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In a recent development, the Directorate General of GST Intelligence (DGGI) has initiated an investigation into the sale of Raymond's consumer care business to a unit of Godrej. This move comes as tax authorities raise questions about the applicability of goods and services tax (GST) to the transaction. In this article, we will delve into the details of this investigation and explore the perspectives of the involved parties.
The Acquisition of Raymond's FMCG Business
In April 2023, Godrej Consumer Products (GCPL) acquired Raymond's FMCG business through a slump sale. The acquisition included well-known trademarks such as Park Avenue, KS, KamaSutra, and Premium. GCPL disclosed that it paid ₹2,825 crore for this acquisition.
The Investigation Unfolds
The DGGI, through its Mumbai unit, has initiated an inspection of premises associated with Raymond as part of their investigation. This action is based on Section 67 of the Central GST (CGST) Act, which empowers officials to conduct inspections if they suspect the withholding of relevant information to evade tax.
Authorities are particularly focused on determining whether the Raymond-Godrej deal should be subject to an 18 percent GST. They have requested Raymond Consumer Care (RCCL) and GCPL to provide explanations for the transaction.
Perspectives of the Involved Parties
Raymond has stated that the DGGI inspection is "in respect of the specified transaction and not a search." The company has provided a suitable explanation along with documentary evidence to support their claim that the sale of the business to GCPL, on a going concern basis, does not attract GST.
Both Raymond and GCPL sought the opinion of an independent tax expert, who confirmed that no GST applies since it was a slump sale of the business on a going concern basis. However, GCPL has not responded to inquiries regarding the ongoing investigation.
The Significance of Raymond Consumer Care
Raymond Consumer Care is an important player in the FMCG market, with reported sales of ₹522 crore in FY22. The company holds a significant market share in the men's deodorants category, ranking among the top five, and is the third-largest player in the branded condom segment. However, it has a smaller market share in the mainstream soaps and shampoo segment.
Reviewing Documents and Explanations
Tax authorities are currently reviewing the documents provided by both RCCL and GCPL. They are carefully examining the explanations given by the parties involved to determine the applicability of GST to the Raymond-Godrej deal. This review process is crucial in determining the outcome of the investigation.
Possible Implications of the Investigation
If tax authorities conclude that the Raymond-Godrej deal should be subject to GST, it could have significant financial implications for both companies. The addition of an 18 percent GST on the transaction amount of ₹2,825 crore would result in a substantial tax liability. This outcome could potentially impact the profitability and financial stability of the parties involved.
Expert Opinions and Legal Considerations
The involvement of an independent tax expert, whose opinion confirmed that no GST applies to the slump sale, adds weight to the arguments presented by Raymond and GCPL. However, the final decision on the applicability of GST to the transaction will lie in the hands of the tax authorities, who will consider various legal aspects and interpretations of the law.
