Abbott Healthcare challenges anti-profiteering order; Delhi HC grants stay

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Case Name

Abbott Healthcare Private Limited & Anr. v. Union of India & Ors.

Court Name: High Court of Delhi at New Delhi

Case No.: W.P.(C) 4213/2019

Order dated: 24th April 2019

Key Takeaways

1. Anti-Profiteering Law Under Challenge: Abbott challenged the constitutional validity of Section 171 of the CGST Act, 2017 and Chapter 15 of the CGST Rules, 2017, specifically Rules 126, 127, and 133. This is a significant constitutional challenge to the entire anti-profiteering framework under GST.

2. NAPA’s Scope of Investigation Questioned: Abbott argued that NAPA went beyond its powers by proposing to investigate all products of the company, when the original complaint was only about one product — ‘Melaglow Rich’. This raises an important question about the limits of NAPA’s investigative powers under Rules 128, 129, and 133 of the CGST Rules.

3. Stay Granted: The Delhi High Court stayed further proceedings against Abbott pursuant to the NAPA order dated 5th March 2019.

4. Voluntary Payment Made: Abbott agreed to pay ₹96,59,716.26 (approximately ₹96.6 lakhs) along with applicable interest to the Central Consumer Welfare Fund within 10 days — but made it clear this was without prejudice to their legal rights.

5. Similar Cases Pending: The court noted that similar constitutional challenges were already pending before it in other cases, making this part of a broader legal battle over NAPA’s powers.

Issue

The central legal questions in this case are:

• Did NAPA have the authority to investigate ALL products of Abbott, when the complaint was only about ONE product (‘Melaglow Rich’)?
• Is Section 171 of the CGST Act and Chapter 15 of the CGST Rules (including Rules 126, 127, and 133) constitutionally valid?
• Was NAPA’s finding that Abbott issued incorrect invoices and committed an offence under Section 122(1)(i) of the CGST Act correct?

Facts

• The Complaint: A consumer named Mr. R.K. Gupta filed a complaint on 22nd January 2018 against Abbott Healthcare, alleging that Abbott had not passed on the benefit of GST rate reductions (which came into effect after 1st July 2017) to consumers on their product ‘Melaglow Rich’ — a skincare product.

• NAPA’s Order: The National Anti-Profiteering Authority registered the complaint as Case No. 15 of 2019 and passed an order on 5th March 2019, finding that Abbott had:

• Acted in contravention of the Central GST Act by issuing incorrect invoices
• Committed an offence under Section 122(1)(i) of the CGST Act, 2017
• Was liable for penalty under Section 122(1)(i) read with Rule 133(3)(d) of the CGST Rules, 2017

• NAPA Goes Further: Beyond the single product complaint, NAPA also proposed to investigate the pricing of ALL products of Abbott Healthcare — which Abbott found alarming and beyond NAPA’s powers.

• Abbott Goes to Court: Abbott Healthcare and its Director Mr. Susheel Umesh filed a writ petition before the Delhi High Court challenging the NAPA order and the constitutional validity of the anti-profiteering provisions.

• Abbott’s Undertaking: Before the High Court, Abbott’s senior counsel Mr. Mukul Rohatagi stated that Abbott had already undertaken before NAPA to pay ₹96,59,716.26 along with applicable interest — but only on the condition that there would be no further investigation and no further penalty. Abbott reiterated this commitment before the High Court, without prejudice to their legal rights.

Arguments

Abbott Healthcare’s Arguments (Petitioners):

1. Constitutional Challenge: Abbott questioned the constitutional validity of Section 171 of the CGST Act and Chapter 15 of the CGST Rules, particularly Rules 126, 127, and 133, which form the backbone of the anti-profiteering framework.

2. NAPA Exceeded Its Powers: Abbott argued that NAPA’s proposal to investigate all of its products was beyond the scope of its powers under Rules 128, 129, and 133 of the CGST Rules, since the complaint was only about one specific product — ‘Melaglow Rich’.

