G.S.T. ON DISCOUNTED M.R.P: A BRIEF OVERVIEW

| 12 min read

Introduction: -

Ever faced improper levying of G.S.T. on the purchase of your clothes? Ever wondered whether ‘extra’ G.S.T. is applicable on any product offered on discount? Wondering whether G.S.T. will be applicable on a product on its M.R.P. after discount?

In the present article, I aim to provide a clear answer to the above questions many of us must have been confounded with. Since the inception of Goods & Services Tax (“hereinafter referred to as G.S.T.”) i.e. from 01st July, 2017, there has been a rather misconceived trend amongst many retail outlets to charge G.S.T on the net Maximum Retail Price (“hereinafter referred to as M.R.P.”) of a product being offered on certain percentage or amount of discount. In the present article we will delve into the correct definition and scope of some of the important terms surrounding such a scenario and the precise legality of such a practice.

Definition of M.R.P.: -

As per section 2 (f) of Consumer Goods (mandatory printing of cost of Production and Maximum Retail Price) Act, 2006 M.R.P. is defined as follows:

“2. …..

(f) “maximum retail price” means such price at which the product shall be sold in retail and such price shall include all taxes levied on the product.”

From the above definition, it is pretty clear that the M.R.P. of all the products is always inclusive of all kinds of statutory taxes leviable on the said product and hence M.R.P. is the maximum price at which a product can be sold. Any sale of the said product over and above the said M.R.P. is illegal and unlawful.

MRP Rules after Implementation of GST: -

Under the Consumer Goods (mandatory printing of cost of Production and Maximum Retail Price) Act, 2006, consumers cannot be charged more than the MRP mentioned on the packing of the products.

After the implementation of GST, prices of many products just got some changes from the previously followed structure. The government has revised the MRP rules for the businesses and Consumer Ministry has directed the businesses to paste the new stickers with fresh pricing.

Some of the broad guidelines relating to M.R.P. after introduction of G.S.T. are as follows:

  • If the price of the product has increased after GST imposition, the manufacturer of the said product needs to release an advertisement in at least two newspapers regarding the updated price;
  • Only the stocked products with the manufacturer are required to put on the advertisement. The new products coming after 1st July are not covered under the advertisement rule;
  • The advertisement rule is applicable for three months(1st July to 30th September, 2017) of implementation of GST;
  • If the price of the product has decreased after GST implementation, the manufacturer does not need to advertise regarding the reduced price on newspaper.
  • In both the cases, if price of product has increased or decreased, manufacturer is required to put the new sticker along with old sticker for the stocked products till 30th September, 2017 and for new products, the manufacturer will put only the revised price on the product.

The same practice also has to be followed by the manufacturers/sellers in case of an upward or downward revision of G.S.T. rates on any kind of goods/products that they already have in stock on the date of the revision.

Extra G.S.T. on Discounted M.R.P.: -

It has been seen to be a misconceived/deceitful trend among quite a few retailers of charge “extra” G.S.T. over and above the Net M.R.P. arrived at after offering discounts on certain products. However, such a practise is clearly in gross violation of law since M.R.P. is inclusive of all kinds of taxes (including G.S.T.) and no other tax on the said M.R.P is to be levied. As a natural corollary, no G.S.T will be applicable on the discounted M.R.P if the discount offered on the Maximum Retail Price of the product since the said M.R.P (on which discount is being offered) is already inclusive of G.S.T. (C. G.S.T. as well as S. G.S.T). Charging G.S.T on the net M.R.P. arrived at after giving the discount on the product, would clearly mean charging and collecting ‘extra G.S.T’ and amount to the legal plunder of “Double Taxation”. This amounts to Unfair Trade Practice as well as Deficiency in Service on the part of the retailer. It is also pertinent to note that most of the M.R.P. stickers on most of the products also say that the M.R.P. is inclusive of all taxes viz. M.R.P. Rs. 100/- (incl. of all taxes). In cases where the said inclusion or the M.R.P. is not expressly mentioned, application of G.S.T. on the ‘retail price’ will be lawfully justified. However, there still exists a gray area where the M.R.P of the product is mentioned but the indication ‘(incl. of all taxes)’ is not mentioned. It is unclear whether or not the M.R.P. will be considered to have been inclusive of G.S.T. or not. However, such is a rare case scenario. The most common scenario of such Unfair Trade Practice

