Mohit Sharma –
Introduction:
The Constitution (101st Amendment) Act, 2016 introduced the Goods and Services Tax (GST) regime in India, which is a comprehensive indirect tax on manufacture, sale or consumption of Goods and Services. It subsumed all indirect taxes levied on Goods and Services, except Entry tax, Toll tax and Octroi. In implementation of the 101st Constitutional Amendment, Central Goods and Services Tax Act, 2017 (CGST Act), Integrated Goods and Services Tax Act, 2017 (IGST Act) and the respective State Goods and Services Tax Act(s), 2017 (SGST(s)) were enacted.
The rationale behind introducing the GST legislation was to impose a multi-stage tax regime wherein each point of supply chain is taxed. GST sufficiently fulfils the description of a tax based on value addition (and to such extent, it is in line with the VAT laws); obviating the cascading effects of taxation, which conventional tax regimes perpetuated.
Though the erstwhile regime in the form of various State VAT legislations recognised the principle of value addition-based consumption taxes; however, loopholes/gaps existed in those legislations; for instance, there was no effective mechanism to monitor whether any reduction in the rate of tax on any supply of goods or services resulted in consequent reduction in the prices of such goods or services, to the consumer. In fact, as per the CAG Study Report of June 2010, various manufacturers did not reduce the MRP after the introduction of VAT though there was a substantial reduction in tax rates.
Therefore, to address the concern, Anti-profiteering provisions were introduced in the GST law, to ensure that any reduction in the rate of tax on any supply of goods or services or the benefit of Input Tax Credit (ITC) is passed on to the consumer, by way of commensurate reduction in prices. It is relevant to note that in the first draft of Model GST law there was no provision for anti-profiteering and it was only in the subsequent, revised Model GST law draft which came in force in November, 2016, Anti-profiteering provisions were incorporated under Section 163 of the Model GST Law.
In fact, Section 163 of the Model GST Law underwent various changes based on the GST Council’s recommendations and finally, Section 171 of the CGST Act together with Rules 122 to 137 (Chapter XV) of the CGST Rules were incorporated, forming the statutory regime for Anti-Profiteering provisions under the GST law.
Statutory framework of Anti-Profiteering under The GST Law:
Section 171 of the CGST Act requires that any reduction in rate of tax on any supply of goods or services or the benefit of ITC, is to be passed on to the recipient by way of “commensurate reduction in prices”. For ensuring compliance, a new Authority was to be constituted, or an existing Authority was to be empowered. For this purpose, the Union Government constituted the National Anti-profiteering Authority (NAA) as a Nodal agency to ensure compliance of Anti-Profiteering provisions under the GST law.
Chapter XV of the CGST Rules, 2017 lays down the procedure for implementing Anti-profiteering provisions under the GST law. Per Rule 123, a Standing Committee will examine the veracity of any complaint and if it is satisfied that prima-facie the manufacturer/ supplier has not passed on to the recipient by way of commensurate reduction in prices, the benefit of any reduction (a) in the rate of tax on any supply of goods or (b) services or (c) the benefit of ITC, it shall refer the matter to the Director-General of Anti-profiteering (DG) for detailed investigation.
Thereafter, the DG would conduct a detailed investigation and provide its findings to the NAA, which shall then determine whether there is any violation of the Anti-Profiteering provisions under the GST law. Rule 126 of the CGST Rules, 2017, gave the power to NAA to determine the methodology and procedure for determining, whether there is any profiteering. NAA is conferred with wide-ranging powers to order a reduction in prices, return of the total profiteered amount with 18% interest along with imposition of penalty and cancellation of GST registration.
Constitutional validity of Anti-Profiteering provisions under the GST law:
The constitutional validity of Anti-profiteering provisions, was challenged before the Hon’ble Delhi High Court, in several writ petitions and final hearing has commenced and the next date of hearing is on 19.10.2022.
13 REASONS WHY ANTI-PROFITEERING PROVISIONS UNDER THE GST LAW ARE UNCONSTITUTIONAL:
Reason 1: Anti-profiteering provisions are Ultra vires of Article 246A of the Constitution
Article 246A of the Constitution makes special provisions with respect to Goods and Services Tax. It empowers Parliament and the Legislature of each State to make laws with respect to Goods and Services Tax imposed by Union or by such State. Article 366(12A) defines ‘goods and services tax’ as any tax on supply of goods, or services or both except taxes on the supply of alcoholic liquor for human consumption.