3. Undertaking Was Conditional: Abbott clarified that their earlier undertaking to pay the demanded amount was made on the basis that there would be no further investigation and no further penalty — it was not an unconditional admission of guilt.

Union of India & NAPA’s Position (Respondents):

• The respondents accepted notice and were represented by Mr. Akash Mohan (for Union of India) and Mr. Amit Bansal, Sr. Standing Counsel (for NAPA/Respondents 2 & 3). The detailed counter-arguments are not yet on record at this interim stage, as replies were directed to be filed within 6 weeks.

Key Legal Precedents

This is an interim order, so the court did not extensively discuss precedents. However, the following related pending cases were noted by the court as raising similar constitutional challenges:

1. Hindustan Unilever Ltd. v. Union of India — W.P.© 378 of 2019 (pending before the Delhi High Court, raising similar challenges to NAPA’s constitutional validity)

2. Jubilant Foodworks Ltd. v. Union of India — W.P.© 2347 of 2019 (also pending before the Delhi High Court, raising similar challenges)

The court acknowledged that these cases were already pending and that Abbott’s case was part of a broader legal challenge to the anti-profiteering framework under GST.

Key Statutory Provisions Referenced

Section 171, CGST Act, 2017

The anti-profiteering provision requiring businesses to pass on GST rate reduction benefits to consumers

Section 122(1)(i), CGST Act, 2017

Penalty provision for issuing incorrect invoices

Rule 126, CGST Rules, 2017

Part of Chapter 15 — anti-profiteering rules

Rule 127, CGST Rules, 2017

Part of Chapter 15 — anti-profiteering rules

Rule 128, CGST Rules, 2017

Powers of investigation under anti-profiteering

Rule 129, CGST Rules, 2017

Procedure for investigation

Rule 133, CGST Rules, 2017

Order by NAPA including penalties

Rule 133(3)(d), CGST Rules, 2017

Specific penalty provision cited in NAPA’s order

Judgment

What Did the Court Decide?

This is an interim order, meaning the court has not yet decided the case on merits. Here’s what the court ordered:

1. Stay Granted: The court directed that there shall be a stay of further proceedings against Abbott pursuant to the NAPA order dated 5th March 2019. This means NAPA cannot take any further action against Abbott while the case is pending.

2. Payment Acknowledged: Abbott’s undertaking to pay ₹96,59,716.26 along with applicable interest to the Central Consumer Welfare Fund within 10 days was placed on record.

3. Procedural Directions:

• Mr. R.K. Gupta (the original complainant) was impleaded as Respondent No. 4 at Abbott’s request.
• Respondents were directed to file replies within 6 weeks.
• Abbott could file a rejoinder thereafter.
• The matter was listed for hearing on 22nd August 2019.

4. Bench: The order was passed by Justice S. Muralidhar and Justice I.S. Mehta.

FAQs

Q1: What is anti-profiteering under GST?

Under Section 171 of the CGST Act, 2017, businesses are required to pass on the benefit of any reduction in GST rates or input tax credits to consumers by way of a commensurate reduction in prices. If they don’t, they are considered to have “profiteered.”

Q2: What is NAPA?

NAPA stands for the National Anti-Profiteering Authority. It is the body set up under the GST framework to investigate complaints of profiteering and pass orders against businesses that fail to pass on GST benefits to consumers.

Q3: Why did Abbott pay the money if they were challenging the order?

Abbott paid the amount “without prejudice” to their legal rights. This means the payment was made to show good faith and to avoid further penalties/investigation — but it does not mean Abbott admitted they were wrong. They are still fighting the case in court.

Q4: What does “stay of proceedings” mean?

A stay means that NAPA cannot take any further action against Abbott based on the impugned order while the High Court case is pending. It’s like pressing a pause button on NAPA’s enforcement actions.

Q5: Why is this case significant beyond just Abbott?

This case is part of a larger constitutional challenge to the entire anti-profiteering framework under GST. Similar cases by Hindustan Unilever Ltd. and Jubilant Foodworks Ltd. were already pending. The outcome could affect how NAPA operates and whether its powers are constitutionally valid.

