CA Ayush Garg

CA Ayush GargIntroduction

Anti Profiteering Measure (APM) is governed by section 163 of revised model GST law. As per section 163, every registered person is required to pass on the complete benefit accruing on account of additional input tax credit or reduced tax rate to the next level of supply  chain.

For example : Currently car manufacturers are paying average effective tax @40%, which include excise duty, custom duty (if any), VAT/CST, service tax and some other indirect taxes. In GST regime they are expected to pay 28% or  28% plus 4% cess. Let us take an example of a car which is worth Rs. 10,00,000 (exclusive of all taxes).

Current Regime GST Regime Difference
Value 10,00,000 Value 10,00,000
Tax (40%) 4,00,000 Tax (28%) 2,80,000
Total value of car 14,00,000 Total value of car 12,80,000 1,20,000

APM is to ensure that the benefit of Rs. 1,20,000 is to be passed on to the ultimate customer. Along with this, registered person is also required to pass on the benefit that he has derived from the reduced cost of his Input supplies, which has been reduced because of additional input tax credit or reduced tax rate under GST regime.

Anti Profiteering Measure in other Indian Enactments

The concept of Anti profiteering Measure has been implemented by West Bengal in 1958 (under the West Bengal Anti Profiteering Act, 1958) to fix maximum price for rate chargeable by  a dealer for items of daily use. In 2010, the Act was amended to intensify the drive against dealers who store scheduled items illegally for profiteering. The act also provides rigorous imprisonment of 2 yrs or fine or both and also for forfeiture of stock of goods.

Anti Profiteering Measure in International Enactments

Provision Similar to APM was also inserted Australian and Malaysia’s enactments. In Australia, Competition and  Consumer Commission was empowered to conduct price surveillance, monitoring and enquiry in relation to goods and services. The objective behind these activities was to ensure the price reduction, on account of transition to GST regime, is passed on to the customers. In case of violation, assessed unjust enrichment” was also followed in case the consumer is not traceable.

The Price Control and Anti-Profiteering Act, 2011 has been enacted in Malaysia so as to control prices of goods and services and prohibit unreasonably high profiteering by supplier. For every increase in prices and net profit margin, justification is required from the supplier.

Need of Anti Profiteering measure

GST is a multi stage consumption based tax which proposes to abolish cascading effect which is present in current taxation system. This could lead to improved profit margin at every stage of supply chain. Therefore, strict measures in  form of APM are required to ensure that benefits out of efficient tax system are passed on to consumers.

If APM measure is not taken, GST implementation may result in increase in prices of the goods and services and the benefit of GST will be absorbed by the dealers only. So as to ensure the interest of the consumer, APM is must.

Challenge/hardship in implementing of Anti Profiteering Measure

Determination of unreasonably high profit in itself is a challenging task. How Profit will be determined is not clear as per Model GST Law. There can be many ways to determine profit like product wise, division wise, vertical wise, and  organization as a whole. Profit can be compared on the basis of absolute figure as well as percentage wise. All these issues are still required to be answered by the GST council.

It may create a hurdle in ease of doing business as it will affect pricing structure of the organization and will create additional compliance requirements.

De-motivate business entity to reduce cost and become more efficient since all the benefit will be required to be passed on to the customer.

Increase in Profit can be because of many factors, other than taxation, like market price fluctuations, development of low cost technology, more efficiency and many others. Bifurcating profit on the basis of taxation and other than taxation  factors is difficult to ascertain.

Any increase in net margin for reasons and circumstances after adjusting price for additional input tax credit or reduced tax rate can be viewed adversely by the department.

However the above problem can be solved to some extent with the help of making audit compulsory whose objective will be determination of cost, impact of GST and ensure compliance of anti Profit measure.

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One response to “Anti Profiteering Measure under revised model GST law”

  1. Monika Bansal says:

    Very nice article. .thank you for sharing.

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