Therefore, Article 246A of the Constitution empowers only Parliament and the Legislature of every State to make laws with respect to tax on supply of goods, or services or both and nothing else and the statutes framed in exercise of such power (CGST Act, SGST Act and IGST Act) must strictly conform to what is permitted. There is no plenary or residuary power as in case of Entry 97[1] of List III of the Seventh Schedule of the Constitution, to justify any provision which strictly does not conform to the scope of Article 246A.
Anti-profiteering provisions under the GST law ( although part of taxing statute), do not impose any tax or create a charge of tax. It only requires commensurate reduction in prices of goods or services on account of reduction in taxes or benefit of ITC. Therefore, by way of a taxing statute imposition of tax or charge of tax can be regulated, but determination of price or charge on price cannot be regulated since prices are determined on multiple factors, like demand and supply, product mix, market share, geography, market segmentation etc. and taxes may not be the determinative factor to determine prices.
Anti-profiteering provisions would have to fall under Entry 34[2] of List III of the Seventh Schedule of the Constitution; however, the GST laws are not framed under the said Entry. Therefore, Anti-profiteering provisions under the GST law are beyond the scope of Article 246A of the Constitution. Article 246A provides for a right to create a charge of tax, machinery to collect such tax and consequences of non-payment of tax but does not cover regulation of prices. It is relevant to note that regulation of prices is totally different from the power of taxation and the power to regulate price, cannot cannot be incidental or ancillary to the power to tax, or to enforce taxation & rebate(s), to be passed on. Hence, Anti-profiteering provisions under the GST law are ultra vires of Article 246A of the Constitution.
Reason 2: Constitution of NAA is contrary to law:
As per Section 171(2) of the CGST Act, the Union Government may, on recommendations of the GST Council, by notification, constitute an Authority to examine whether ITC 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. In terms of Section 2(80) ‘notification’ means a notification published in the Official Gazette.
Therefore, as per Section 171 of the CGST Act, the Authority must be constituted by way of a notification published in the Official Gazette. In this regard, the Union Government constituted NAA as nodal authority to ensure compliance of Anti-Profiteering provisions under the GST law. However, the Central Government has constituted the NAA by way of Office Order No. 13/1/2017 Ad.1 dated 28.11.2017 and not by way of a notification published in the Official Gazette.
It is apposite to note that it is a settled position of law that when a power is conferred to do a certain thing in a certain manner, such thing must be done in that manner only or not at all, and all other methods of performance are necessarily forbidden. Therefore, when a statute has conferred a power to do an act and has laid down the method in which such power has to be exercised, it necessarily prohibits the doing of such act in any other manner than what has been prescribed[3].
Hence, the constitution of the NAA by way of an Office Order and not by way of a Notification published in the Official Gazette is contrary to the law laid down by Parliament.
Reason 3: Anti-profiteering provisions are ultra vires to Articles 14 and 19(1)(g) of the Constitution:
As per Article 14 of the Constitution, a cause of invalidity arises where equals are treated unequally, and unequals are treated as equals. The Hon’ble Supreme Court in Federation of Hotel & Restaurant Assn. of India Vs. Union of India[4] has held that tax laws are not outside the purview of Article 14 and while examining the allegations of discriminatory treatment under tax laws, what is inquired is not the phraseology used, but the real effect of the discriminatory provisions, which are stated to be discriminatory.
In the above context, the real effect of the Anti-profiteering provisions under the GST law is that it creates discrimination between two similarly placed entities i.e., an entity dealing in goods or services where the tax rate has been reduced and another entity dealing in similar goods or services where the tax rate has not been reduced. By virtue of the Anti-profiteering provisions, the former entity where the tax rate has been reduced is placed on a constant vigil to maintain a lower price and not increase the price for an undefined future period, (which could be 8 months to 22 months or more) irrespective of any change in cost factors. On the contrary, for the latter entity, there is no such obligation to freeze the price for an undefined future period. The latter entity can decide the prices of its goods or services as per the prevailing market conditions, whereas the former cannot do, and if price is increased say even after a year, it is treated as profiteering under the GST laws, by the DG & NAA.
