OPERATION OF ANTI PROFITEERING CLAUSE IN GST

[Dr. Sanjiv Agarwal]

The provisions on anti-profiteering are contained in the GST law as per following provisions:

CGST Act, 2017	Section 171 on Anti-profiteering measures.
IGST Act, 2017	Section 20 which stipulate that provisions of the GST Act, 2017 shall apply mutatis mutandis to IGST Act
UTGST Act, 2017	Section 21 which stipulate that provisions of GST Act, 2017 shall apply mutatis mutandis to UTGST Act,
SGST Act, 2017	Section 171 on Anti-profiteering measures.

The Rules for Anti Profiteering are contained in Chapter XV (Rule Nos. 122 to 137) of the Central Goods and Services Tax Rules, 2017.

As per Section 171 of the CGST/SGST Act, 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. An authority may be constituted by the government 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.

As per rule 127, Anti-Profiteering Authority (APA) shall be duty bound 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.
• 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.
• pass an appropriate order.

The powers to take action are also listed as duties whereby it can order price reduction, refund of profit, recovery, penalty or even cancellation of GST registration.

The Authority constituted by Central Government will have powers to impose a penalty in case it finds that the price being charged has not been reduced consequent to reduction in rate of tax or allowance of input tax credit.

There has been considerable delay in constitution of anti-profiteering authority which took almost five months since GST was introduced and consumers had to face the brunt of inflation and undue profiteering. Now that GST Council has substantially lowered the tax rates on host of items, if the Authority plays its role well, it can be hoped that desirable benefits may accrue to consumers.

During the two years of initial transition into GST regime, Anti-Profiteering Authority (APA) will step in and may ask businesses that have not passed on full benefits of reduced tax burden to consumers to make up for such benefit, with interest.

The Government is committed to ensure all consumers enjoy the benefit of lower prices of

goods and services under GST. Under GST, suppliers of goods and services must pass on any reduction in the rate of tax or the benefit of input tax credit to consumers by way of commensurate reduction in prices. If  this is not done, the consumer's interest is protected by the National Anti-profiteering  Authority which may order:

(a) reduction in prices;

(b) return of the amount not passed on with interest @ 18% to the recipient;

(c) imposition of penalty; and

(d) cancellation of registration of the supplier.

Affected consumers may file an application, in the prescribed format, before the Standing Committee on Anti-profiteering if the profiteering has all-India character or before the State Screening Committees if the profiteering is of local nature.

Though there is a legal provision in the GST law itself to take action against of undue profiteering, Government has taken various steps to ensure action on the part of manufacturers and suppliers so that the benefit is passed on to ultimate beneficiaries, i.e., the consumers. Even on existing stocks lying unsold, there is going to be revised prices put by way of stickers or otherwise. Since old and new (revised) prices would be displayed, a comparison thereof will show the benefit passed on due to lower tax cascading.

Based on the CBEC advisory, it is understood that major FMCG companies have taken positive steps to reduce the prices of goods resulting from cut in tax rates. This is reflected in the recent rate cut announcements in media by companies which has been possible with the use of technology to monitor billing / invoicing at retail level. Similarly, restaurants are also expected to pass on the benefit because of lower tax rate of 5% in place of 18% or 18% with input tax credit. Government had to take this step as restaurants were not passing on the benefit and there were complaints of undue profiteering. Lowering the rate also makes things simple for businesses as well as consumers.

One of the measures to curb undue profiteering could be to take a declaration or undertaking from vendors / suppliers that the due benefits accruing to them because of GST have been passed on. In case of large clients such as public sector enterprises or banks or large listed companies, there could even be mechanism of getting verification done by any external agency / internal auditor etc. Alternatively, such vendors or suppliers could be asked to tender a Chartered Accountant / Cost Accountant certificate to this effect. CBEC may also conduct test audits in this regard.

Undue or excessive (more than normal or reasonable profit) is bad, both from ethical as well as legal angle. Further, it is inflationary and does not  help anyone except the profiteer itself or himself. Yes, Government's revenue may also see a little upsurge resulting from higher turnover and profits. Prices ought to be brought down in post GST regime which have otherwise witnessed a rising trend post GST from July, 2017. This is also one of the reasons why Reserve Bank had not reduced the interest rates in this week's monetary policy review, although GST has been introduced and propagated as non-inflationary tax due to removal of tax cascading.

It we look at other economies where GST was introduced earlier, the consumer price inflation witnessed a download trend. For example, in New Zealand (introduced in 1991), Singapore (introduced in 1994) and Malaysia (introduced in 2016). However, in Australia, where it was introduced in 2000, there has been a mixed trend with ups and downs.

So far as India is concerned, the main reasons behind inflationary trend are complexities in GST law for anti tax cascading effect, lack of knowledge and availment of correct input tax credit, businesses hiking up the prices just before GST, unethical profiteering by some suppliers, lack of implementation machinery, hike in tax rates in GST regime for services, small and unorganized sector not passing on benefits etc. Apart from other reasons, if anti-profiteering measure are implemented properly and monitoring is done properly, it may help curb avoidable inflation, i.e. it becomes crucial for Government today to seriously implement anti-inflationary / profiteering measures.

Government has also recently introduced form for making application for complaint of anti-profiteering by way of a prescribed form called Form APA F-1 which has to be filed before standing committee or state level screening committee as   prescribed in Rules. However, the form introduced is very complex and consumers will only be discouraged to file a complaint. Applicant is also required to mention his code, registration number, HSN code, MRP etc. It is a technical form with many annexures. Separate  application has to be filed for different type of goods and services. For example, if one has a single invoice for five items, he need to file five forms with copies of invoice(s), proof of identity, price lists, detailed working street etc so much so that even any professional would find it difficult to lodge a complaint.

Applications may be submitted to:

Standing Committee on Anti-profiteering

Second Floor, Bhai Vir Singh Sahitya Sadan, Bhai Vir Singh Marg,

Gole Market, New Delhi – 110001 Tel No. 011-23741537,

Fax No. : 011-23741542, Email: [email protected]