Benefits under GST and anti-profiteering provision

[Ganeshan Kalyani]

Cascading of tax:

One of the benefits envisaged in GST was removal of cascading of taxes. In erstwhile tax regime it was observed that the State Value Added Tax (VAT) was charged on the value which was arrived at after the levy of Central Excise Duty. The same had resulted into cascading of tax i.e. VAT was being charged on Excise Duty as well. After the introduction of GST, Central Excise Duty got subsumed into Central GST and VAT into State GST. Though the demarcation of CGST and SGST has been made, the basic value for the purpose of levying CGST and SGST is same. For e.g. if the basic value of the goods is ₹ 100/-, and the GST applicable on the goods is, say, 18%, then CGST and SGST would be calculated on the same basic value i.e. ₹ 100/-. It is not the case that SGST would be levied on the value which is arrived at after charging CGST as was happening in the previous tax regime. Thus, the cascading effect of taxes was done away with under GST. This has resulted into reduction of selling price.

Tax rate reduction:

Another point which was concerning the Govt. at the time of implementation was classifying the goods under correct rate of tax in GST. As a reason, it became an essential task for the Govt. to attempt to keep the rate of tax in GST such that the tax charged in GST should be same or near to the tax that was charged in previous tax regime. As for instance a particular goods that was charged to tax at 12.5% under Central Excise and at 5% under Value Added Tax was categorized into 18% tax rate under GST. Though, it was ensured to keep the tax rate on a near tax rate bracket in GST, it was observed otherwise as well. Therefore, the change in tax rate was frequently taken place in the initial stage of implementation. The changes were also toward lower side from 18% to 12% or 5% and vice-versa. This has also resulted in reduction in sale price of the goods.

Seamless flow of Input Tax Credit (ITC):

The third benefit which is evident in GST is the seamless flow of Input Tax Credit (ITC). Seamless flow of ITC means that the ITC of goods and services can be clubbed together to offset them against the GST payable on goods or services or both. This was not permissible in the erstwhile tax regime. As for instance, the trader of goods was liable to pay State VAT on sale price of the goods, but he was denied from taking the benefit of the service tax paid on his input services. Eventually, the taxes paid on inward supplies get embedded into the selling price of the goods. This concern got addressed in GST by allowing seamless flow of ITC. This also should result in reduction in sale price.

Concession Form C:

In erstwhile tax regime the inter-state purchases were attracting Central Sales Tax @2% subject to the issuance of concession Form-C. The ITC of 2% tax paid was not allowed to the buyer to claim. The said tax was ultimately going and sitting into the selling price of the goods. But, with the advent of GST, the concessional tax rate concept vanished and the tax is required to be paid at full rate and at the same time ITC of the same is also allowed. Hence, it is only a pass thru and not a cost as such. This also become a factor for the reduction in sale price.

All the aforesaid mentioned benefits ultimately should result into reduction of sales price in actual. The taxpayer, accordingly, should re-determine the sale price of the goods to a lower side.

Anti-profiteering provision:

Out of all the aforesaid benefits the Govt. had kept a check on the taxpayer to ensure that he passes on the benefit arising out of tax rate reduction and benefit from availing of input tax credit. 

Section 171 of CGST Act, 2017 provides for Anti-profiteering measures. Sub-section (1) of the said section states as, “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.”

In sub-section (2) it is stated that, “The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower 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.”

The anti-profiteering rules are also in place under Chapter XV of CGST, Rules, 2017. 

Duty of the Authority:

It is the duty of the Authority to determine and identify the registered person who has not passed on the benefit of reduction in the 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.

After determining and identifying the person who has not passed on the benefit to the customer, the Authority shall order the taxpayer to reduce the prices, and to return an amount equivalent to the amount which has not being passed by him to the customer by way of commensurate reduction in prices along with the interest @18% and in case the eligible person does not claim return of the amount or is not identifiable then the amount shall be ordered for depositing in the Fund referred to in section 57. The Authority also may impose the penalty or order to cancel the registration of the taxpayer under GST. 

Views of the Author:

It is clear from the above provisions that the taxpayer is duty bound to revise the sale price in the event the tax rate is reduced by the Govt. and also when he is benefited from availing of input tax credit. 

The law specifies two instances as mentioned above into the anti-profiteering provision. However the law does not provide for any compulsion on the taxpayer for passing on the benefit arising out of removal of cascading of taxes, concessional forms etc. 

There is no method which the customer can apply to determine and ensure that the supplier has charged correctly for the goods supplied by him. However, it is also seen that the customer raise their voice by filing an application under the anti-profiteering clause and also wins the case. However, it is not possible for a common man to question the supplier on the pricing of the goods. The cost of litigation and the time involved in it is also considered by the customer before speaking up on this aspect.

Hence, it is supplier who should develop such mechanism which helps him to correctly fix the sale price of the goods. And on the other hand it is the Authority who should also develop such audit mechanism which ensures that the customers are not overpriced by not passing on the benefit by the supplier. 

Discussions to this article

[KASTURI SETHI]

Dear Ganeshan Kalyani Ji,

Your article enriches knowledge and unveils aspects as compared to the VAT regime. Good attempt for original thinking.

[Ganeshan Kalyani]

Thank you Sir for your kind words.