Q6: Can NAPA investigate all products of a company if a complaint is only about one product?

That’s exactly what Abbott is arguing against! Abbott contends that NAPA’s powers under Rules 128, 129, and 133 of the CGST Rules do not permit it to expand the investigation to all products when the complaint was only about ‘Melaglow Rich’. The court has not yet decided this question — it will be addressed in the final hearing.

Q7: Is this a final judgment?

No. This is only an interim/procedural order dated 24th April 2019. The court has merely granted a stay and issued directions for filing of replies. The substantive issues — including the constitutional validity of anti-profiteering provisions — are yet to be decided.

1. Allowed, subject to all just exceptions.

2. Notice. Mr. Akash Mohan, Advocate, for Respondent No.1 and Mr.Amit

Bansal, Sr. Standing Counsel, for Respondent Nos.2 & 3 accepts notice.

3. At the oral request of Mr. Mukul Rohatagi, learned Senior cunsel forthe

Petitioners, Mr. R.K. Gupta, the Complainant before the National Anti-

Profiteering Authority (‘NAPA’) is impleaded as Respondent No.4. The

amended memo of parties be filed within a week. Notice is issued to

Respondent No.4 as well.

4. The present petition by Abbott Healthcare Pvt. Ltd. (Petitioner No.1) and

its Director Mr. Susheel Umesh (Petitioner No.2) challenges an order dated

5th March 2019 passed by the NAPA in Case No.15 of 2019 which was

registered on a complaint dated 22nd January 2018 preferred by Respondent

No.4 Mr. R.K. Gupta. The complaint was regarding the maximum retail

price of one of the products manufactured by Petitioner No.1 viz.,

‘Melaglow Rich’. The complaint was that the benefit of the variation in the

GST rates after 1st July 2017 was not being passed on to the consumer.

5. By the impugned order dated 5th March 2019 the NAPA held that the

Petitioner No.1 acted in contravention to the provisions of the Central GST

by issuing incorrect invoices thereby committing an offence under Section

122(1)(i) of the Central Goods and Services Tax Act, 2017 (‘CGST Act) and

would, therefore, also be liable for penalty under the said provision read

with Rule 133 (3) (d) of the CGST Rules, 2017.

6. The challenge to the impugned order is on various grounds. The

Petitioners also question the constitutional validity of Section 171 of the

CGST Act and Chapter 15 of the CGST Rules and in particular Rule 126,

127 and 133.

7. A further ground urged is that on the basis of the impugned order, the

NAPA has proposed to investigate the pricing of all of the products of the

Petitioner No.1 not limited to the single product for which the complaint was made. It is contended that this was beyond the powers of the NAPA under

rules 128, 129 and 133 of the CGST Rules.

8. The Court at this stage would like to note that there are other petitions

pending in this court which have raised a similar challenge of the

constitutional validity of the above provisions apart from challenging the

orders of the NAPA. These include WP (C) 378 of 2019 (Hindustan

Unilever Ltd. v. Union of India) and WP (C) 2347 of 2019 (Jubilant

Foodworks Ltd. v. Union of India).

9. As far as the impugned order is concerned, Mr. Rohatagi points out that

the Petitioners have before the NAPA undertaken to pay the demanded

amount of Rs.9659716.26 along with the applicable interest as per the CGST

Act within 10 days of the impugned order. Mr. Rohatagi explains that this

was offered on the basis that there would be no further investigation by the

NAPA and no further penalty. Mr. Rohatagi states that without prejudice to

the rights of the contentions of the Petitioners the above undertaking would

be abided by and the payment of the aforementioned sum would be made

within 10 days from today the Central Consumer Welfare Fund subject to

further orders of this Court. The said statement is placed on record.

10. In that view of the matter, it is directed that there shall be a stay of

further proceedings against the Petitioners pursuant to the impugned order

dated 5th March 2019.

11. Replies be filed within 6 weeks. Rejoinder thereto, if any, be filed

before the next date.

12. List on 22nd August 2019.

13. Order dasti under signature of the Court Master.