Illustration: -

A goes to XYZ retail outlet and purchases a pair of jeans (on which say 18% G.S.T. rate is applicable) which bore the M.R.P. of Rs. 1000/- (incl. of all taxes). There was a discount of ‘Flat 50% Off’ offered on the said jeans. However, on the invoice, A was charged an amount of Rs. 59 instead of Rs. 50. The breakup of the invoice looked as follows:                   

PARTICULARS

AMOUNT

M.R.P.

Rs. 100/-

Discount 50%

Rs. 50/-

Net M.R.P.

Rs. 50/-

G.S.T. (18%)

Rs. 9/-

C. G.S.T.-Rs. 4.5/-

 

S. G.S.T.-Rs. 4.5/-

 

TOTAL

Rs. 59/-

 

In the above illustration charging a G.S.T of Rs. 9/- is grossly misconceived as the discount of Rs. 50/- is offered on the M.R.P. of the jeans which is inclusive of all taxes and hence will also include G.S.T. the net M.R.P arrived at, post-discount, will also be already consisting of G.S.T on the Net M.R.P. i.e. Rs. 50/-. Hence charging G.S.T. on the Net M.R.P. will be unlawful.

Also in an official FAQs on Relaxation of Legal Metrology (Packaged Commodities) Rules, 2011 for facilitation of implementation of the provisions of the GST Act and Rules clearly says that “The MRP on a pre-packaged commodity is inclusive of all taxes that can be levied from the consumer, including the GST.”

This has also been put to rest by the National Consumer Disputes Redressal Commission vide its judgment of Aero Club (Woodland) vs. Rakesh Sharma wherein the court in similar circumstances held the retailer guilty of Deficiency in Service as well as Unfair Trade Practice since the discount offered does not equal to the one actually received by the consumer and the retailer’s practice amounted to ‘Double Taxation’.

How to Complaint/Grievance Redressal: -

Consumers facing a grievance in the situation like above, have the following institutions to approach a lodge a complaint:

  • Consumer Disputes Redressal Forums (viz. Consumer Courts) established by the state government in every district lodging a complaint u/s 12 of the Consumer Protection Act, 1986 for Unfair Trade Practices u/s 2 (1) (r) and Deficiency in Service u/s 2 (1) (g) of the Act;
  • Anti-profiteering committee established under the GST Act, 2017.
  • CBEC MITRA help desk on 18001200232 operated by the Central Board of Excise & Customs under Ministry of Finance.
  • Any other local bodies if available.

Conclusion: -

At the end, it is clear that such a practice amounts to Deficiency in Service as well as Unfair Trade Practice by the retailers as it is equivalent to Double Taxation which is undoubtedly a legal plunder as per various provisions of relevant laws of our country. Unfortunately, a lot of well-known retailers still carry on the above said unfair practice wherein they continue to charge G.S.T on the discounted M.R.P. of various products offered by them on discount. Sadly, there is no check on such practices carried out by them on the part of the government and the only resort available to the consumers for justice is the judiciary but the same comes at a price of dragging through the litigation in consumer courts of the country for several months or years. The best that consumers can do is to stay aware of the provisions of G.S.T being inclusive of the M.R.P. and not extra G.S.T. can be levied on the net M.R.P. arrived at, post-discount.

 

By Mr. Chirag M. Bhatia, Advocate, Bombay High Court

Email: bhatia.chirag@hotmail.com

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
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