The Delhi High Court in M/s. Sharma Trading Company v. Union of India & Ors. [W.P.(C) 13194/2018], decided on 23 September 2025 has delivered a significant ruling that reaffirms the consumer- centric foundation of the Goods and Services Tax (“GST”) regime. The Court categorically held that the benefit of any reduction in GST rates must be passed on to the ultimate consumer by way of a commensurate reduction in prices, and that attempts to substitute such reductions with increased product quantities or packaging modifications constitute impermissible profiteering.

Section 171 of the Central Goods and Services Tax Act, 2017 (“CGST Act”), read with Chapter XV of the CGST Rules, 2017, establishes India’s anti-profiteering regime. The statutory intent is unambiguous — “any reduction in the rate of tax on goods or services, or the benefit of input tax credit, must be transmitted to consumers in the form of a corresponding reduction in prices.”

To enforce this mandate, the framework empowers the authorities to:

1. Direct suppliers to recalibrate prices;
2. Order refund of undue gains to consumers, or deposit of such amounts into the Consumer Welfare Fund;
3. Levy interest on profiteered sums;
4. In appropriate cases, impose penalties or cancel GST registration.

This institutional design underscores the objective that GST reforms, particularly rationalisation of rates, result in tangible and direct economic benefit to consumers.

The matter arose from proceedings initiated by the National Anti-Profiteering Authority (“NAPA”) against a distributor of Hindustan Unilever Limited (HUL). Despite a reduction in GST on Vaseline VTM 400 ML from 28% to 18% with effect from 15 November 2017, the distributor continued to charge the same MRP.

In its defence, the distributor contended that the product quantity had been increased by 100 ml post the rate cut, thereby claiming to have passed on the benefit.

The Court rejected this argument, holding that such conduct was inconsistent with both the letter and spirit of Section 171. Relying on the precedent in Reckitt Benckiser India Pvt. Ltd. v. Union of India (2024), the Court reiterated that increase in grammage, free supplies, or promotional schemes cannot serve as substitutes for direct price reductions.

The Division Bench, comprising Justice Prathiba M. Singh and Justice Shail Jain, made the following critical observations:

1. “Increasing the quantity of the product unknowingly and charging the same MRP is nothing but deception. The consumer’s choice is being curtailed.”
2. Transitional issues such as existing stock marked with higher MRPs cannot justify non-compliance. Manufacturers and distributors are expected to anticipate and adjust to such contingencies, even if this necessitates sales below the printed MRP.
3. The obligation under Section 171 is mandatory: “The purpose of the reduction in GST rates cannot be defeated. Such problems are nothing but those for which the manufacturers and retailers ought to be prepared.”
4. Consumer benefit must be real and quantifiable, and cannot be camouflaged through marketing or packaging tactics.

Accordingly, the Court upheld NAPA’s order and directed that the profiteered amount of Rs.5,55,126 be transferred to the Consumer Welfare Fund. However, consistent with earlier judicial pronouncements, penalty proceedings were held to be inapplicable to violations predating the insertion of Section 171(3A).

This ruling has significant compliance implications across industries, particularly for FMCG, retail, and consumer goods businesses:

1. Mandatory price reduction: The benefit of tax rate cuts must be passed on strictly by lowering prices; any other method of adjustment is impermissible.
2. No reliance on promotional schemes: Quantity increases, freebies, bundling, or seasonal discounts do not discharge the statutory obligation under Section 171.
3. Preparedness for rate changes: Businesses must proactively recalibrate pricing and supply chains upon GST rate notifications; logistical or transitional difficulties cannot be pleaded as a defence.
4. Exposure to financial and reputational risk: Profiteered amounts, along with interest, must be deposited into the Consumer Welfare Fund, and future violations risk penalties and cancellation of GST registration.

Conclusion

The Sharma Trading Company judgment reinforces the primacy of consumer welfare under the GST framework. The Delhi High Court has made it abundantly clear that the statutory obligation under Section 171 cannot be diluted through packaging gimmicks or marketing strategies. Manufacturers and distributors must ensure that the benefits of rate reductions are passed on transparently, directly, and quantifiably through price cuts.