Therefore, by virtue of the Anti-profiteering provisions, two equal entities are treated unequally violating Article 14 of the Constitution. Further, Anti-profiteering by way of a price control mechanism hampers the freedom to practise any profession or carry on any trade, business or occupation, as guaranteed under Article 19(1)(g) of the Constitution. Hence, Anti-profiteering provisions are ultra vires to Articles 14 and 19(1)(g) of the Constitution.
Reason 4: Anti-profiteering provisions are uncertain, vague and unintelligible:
The manner in which Section 171 of the CGST Act has been drafted is uncertain, vague and unintelligible; therefore, it is open to diverse & even contradictory constructions. Section 171 vests unbridled, uncanalised and arbitrary powers on the Executive. The Hon’ble Supreme Court in Harakchand Ratanchand Banthia Vs. Union of India[5] has held that a statute must be definite and not uncertain, ambiguous or vague.
Section 171 is based on a wrong presumption that a reduction in rate of tax, will result in an equivalent reduction in prices. Firstly, reduction in rate of tax do not mean similar reduction in rate of tax of all raw materials used in manufacturing the product whose tax rate was reduced. Second, prices are decided based on multiple factors, increase in raw material & packaging procurement cost & GST on raw materials, labour cost and other costs, including raise in power, fuel etc., transportation, exchange rate hike etc. Mere decrease in GST rate on the output, would not translate to corresponding decrease in sale price of output. Therefore, the fundamental presumption under Section 171 that, every tax reduction must result in corresponding “price reduction” is erroneous.
Further, Section 171 of the CGST Act uses the term “commensurate” reduction in prices, but the term “commensurate” is not defined in the statute; therefore, wide and unfettered power is conferred on NAA to interpret the term “commensurate reduction” in its subjective interpretation. For instance, in some cases, NAA has insisted that a commensurate reduction in prices must be an arithmetically precise amount, to the last paisa, whereas in other cases NAA has applied the de-minimis principle and taken an approach that the commensurate reduction in prices can be within a range and may not be arithmetically precise.
Section 171 of the CGST Act is also based on a fundamentally flawed premise that “commensurate reduction in prices” must be passed on only in monetary terms, which is not workable for the spectrum of goods/services available. For instance, a small SKUs of say shampoo sachet is sold at Rs. 1 or Rs. 2, and consequent to reduction in rate of tax, the manufacturer cannot be expected to reduce the price to Rs. 0.84 or Rs. 1.79, especially in the context of the fact that the minimum legal tender available is Rs. 1. Therefore, the commensurate reduction must be in varied forms including, an increase in grammage or additional/ complementary products, etc.
Last, the anti-profiteering provisions under the GST law, mandate manufacturers/marketers to commensurately reduce price consequent to tax rate reduction but do not specify the period up to which such reduction is required to be maintained. The absence of the period up to which such reduction is required to be passed on makes the anti-profiteering provisions manifestly arbitrary, vague, imposes unreasonable restrictions and violates the fundamental right to carry on business and trade.
Reason 5: Section 171 of the GST Act suffers from the vice of excessive delegation:
Section 171 of the GST Act suffers from the vice of excessive delegation in as much as it provides no guidance at all as to how the anti-profiteering provision is required to be implemented, how the amount of alleged profiteering is to be computed, who is the person required to comply with the provision, what is the period for which such provisions require compliance and the methodology that is required to be followed in making compliance. Section 171 does not lay down any policy, guideline, principles, or standards regarding the powers to be exercised by NAA, much less the manner in which such powers are to be exercised.
It is a settled position of law that the Legislature in conferring/delegating the power on another authority to make subordinate or ancillary legislation must lay down policy, principle or standard for the guidance of the authority concerned[6]. Delegation is not the complete handing over or transference of power from one person or body of persons to another person or entity. Delegation may be defined as the entrusting, by a person or body of persons, of the exercise of a power residing in that person or body of persons, to another person or body of persons, with the complete power of revocation or amendment remaining in the grantor or delegator. Therefore, the ultimate power always remains in the delegator and is never renounced.
The Hon’ble Supreme Court in Kishan Prakash Sharma Vs. Union of India[7] has held that the Legislature cannot delegate uncanalised and uncontrolled power and must set the limits of the power delegated by declaring the policy of the law and by laying down standards for guidance of authority on whom the power to execute the law is conferred.
