Gandhi, (2010) 11 SCC 1
  • Rojer Mathews vs. South Indian Bank, (2019) SCC OnLine SC 1456
  • State of Rajasthan v. Union of India [(1977) 3 SCC 592 : (1978) 1 SCR 1]
  • Commr., H.R.E. v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [1954 SCR 1005 : AIR 1954 SC 282]
  • United Commercial Bank Ltd. v. Their Workmen, AIR 1951 SC 230
  • UP Power Corporation Ltd. v. Virenddra Lal, (2013) 10 SCC 39
  • CIT vs. B.C. Srinivasa Setty (1981) 2 SCC 460
  • CCE vs. Larsen & Toubro Ltd. (2016) 1 SCC 170

• Delhi High Court:

  • Wing Commander Shyam Naithani vs. Union of India and Ors., W.P.(C) 6483/2021 & connected matters, 2022 SCC OnLine Del 769
  • Cadila Healthcare Ltd. & Anr. vs. CCI & Ors., (2018) SCCOnline Del 11229

• NAA Orders (cited by parties):

  • Ankit Kumar Bajoria vs. M/s Hindustan Unilever Ltd., Case No.20/2018
  • Vatika Limited, Case No. 64/2019
  • Emaar MGF Land Ltd, Case No. 26/2020