ANTI-PROFITEERING RULES, 2017 – AN OVERVIEW

[Mr. M. GOVINDARAJAN]

Section 171 of the Goods and Services Tax Act, 2017 (‘Act’ for short)  provides for anti-profiteering measure.  Section 171(1) provides that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.  Section 171(2) provides that the Central Government may, on the recommendations of the Council, by notification, constitute an Authority, or empowering an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.  Section 171(3) provides that the Authority shall exercise such powers and discharge such functions as may be prescribed.

In the Council Meeting held on 18.06.2017 the GST Council approved the Anti-Profiteering Rules, 2017 (‘Rules’ for short).  This Act is applicable to the whole of India except Jammu and Kashmir.

National Anti-profiteering Authority

Rule 2(d) defines the term ‘Authority’ as the National Anti-profiteering Authority constituted under Rule 3.  The Authority shall consist of a Chairman and four technical members.  The Chairman shall be a person who holds or held a post equivalent in rank to a Secretary to the Government of India.  The Technical members shall be the persons who are or have been Commissioners of State tax or Central Tax or to have held an equivalent post under the existing law to be nominated by the Council.  The Additional Director General of Safeguards shall be the Secretary to the Authority

Tenure of the Authority

Rule 18 provides that the Authority shall cease to exist after the expiry of two years from the date on which the Chairman enters upon his office unless the Council recommends otherwise. The Chairman shall hold office for a term of 2 years from the date he enters into his office or until he attains the age of 65 years, whichever is earlier.  He shall be eligible for re-appointment.  A person shall not be selected as the Chairman if he has attained the age of 62 years.

The Technical Member shall hold office for a term of 2 years from the date on which he enters upon his office or until he has attains the age of 65 years whichever is earlier.  He shall be eligible for reappointment.  A person shall not be selected as a Technical Member if he has attained the age of 62 years.

Appointment

The Chairman and Members of the Authority shall be appointed by the Central Government on the recommendations of a Selection Committee to be constituted for the purpose by the Council.

Salary, allowances

The Chairman shall be paid a monthly salary of ₹ 2,25,000/- (fixed) and other allowances and benefits as are admissible to  a Central Government officer holding posts carrying the same pay.  Where a retired officer is selected as a Chairman, he shall be paid a monthly salary reduced by the amount of pension.

The Technical member shall be paid a monthly salary of ₹ 2,05,400 and other allowances as admissible.  Where a retired officer is selected as a Technical Member, he shall be paid a monthly salary of ₹ 2,05,400 reduced by the amount of pension.

Duties of the Authority

The Authority is-

• to determine whether any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit has been passed on to the recipient by way of commensurate reduction in prices;
• to identify the registered person who has not passed on the benefit of reduction in rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices;
• to order-

• reduction in prices;
• return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of 18% from the date of collection of higher amount till the date of return of such amount; or
• recovery of the amount not refund in case the eligible person does not claim return of the amount or is not identifiable and depositing the same in the Fund referred to in section 57;
• imposition of penalty as prescribed under the Act; and
• cancellation of registration under the Act.

The Authority may determine the methodology and procedure for determination as to whether the reduction in rate of tax on the supply of goods or services or the benefit of input tax credit has been passed on by the registered person to the recipient by way of commensurate reduction in prices.

Standing Committee and Screening Committee

Rule 4(1) provides for the constitution of a Standing Committee on Anti-profiteering.  This committee shall consist of officers of the State Government and Central Government as may be nominated by it.

Rule 4(2) provides that a State level Screening Committee shall be constituted in each State by the State Governments.  This Committee shall consist of one officer of the State Government to be nominated by the Commissioner and one officer of the Central Government, to be nominated by the Chief Commissioner.

Examination of application

The Standing Committee shall, within a period of 2 months from the date of receipt of written application from an interested party or from a Commissioner or any other person, examine the accuracy and adequacy of the evidence provided to determine whether there is prima facie evidence to support the claim of the applicant that the benefit of reduction in rate of tax on any supply of goods or services or the benefit of input tax credit has not been passed on to the recipient by way of commensurate reduction in prices.   The State level Screening Committee shall first examine the applications of local nature and if it is satisfied that the supplier has contravened the provisions of section171, forward the application with its recommendations to the Standing Committee for further action.

Further proceedings

The following are the further proceedings-

• The application shall be referred to Director General of Safeguards for a detailed investigation;
• The Director General of Safeguards shall conduct investigation and collect evidence to determine whether the benefit of reduction has been passed on the recipient by way of commensurate reduction in prices;
• The DG shall send a notice to the interested parties for furnishing the following information-

• the description of the goods or services for which the proceedings have been initiated;
• summary of the statement of facts on which the allegations are based; and
• the time limit allowed to the interested parties and other persons who may have information related to the proceedings for furnishing their reply;

• The DG may also issue notices to any other person for fair inquiry in this matter;
• The DG shall make available the evidence to the other parties;
• The DG shall complete the investigation within a period of 3 months of receipt of reference from the Standing Committee or within such extended period of further 3 months;
• The DG may seek opinion of any other agency or statutory authorities in discharge of his duties;
• On completion of investigation, the DG shall submit a report to the Authority.

Order of Authority

Rule 14 provides that the Authority shall, within a period of 3 months from the date of receipt of the report from the DG determine whether a registered person has passed on the benefit of reduction in rate of tax on the supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices.  The Authority may order, after giving reasonable opportunity to the parties-

• reduction in prices;
• return to the recipient, an amount equivalent to the amount not passed on way by of commensurate reduction in prices along with interest @ 18% from the date of collection of the higher amount till the date of return of such amount or recovery of the amount including interest and depositing the same in the consumer welfare fund.
• Imposition of penalty as prescribed in the Act; and
• Cancellation of registration under the Act.

If the Members differ in opinion on any point the same point shall be decided according to the opinion of the majority.

Compliance

Rule 16 provides that any order passed by the Authority shall be immediately be complied with by the registered person.  If he does not comply action shall be initiated to recover the amount. 

The Authority may require any authority of central tax, State tax or Union territory tax to monitor implementation of the order passed by it.

Discussions to this article

[Srikanthan S]

Some queries are:

Whether

1. the provisions would be applied to different business verticles within an Organization with different parameters?

2. different categories of products would attract different parameters as the GST rates may be different - for eg. for a Soaps & Cosmetics business, Soaps attract 18% GST while Cosmetics 28%. The question whether the provisions would be applied differently for different product categories within the same organization?

3. in the case of MRP based products, how the companies can pass on the benefit to consumer immediately as pipeline stocks would have the same MRP. Reduction in prices in such cases would be perceived only when the MRP is reduced.

4. net margin / gross margin percentages would be studied or absolute volumes would be studied?

Readers are requested to enlighten.