Section 171 of the GST Act does not lay down any policy, guideline, principles, or standards regarding the powers to be exercised by NAA. Therefore, it suffers from the vice of excessive delegation. It is relevant to note that in other taxation statutes, the Legislature has laid down detailed guidelines for the methodology to be adopted. For instance, under the Customs Tariff Act, 1975, detailed guidelines to determine the margin of dumping, injury margin, non-injurious price and the likes have been provided in the Customs Tariff (Identification, Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995.
Similarly, anti-profiteering provisions in other countries such as Malaysia and Australia have also statutorily prescribed a methodology and principles for the determination of whether there is profiteering. Therefore, the failure to provide clear statutory guidance for the exercise of powers by NAA amounts to excessive delegation.
Reason 6: Anti-profiteering provisions suffer from the vice of Delegatus non potest delegare
In terms of Delegatus non potest delegare doctrine, the power to legislate on a particular topic does not confer authority to delegate its power to legislate on that topic to another body. The power conferred upon the Legislature on a topic is specifically entrusted to that body, and it is a necessary intendment of the constitutional provision which confers that power, that is shall not be delegated without laying down principles, policy, standard or guidance to another body unless the Constitution expressly permits sub-delegation[8].
Section 171 of the CGST Act, delegates its power to legislate to the Executive which further delegates it to the NAA vide Rule 126 of the CGST Rules and in the end the NAA delegates that power to the DG. Therefore, it is a sub-sub-delegation of power which is impermissible. Hence, anti-profiteering provisions under the GST regime suffer from the vice of Delegatus non potest delegare; therefore unconstitutional.
Reason 7: Anti-profiteering Rules travel beyond the scope of the enabling Act
Rule 127(iii)(b) and Rule 133(3)(b) & (c) of the GST Rules impose interest @ 18% p.a. on the profiteered amount from the date of collection of profiteered amounts to the date of return or recovery of such amount. However, the GST Act and in particular Section 171 thereof, does not provide for imposition of interest on the profiteered amount.
It is a well-recognised principle of interpretation of a statute that conferment of rule-making power by a statute does not enable the rule-making authority to make a rule which travels beyond the scope of the enabling Act, or which is inconsistent or repugnant thereto[9].
Further, the Hon’ble Supreme Court in Shree Bhagwati Steel Rolling Mills Vs. CCE[10] and in V.V.S. Sugar Vs. State of Andhra Pradesh[11] has held that imposition of interest can only be sustained if the parent Act itself has a substantive provision for imposition of interest. The GST Act and in particular Section 171 does not provide for the imposition of interest on the profiteered amount in cases of alleged profiteering. Thus, Rule 127(iii)(b) and Rule 133(3)(b) & (c), which provide for the imposition of interest travel beyond the scope of the enabling Act.
Similarly, Rule 127(iii)(d) and Rule 133(3)(e) empower the NAA to cancel the GST registration. The cancellation of GST registration has adverse consequences on a registered person, as it cannot carry on trade in the absence of registration. Such a condition is extremely unreasonable, excessive, disproportionate, manifestly arbitrary, and ultra vires the GST Act.
It is pertinent to note that a registered person may be dealing in several products and in case, he is found to have profiteered in respect of even a single product, by virtue of cancellation he cannot deal in, all other products. Thus, there is an absolute restriction that is unreasonable and violative of Article 14 and Article 19(1)(g) of the Constitution. Also, on the principles of proportionality, to cancel the registration for a single violation and put an absolute prohibition on carrying out trade, the punishment is disproportionate and excessive.
Besides, Section 171 of the GST Act does not contemplate cancellation of registration; therefore, the Rules regarding the same (i.e., Rule 127(iii)(d) and Rule 133(3)(e)), cannot empower the NAA to cancel the registration as the same is ultra vires of Section 171.
Reason 8: Anti-profiteering provisions fail to provide a methodology of computation and confer unfettered and arbitrary discretion to NAA:
Section 171 of the CGST Act does not provide any guideline for determination of the profiteered amount, even the Rules framed thereunder, do not provide guidance on the manner in which profiteering would be determined by the NAA. The Rules merely provide for the constitution of the NAA, the terms for the appointment of its members, the procedure to be followed in conducting the proceedings and the functions and types of orders that can be passed by the NAA.
