Anti Profiteering Under GST in Easy Way

Anti-Profiteering Is Ready For Action

As per Section 171 of the CGST/SGST Act,

♠ any reduction in tax rate on any supply of goods or services,

♠ or any benefit of ‘input tax credit’,(some input credit not allowed in excise/ service tax but allowed under GST) must be passed on to the recipient (for example, customer) by the registered person (e.g., trader) through a commensurate reduction in prices.

♠  NOTE: 140(3)…..

♠  Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice evidencing payment of duty in respect of inputs, then, such registered person shall, pass on the benefit of such credit by way of reduced prices to the recipient,(40/60)

• However, if GST has a negative impact on the cost, then prices can be increased.
• If the tax rates are increased, tax under reverse charge imposed etc. then prices will increase. For example, domestic LPG was exempt from tax under earlier regime. Now they fall under 5% GST. This will result in an increase in the prices of cooking gas.
• However it has been the experience of many countries that when GST was introduced there has been a marked increase in inflation and the prices of the commodities. This happened in spite of the availability of the tax credit right from the production stage to the final consumption stage which should have actually reduced the final prices. This was obviously happening because the supplier was not passing on the benefit to the consumer and thereby indulging in illegal profiteering.
• So, Central Government constitute National Anti-Profiteering Authority to examine that 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.

♠  Rule 128. Examination of application by the Standing Committee and Screening-  The Standing Committee shall, within a period of two months from the date of the receipt of a written application, in such form (ARFP1) and manner as may be specified by it, from an interested party or from a Commissioner or any other person, examine the accuracy and adequacy of the evidence provided in the application to determine whether there is prima facie evidence to support the claim of the applicant that the benefit of reduction in the 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.

Issue in Anti-Profiteering Measures

• No way is defined as how one will pass-on benefit to ultimate consumer. The word “Commensurate Reduction” is used but meaning and how such reduction will be done is not defined under Anti-Profiteering Rules. So it is a subjective matter and depends on person to person
• How will businesses compute the benefit resulting from increased credits and reduction in rates? Will it be calculated at a company level or product level?
• Can I add additional expenses which I am required to incur due to GST while computing the cost and then arrive at the benefit?

What next?

GST Anti-profiteering is likely to be an area where policy and practice will continue to develop but in the interim it important to develop and implement a plan to comply with the law. As some of these clarifications may emerge in due course, industry may also think of taking advance ruling on critical issues.

In the meanwhile, following may be done:

• Articulate and evidence the methodology adopted in calculating and deploying the GST benefit
• Maintaining relevant commercial documentation updated to reflect GST benefits, particularly service contracts and pricing schedules
• Other documentation to  be maintained as adequate to support and evidence compliance with law

Conclusion

If a super-market you frequent is selling you grocery at a higher price stating that it is due to GST, you can file a complaint to the anti-profiteering authority. Similarly if you are aware that the cost of your toothpaste has moved lower, but your grocery-wala tries to pull a fast one on you by selling it to you at the old price, you know whom to complain to.

This is a tool that the Centre needs to wield effectively to keep prices under check and ensure that businesses do not pocket all the gains.

Profit is fine, profiteering is not.

John Stuart Mill sums up the history of price-fixing saying, “governments have thought themselves qualified to regulate the condition better than the persons interested. There is scarcely any commodity which they have not at some place or time endeavored to make either dearer or cheaper than it would be if left to itself.” Section 171 of the CGST Act takes us back deep into this history of state-control.