Mr. Anandaday Misshra,
FOUNDER ADVOCATE – AMLEGALS & VATPROFS

Mr. Anandaday Misshr

The biggest tax regime change occurred with transition from Excise & Service tax to Goods & Services Tax (GST) in India.

The change was so dynamic that it could lead to boosting the GDP of India and also result in changes in price of goods and services as well. The business transactions suddenly saw different trend altogether.

A prominent change was the introduction of anti-profiteering. The intention is that no business should take undue benefit of such change in taxation regime.

Focus

The macroeconomics of pricing of goods and services are under scan for the first time in India. The focus of the Government of India is that if there is a reduction in tax, then the benefit of reduction should be passed over to the consumer.

With anti-profiteering being introduced, no business can retain any benefit or profit accrued due to reduction in tax and ultimately leading to reduction of its price of goods or services.

I can say that “unjust enrichment in profit is under curb by anti-profiteering measure”. In other words, entire supply chain is under scan of the lens.

It is also a step towards checking of inflation due to changes in pricing with the onset of new tax regime of GST.

Mechanism

The machinery provision to regulate anti-profiteering is under Section 171 of CGST Act which states that “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.”

On perusal of the same, it should be realized that word deployed is “recipient” and it conveys a lot and it is going to safeguard the interest of every person in the supply chain as a recipient.

B2B or B2C

There are two schools of thought thriving upon the word “recipient”. One says it is not for B2B and other says B2C. Before it can be safely concluded as to what actually it is meant for, the framing of the Section 171 and words deployed thereunder need to be perused again.

A broader word i.e. “recipient” has been used in the body of Section 171 of the Act. Further, neither “customer” nor “consumer” existed.

Hence, it is as clear as day light for one to conclude as to whether the intention is B2B2C or B2B or B2C or otherwise.

Passing of Benefit

The passing of benefit should occur with every reduction in tax rate or due to benefit of input tax credit.

The passing of benefit has been also implemented by other ministry to align it with declaration of every price reduction or enhancement by way of an advertisement in public domain.

The label showing pricing has been also monitored. The disparity in pricing has also been brought to the notice by various vigil citizens.

Artificial Intelligence

Various committees have already been working on artificial intelligence for certain sensitive sectors. They have already worked on various factors including the macro elemental aspects of pricing after change in rate slabs for various goods and services.

The reduction of prices in many sectors and statics has already been tabled and actions are being initiated at every possible level.

Holistic Approach

Practically it is very difficult to establish one to one correlation between ITC on inward supplies and Tax payable on outward supplies.

However, Companies as well as concerned anti-profiteering authority will have to deploy a holistic approach in screening of the margins and inbuilt factors towards the prices of supply. They have to focus on 3 factors:

  • Profit on product in absolute terms.
  • Profit percentage on Cost of product.
  • Profit percentage on Sale Price.

Of late, it has been observed that companies are either not clear on anti-profiteering or they have been guided in such a manner that the intrinsic and extrinsic factors have been confused while effecting the new pricing system especially in board meetings that in panic, they have decided to either pass over extra benefit or are still in dilemma as to what shall be their actual pricing.

Price Fixation v. Board Meetings

I am afraid to share that any half-baked information and fixation of price thereupon may lead to effect bottom line of the business in mid to long run. Therefore, an informed, justifiable and authoritative view and guidance should be sought in deciding upon the actual compliance of the mandatory requirement of the law.

Intrinsic & Extrinsic Factors

Determination of the Price has to be looked with price dependency on the basis of various intrinsic factors such as:

  • Cost of raw material or other components.
  • Predetermined objectives (Higher profit or higher revenue)
  • Image of the Seller (Goodwill)
  • Life cycle of the product
  • Credit period offered.
  • Promotional activities (Heavy advertisement/promotional exp.)

Whereas, Extrinsic factors being such as:

  • Competition
  • Consumers (price sensitivity & purchasing power of buyer)
  • Government Control
  • Economic Condition (Recession)
  • Supply Chain (Longer the chain, higher would be the price)
  • New business model
  • Consolidation

Companies should keep all factors very simple and account all the factors in very logical manner rather than behaving in panic at any given point of time. I have come across various panic driven price reductions by leading companies of India when they came to us for second opinion on anti-profiteering.

Recent Developments

On 9th February 2018, the Finance Minister informed the Parliament that notices have been issued for ‘initiation of investigation’ in 9 cases under anti-profiteering provisions of GST.

As on 31st January 2018, 221 anti-profiteering applications have been received by the Standing Committee and State Screening Committees.

“Notices of initiation of investigation have been issued in 9 cases involving 52 applications,” Finance Minister Arun Jaitley said in a written reply. He further said that to protect the interest of consumers, the government has directed manufacturers, packers, importers of pre- packaged commodities to declare the revised retail sale price after the implementation of GST by way of stamping or putting sticker or printing.

The Authority can determine the methodology and procedure for the determination as to whether the reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit has been passed on by the registered person to the recipient by way of commensurate reduction in prices.

Conclusion

It must be realized that the onus of passing of the benefit to the recipient will lie upon the companies who have done so at their end. Since, the million dollar question will still prevail as to how the authority will decide that the reduction of tax has actually being transferred or not because the price of each product differs according to the demand and supply

There is no particular answer of this question because there is no prescribed provision or statement by the Government however it seems that the Government may call upon the Company (Cost Audit & Records) Rules, 2014 to find out the actual cost before GST and after GST and the price increase or reduction because of the change in the rate.

Above all, on first hand companies will have to substantiate, ensure and satisfy the authorities that suitable pass over of every decrease in prices as an after effect of GST have been given effect to and the profits earned are not due to tax arbitrage, but either as a cost plus amount or as function of prevailing market prices.

I will at the end request every business entity to take an informed decision as anti-profiteering will emerge as one of the biggest grey area in near future under the tax regime of GST.

Compiled by GSTstreet for #GSTManthan

Author Bio

Qualification: Other
Company: AMLEGALS
Location: AHMEDABAD, Gujarat, IN
Member Since: 14 Apr 2018 | Total Posts: 46
I am a litigation & arbitration advocate. I am founder of a leading full service law firm AMLEGALS. I handle litigation in indirect taxes, Insolvency & Bankruptcy Code, IPR, Arbitration, Contracts etc in High Courts, Tribunals-NCLT,CESTAT,NCLAT etc, Arbitral Tribunals and various Court of View Full Profile

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