There is no uniform, predictable, or pre-determined procedure or methodology laid down to determine profiteering under the anti-profiteering provisions. In this regard, the Hon’ble Supreme Court in Global Energy Ltd. Vs. Central Electricity Regulatory Commission[12] has held that if the statute provides for pointless discretion to agency, it is in essence demolishing the accountability strand within the administrative process as the agency is not under an obligation from an objective norm, which can enforce accountability in decision-making process.
All law-making, be it in the context of primary legislation or delegated legislation, must conform to the fundamental principles of transparency and openness on one hand, and responsiveness and accountability, on the other. Law must provide a basic level of “legal security” by assuring that law is knowable, dependable, and shielded from excessive discretion. In the context of rulemaking, delegated legislation should establish at least the broad structural parameters within which functions can be effectively exercised.
Consequently, as it stands, anti-profiteering provisions vest absolute powers with the NAA to determine the methodology and procedure; it is only because of this entrustment of the unbridled powers on the NAA, that divergent views are observed in different investigation(s). For instance, in some cases the NAA has expanded the scope of the proceedings beyond the product in respect of which a complaint has been filed[13], in some cases, the NAA has permitted grammage as an acceptable method to pass on commensurate reduction[14] whereas the same was rejected in all other cases. Similarly, in some cases, NAA has insisted that a commensurate reduction in prices must be an arithmetically precise amount to the last penny[15], whereas in other cases the NAA has applied the de-minimis principle and taken an approach that the commensurate reduction in prices can be within a range and may not be arithmetically precise[16]. Also, NAA has adopted different periods of investigation for different cases, thereby expecting the manufacturer to freeze the sale price for an indefinite period, irrespective of whether they are justifiable reasons for increase in sale price of the product.
Therefore, anti-profiteering provisions fail to provide any guideline for the determination of the profiteered amount and a basic level of legal security. In fact, the anti-profiteering provisions are antithetical to the basic legal principles that demand law to be knowable, dependable and shielded from excessive discretion.
Reason 9: NAA is a quasi-judicial authority and absence of a judicial member makes the constitution of NAA, unconstitutional:
Rule 122 of the CGST Rules provides that NAA shall consist of a Chairman and four technical Members, who are or have been bureaucrats. The NAA is a body entrusted with adjudicatory functions and Rules 126 and 127 respectively lay down the powers and duties of the NAA.
The NAA performs adjudicatory functions for determining whether the benefit of reduction in tax has been passed on to the recipient, and if not, it is empowered to summon any person, take evidence, hold an inquiry, afford an opportunity of hearing, impose penalty and cancel the registration.
The NAA is therefore a quasi-judicial authority as per the principles laid down by the Hon’ble Supreme Court in State of Gujarat Vs. Gujarat Revenue Tribunal Bar Association[17] wherein it was held that where a statutory authority is required to decide a dispute, such an authority may be called as a quasi-judicial authority.
Further, the Hon’ble Supreme Court in State of Gujarat Vs. Utility Users Welfare Association[18] has held that once an authority has the trappings of a Court and performs judicial functions, albeit limited but having far-reaching effects, the presence of a member having knowledge of law is necessary. Further, presence of a member having knowledge of law does not imply that any person from the field of law can be picked up. It must be a person, who is, or has been holding a judicial office or is a person possessing professional qualifications with substantial experience in the practice of law, who has the requisite qualifications to have been appointed as a Judge of the High Court or a District Judge.
The Hon’ble Supreme Court in Madras Bar Association Vs. Union of India[19], Union of India Vs. R. Gandhi[20] and State of Gujarat Vs. Utility Users Welfare Association[21] has held that appointment of a judicial member is a sine qua non for any authority which is performing judicial functions of determining rights and liabilities of a person. To the extent an authority undertakes such functions, it is acting in the capacity of a ‘court’ and therefore it becomes imperative to appoint a judicial member with expertise and experience in dealing with legal and interpretational issues.
Therefore, the presence of a judicial member is imperative on the NAA and absence thereof, violates the basic structure of the Constitution of India in as much as the doctrine of separation of powers and principles of judicial review are undermined. Thus, the anti-profiteering provisions to the aforesaid extent are unconstitutional.
