LOreal slammed with penalty for not slashing prices even after GST reduction, to make more profits

After initial hiccups, GST has become a part of life for businesses and consumers across India, as collection reached a peak of Rs 1.63 lakh crore in April this year. But along with that the spectre of tax frauds has also haunted authorities, as Rs 40,000 crore was lost to fake invoicing and GST scams last year. Earlier this month 16 insurance firms were busted for a Rs 800 crore GST fraud, and now global cosmetics brand LOreal has been fined for profiting off GST, despite rates being lowered.

Lower GST, higher prices blemish brand value

It turns out that the French-origin brand didn’t revise the prices of products such as shampoos and hair colour, even after the GST rates on them were reduced in 2017. By doing so LOreal failed to pass on benefits worth Rs 186.3 crore to its consumers, according to the National Anti-Profiteering Authority (NAA). Former Attorney General of India, Mukul Rohatgi was defending the company, and claimed that although prices weren’t slashed, the net weight was increased for the benefit of the consumers.

Court rejects technicalities

He also tried to get Rs 73 crore removed from the sum gained via profiteering on GST, arguing that it had been offered in post-sale discounts. But the court didn’t buy technicalities, and cited Section 171 of CGST Act, to point out that it was very clear on how the benefits of reduced tax rates must be passed on, and there was no room for different interpretations.

LOreal has been operating in India since 1994, and is the leading brand for hair colour with a 28 per cent market share, while it has also gained a 30 per cent market share in the men’s personal care segment. In FY22 alone, the brand has netted a profit of more than Rs 400 crore, as its sales remained undeterred by presence of cancer-linked chemicals in its cosmetics.