ANTI PROFITEERING PROVISIONS AND AUTHORITY IN GST (PART-2)

[Dr. Sanjiv Agarwal]

Anti-Profiteering Rules

The GST Council in its meeting on 18^th June, 2017 approved and the Government has notified the Anti-Profiteering related Rules vide Chapter XV of the Central GST Rules, 2017 (Rules 122 to 137) which extend to whole of India except to State of Jammu and Kashmir. These rules contain rules inter alia, in relation to-

1. Definitions of Committee, Authority, Interested party and Screening Committee
2. Constitution of the Authority (Rule 122)
3. Constitution of the Standing Committee and Screening Committees (Rule 123)
4. Appointment, salary, allowances and other terms and conditions of service of the Chairman and Members of the Authority (Rule 124)
5. Secretary to the Authority (Rule 125)
6. Power to determine the methodology and procedure (Rule 126)
7. Duties of the Authority (Rule 127)
8. Examination of application by the Standing Committee and Screening Committee (Rule 128)
9. Initiation and conduct of proceedings (Rule 129)
10. Confidentiality of information (Rule 130)
11. Cooperation with other agencies or statutory authorities (Rule 131)
12. Power to summon persons to give evidence and produce documents (Rule 132)
13. Order of the Authority  (Rule 133)
14. Decision to be taken by the majority (Rule 134)
15. Compliance by the registered person (Rule 135)
16. Monitoring of the order (Rule 136)
17. Tenure of Authority (Rule 137)

Implementation of Provisions and Procedure

The Government has prescribed the rules for implementation of this provision in relation to who will implement this provision, constitution and business rules for authority to monitor, possible cost audit monitoring and how authority will check and implement. Also, penalties, to be deterrent will also have to be determined in interest of customers as well as businesses.

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.

Within two months of receiving an application, the Standing Committee would examine it and send it to the State Level Screening Committee. Based on its recommendations, the Director General of Safeguards (DGS) would investigate the complaint with in a period of three months.

Thereafter, DGS, which has the power to issue summons, will conduct investigation and give its findings to the authority. ADG, Safeguards will act as Secretary to the National Anti-Profiteering Authority and will coordinate between the authority and the DG Safeguards office. According to the anti-profiteering rules, the authority will suggest return of the undue profit earned from not passing on the reduction in incidence of tax to consumers along with an 18 per cent interest, as also impose penalty.

The authority will have a chairman of the rank of a secretary and four nominated members who have been commissioners of central or state taxes. The GST Council will have the power to constitute a Standing Committee on Anti-profiteering, which will consist of officers of state governments and the central government.

If found to have merit, the complaint would then be forwarded to the authority. It would pass its order within three months. “An opportunity of hearing shall be granted to the interested parties by the Authority where any request is received in writing from such interested parties.

It will be up to the authority to determine whether the reduction in the rate of tax on goods or services or the benefit of input tax credit has been passed on by companies and dealers to customers.

The standing committee will, within two months from the receipt of a written application from a complainant, establish whether there is evidence to support the claim. All applications will first be examined by state level screening committees, which will forward them with their recommendations to the standing committee.

State level panels will watch out for instances of businesses not passing on the benefits of tax reduction to consumers in the GST regime.

The orders passed by the APA shall follow the principles of natural justice and as such, opportunity of being heard shall be provided. The rules are silent on further appeal against orders of APA. Nor does it stipulate that such orders shall be final. It provides that orders passed by APA have to be complied with immediately by the registered person.

Orders issued by APA

• Within 3 months of report of DGS
• Opportunity of being heard
• By majority in case of difference of opinion
• Compliance by registered person immediately
• No clarity on whether order appealable or not

Order may be for any of the following :

• Reduction in prices
• Returning money to the customer along with interest
• Depositing money in customer welfare fund in case the customer does not claim it or is not identifiable
• Imposition of penalty equivalent to the amount of profiteering
• Cancellation of registration

Power to cancel Registration of Assessee

Anti-Profiteering Authority (APA) shall act a monitoring and regulatory authority to curb anti-profiteering practices of tax payers under GST regime. The APA shall be duty bound to:

• Make company reduce the prices
• Make company refund the money to the consumer alongwith interest @ 18% p.a.
• Order company to deposit the refund amount in the Consumer Welfare Fund (in case the buyer is not identifiable)
• Impose monetary penalty equivalent to amount involved in undue profiteering
• Cancel registration of the assessee

However, such action would be based on the recommendations of the Directorate General of Safeguards. Also such powers would be used in extreme cases.

The power to deregister or cancel the registration, if invoked frequently and too lightly may hamper business environment and instill fear and distrust amongst taxpayers. The power to levy penalty may be justified but taking away the right to do business may be too harsh and even unconstitutional. There could also be disputes on undue profiteering may not actually be so as there would be other costs / overheads which may set off the profit, if any, accruing from GST efficiency. It will also add to disputes and litigation.

Time period of Provision

Rule 138 on anti-profiteering measures shall have a sunset clause. The rules framed for anti-profiteering indicate that it would operate for a period of only two years. Thus, it would cease to exist after two years of being in force.

Caution Note  

APA is expected to take up cases or complaints of mass consumption or importance and may not look into small cases. However, no monetary threshold has been fixed for taking up cases for scrutiny.

It may be noted that the anti-profiteering measure in GST law is meant to be a deterrent and is an enabling clause so that reduction in tax incidence due to the GST is passed on to the consumers. This is a contentious provision which should be triggered only if there is a credible complaint. Both, centre and states in due course, shall prescribe the procedure for filing the complaints where the complainant facts that the benefit of tax cut has not been passed on to him as well as the quantum of penalty to be imposed. There are many aspects that are currently open ended. Authority is to be empowered to examine this. The finer rules and regulations and penalties have been prescribed while operational guidelines will follow. The yardstick that would be deployed for such measurement is also expected to be spelled out.

It will also have to be ensured that there is no hardship, harassment or undue interference by the Authority. At the same time, businesses are expected to be fair and reasonable as otherwise, market forces would lead to fair price determination in absence of any cartelization or unfair trade practice.

It may be noted that GST rates for goods and services have been fixed taking into account the pre-GST indirect tax incidence on goods and services. GST rates have been fixed with the objective of maintaining revenue neutrality in the post GST regime. Many business entities have reduced the prices of their goods and services in view of lower GST rates and also announced this publicity.

To conclude, it can be said that the anti profiteering provision should be enforced in rare case as a exception, rather than rule and should not become a hindrance in free business environment and as a tool to invite corruption.

(Concluded.......)

Discussions to this article

[RAMESH SINGLA]

Sir, any rules have been made to determine as to whether benefit of tax reduction has been passed on? Further, do you have some instances where credit was not admissible in pre GST but is admissible now?

[Dr. Sanjiv Agarwal]

Dear Mr. Singla,

Yes, Rules 122 to137 of CGST Rules, 2017 deal with implementation of anti profiteering clause (section 171).

The definition of input services, input and capital goods in GST are much liberal then in earlier regime. Hence there will be many instances where cenvat credit was not allowed earlier but will be admissible in GST.

Transaction and impact analysis on commercial aspects will bring out this difference / reduction. We have done for few clients and criteria would depend upon each individual case and nature of business.