Reason 10: Anti-profiteering provisions under various SGST Acts are unconstitutional on account of, total abdication of essential legislative function by State Governments:
Article 246A of the Constitution empowers Parliament and the Legislature of every State to make laws with respect to Goods and Services Tax imposed by the Union or by such State. Therefore, Article 246A grants simultaneous powers to both Parliament and the Legislature of every State to make laws with respect to GST. However, the State Governments have abdicated their essential legislative function by simply adopting the anti-profiteering provisions under the CGST Act.
In this regard, the Hon’ble Supreme Court in B. Shama Rao Vs. Union Territory of Pondicherry[22] held that the Pondicherry Legislature accepted the amended Act, even though it was not and could not be aware of the amended Act. Therefore, there was a total surrender in the matter of sales tax legislation by the Pondicherry Legislature in favour of the Tamil Nadu Legislature, and for that reason the Act is void, or as is often said, “still born“.
In the instant case also, there is a total surrender in the matter of anti-profiteering legislation by the State Governments in favour of the Central Government and for that reason the anti-profiteering provisions under various SGST Acts are void and unconstitutional.
Reason 11: No statutory appeal provided under the GST Law against the orders of the NAA
Section 2(4) of the GST Act defines “adjudicating authority” and it specifically provides that the Adjudicating Authority will not include NAA . Accordingly, appeal against Orders passed by the NAA will not lie to the Appellate Authority under Section 107 of the CGST Act. This implies that NAA is the final adjudicatory authority as far as the factual aspects of a matter are concerned.
Since there is no statutory appeal permitted, the only remedy available to the aggrieved person is to file a writ petition under Article 226 of the Constitution against the NAA orders. However, the scope of judicial review under Article 226 is limited to the deficiency in decision-making process and not the decision per se. the High Court under Article 226 does not go into the factual aspects of a case unless the order passed by the authority is illogical or suffers from procedural impropriety or is shocking to the conscience of the court.
Therefore, the absence of a statutory appeal against the orders passed by the NAA is violative of the principles of natural justice. Thus, anti-profiteering provisions to the aforesaid extent are unconstitutional.
Reason 12: Anti-profiteering provisions are contrary to various other laws
Anti-profiteering provisions under GST law are contrary to various other laws such as the Legal Metrology Act, 2009 and the Drugs Price Control Order, 2013 (DPCO, 2013). In terms of Section 171 of the GST Act, any reduction in rate of tax on any supply of goods or services or the benefit of ITC is passed on to the recipient by way of commensurate reduction in prices. Therefore, in the case of small SKUs of Rs. 1 or Rs. 2, any reduction in prices would lead to absurd pricing such as Rs. 0.84 or Rs. 1.79.
Now, as per Rule 6(1)(e) of the Legal Metrology (Packaged Commodities) Rules, 2011, Rs. 0.84 or Rs. 1.79 is not a legal tender and the MRP must be rounded off to the nearest rupee or Rs. 0.50. Hence, the manufacturer would be forced to increase the MRP to Rs. 1/- or 2/-, thereby contravening Section 171 of the GST Act. Therefore, compliance with Legal Metrology (Packaged Commodities) Rules, 2011 leads to the violation of Anti-profiteering provisions under the GST law.
Further, Para 20 of the DPCO, 2013 prescribes that once a non-scheduled formulation/drug is launched, an increase of up to 10% of MRP, every 12 months is permitted. Therefore, as far as DPCO, 2013 is concerned, a manufacturer is free to increase the MRP of its drugs by 10% of the MRP as it existed during the preceding 12 months, at any time after the expiry of 12 months from the previous MRP increase.
However, any increase in the MRP immediately, after the GST rate reduction might attract the anti-profiteering provisions under the GST law. Therefore, even when the manufacturers are free to increase the MRP of drugs up to 10% of the MRP as it existed during the preceding 12 months, at any time, but any increase in the MRP just after the GST rate reduction is construed as profiteering by the NAA. Therefore, compliance with DPCO, 2013 leads to the violation of Anti-profiteering provisions under the GST law.
Reason 13: The concept of casting vote under the Anti-profiteering provisions is anathema to judicial functioning
Rule 134(1) provides that a minimum of 3 members constitute the quorum of NAA at its meetings. In terms of Rule 134(2), the disagreement between members on any point on is to be decided according to the, opinion of the majority present and voting and in case of equality of votes, the Chairman of NAA will have a second and casting vote.
