Applicability of Anti-Profiteering, Goods and Services Tax - GST

[Hiren Pathak]

Company is selling its MRP based product to its Distributor only. MRP of the product is say ₹ 1000 and he is selling this product to its Distributor @ ₹ 700+GST.

Now, there is Rate change from 28% to 18% so MRP of the product needs to be reduced. Company has reduced MRP of the Product to ₹ 925 commensurate with rate reduction but continue to apply selling price to Distributor same @ ₹ 700+GST only. Will Anti-Profiteering provision applicable to company who is not selling any product cum-tax that is who is not selling any product directly to end user including tax?

Please note that for company, Recipient is Distributor only and all are Registered in GST.

Posts / Replies

[KASTURI SETHI]

This case law is relevant and helpful for you.

2019 (20) G.S.T.L. 396 (N.A.P.A.) = 2018 (12) TMI 1602 - NATIONAL ANTI-PROFITEERING AUTHORITY STATE LEVEL SCREENING COMMITTEE ON ANTI-PROFITEERING, KERALA Versus AHUJA RADIOS

[Hiren Pathak]

Yes sir i have already reviewed this case law. my contention is that what if i have marginally increased base price from 700 to 705 but MRP has been reduced commensurate with rate reduction?

[KASTURI SETHI]

I do not advise you to do so.

[Ganeshan Kalyani]

Anti profiteering is a provision to curb profiting from the change in tax rate. You have to analyse whether you have made any profit or not. Your costing team can guide you.

[KASTURI SETHI]

Dear Querist,

Pl. refer to your cross query dated 1.5.19 at serial no. 2 above.

You are a manufacturer- supplier (suppose A) and you supply to wholesaler (distributor)(B) and distributor supplies to retailer(C) and retailer supplies to the consumer (D). There is a chain among A to D and you are the foundation. If you disturb the cost structure, the whole chain will be broken. You understand very well that the purpose of Anti-Profiteering Law is to provide the benefit of reduced rate of tax to the ultimate consumer i.e. D. The case law of AAR posted by me is based on the ground that base price was not disturbed. It remained the same in both periods mentioned in the order of AAR. You may be able to manage the MRP as per GST law but any increase in base price will not be safe in the eyes of the department.

[Hiren Pathak]

Provision says : 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.

Recipient means

“recipient” of supply of goods or services or both, means-

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,

and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;

So does that mean for me, Recipient is my immediately next customer to whom i have sold goods but not received consideration yet?

[KASTURI SETHI]

In my view, 'Recipient' is the ultimate consumer and not your distributor to whom you have supplied the goods. All in the chain (manufacturer-supplier, wholesaler and retailer) are to ensure that the benefit of reduced price has been passed on to the customer/consumer.

[Hiren Pathak]

Thank you all Experts for your valuable feedback!

[KASTURI SETHI]

In this context read the following case law:-

"Seller booked for profiteering for increasing base price despite GST rate reduction on sale of electric chimney : Kerala State Screening Committee on Anti-profiteering VS.TTK Prestige Ltd. reported as 2019(5)TMI/560-NAPA decided on 6.5.19.

It is a serious offence to increase basic price after reduction of rate of tax.

Be careful.

[Hiren Pathak]

Its not like increasing base price to keep MRP same, i give you example in my case, Say before rate change MRP was ₹ 100, after rate change giving effect to new rate, MRP should be 77, but such MRP is not in feasible in this product segment, hence company has fixed MRP at ₹ 80, now to the extent of ₹ 80 and 77, base price increased.

[KASTURI SETHI]

I understand your view. To cap it all, increase in base price on any logic is not safe at all.