A similar provision (Section 22(3) of the Competition Act, 2002) was considered and struck down by the Hon’ble Delhi High Court in Mahindra Electricity Mobility Vs. CCI[23] wherein it was held that the principle of equal weight for the decisions of each participant of a quasi-judicial authority is undoubtedly destroyed by providing a second or casting vote to the Chairman. An adjudicatory function presupposes a fair procedure whereby the tribunal comprising of an impartial member or members hearing the parties render their decisions objectively on the given facts and applying a pre-existing norm. Each member must apply his/her mind independently to arrive at the decision but the potential mischief that the casting vote provision can result in, is that the Chairperson may well take recourse to the second or casting vote and tip the balance the other way.
In light of the aforesaid position in law, Rule 134(1) of the GST Rules is void, as adjudicatory process is to be a collegial or collaborative process, and the requirement of application of mind is subverted if the Chairperson is conferred a second or casting vote. The principle of each member’s opinion and view carrying the same weight is destroyed in such an instance.
Conclusion:
The objective behind the introduction of anti-profiteering provisions under the GST law was just and fair, envisaging passing off the benefits to the consumers, in cases of any reduction in the tax rates. The rationale behind the same was that the government has been incurring revenue losses by making tax cuts, so that the ultimate benefit in form of reduced prices is passed on to the consumers and not profiteered by large corporate entities or manufacturers. As discussed above that under the erstwhile regime there was no effective mechanism to monitor whether any reduction in the rate of tax on any supply of goods or services resulted in a consequent reduction in the prices of such goods or services, because of which various manufacturers did not reduce the MRP after the introduction of VAT though there was a substantial reduction in tax rates.
However, contrary to the objective and idea behind the introduction of anti-profiteering provisions under the GST law, the real time application is arbitrary and against the aforesaid objective. Anti-profiteering provisions under the GST law are a perfect example of a badly drafted law as evident from the above stated thirteen reasons.
Anti-profiteering provisions instead of promoting and fostering consumer welfare has become an instrument to harass business by conferring unrestricted and unguided discretion to a non-judicial body. There is no policy, guideline, principles, or standards regarding the powers to be exercised by NAA. Anti-profiteering provisions vest absolute powers with the NAA to determine the methodology and procedure, it is only because of this entrustment of the unbridled powers to the NAA, that divergent views are observed in different cases.
The objective behind introduction of anti-profiteering provisions under the GST law was noble, although there are various loopholes in its implementation as pointed out above and the same could be filed by giving purposive interpretation to the Anti-profiteering provisions. In this regard, the constitutional validity of the Anti-profiteering provisions under the GST Act and Rules, has already been challenged before the Hon’ble Delhi High Court, by way of various writ petitions and the said matter is pending before the Hon’ble Delhi High Court. Therefore, it would be interesting to see how Delhi High Court interpret the anti-profiteering provisions under the GST law.
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[1] Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.
[2] Price control
[3] Noor Mohammed Vs. Khurram Pasha 2022 SCC OnLine SC 956 and Nazir Ahmad Vs. King Emperor AIR 1936 PC 253(2)
[4] (1989) 3 SCC 634
[5] (1969) 2 SCC 166
[6] Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. Vs. CST, (1974) 4 SCC 98
[7] (2001) 5 SCC 212
[8] Municipal Corporation of Delhi Vs. Birla Cotton, Spinning and Weaving Mills, Delhi and Ors. 1968 SCR (3) 251
[9] Addl. District Magistrate (Rev.) Delhi Admn. v. Siri Ram, (2000) 5 SCC 451
[10] (2016) 3 SCC 643
[11] (1999) 4 SCC 192
[12] (2009) 15 SCC 570
[13] Case No. 77/2019 (M/s Johnson & Johnson Pvt. Ltd.) & Case No. 26/2020 (Emmar MGF Land Ltd.)
[14] Case No. 20/2018 (M/s Hindustan Unilever Ltd.)
[15] Case No. 76/2020 (M/s Procter & Gamble Home Products Pvt. Ltd.) & Case No. 79/2020 (M/s Hardcastle Restaurants Pvt. Ltd.)
[16] Case No. 9/2018 (M/s NP Foods)
[17] (2012) 10 SCC 353
[18] (2018) 6 SCC 21
[19] (2015) 8 SCC 583
[20] (2010) 11 SCC 1
[21] (2018) 6 SCC 21
[22] AIR 1967 SC 1480
[23] 2019 SCC OnLine Del 8032
