Dr. Sanjiv Agarwal
As per GST law in India, the GST law contains a unique provision on anti-profiteering measure as a deterrent for trade and industry to enjoy unjust enrichment in terms of profit arising out of implementation of Goods and Services Tax in India, i.e., anti-profiteering measure would obligate the businesses to pass on the cost benefit arising out of GST implementation to their customers.
GST Anti-profiteering Clause
Section 171 provides that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices.
Anti profiteering measures will help check price rise and also put a legal obligation on businesses to pass on the benefit. This will also help in instilling confidence in citizens. It may be noted that the anti-profiteering measure in GST law is meant to be a deterrent and is an enabling clause so that reduction in tax incidence due to the GST is passed on to the consumers.
Complaints handled by NAA
It is worth noting that the National Anti-profiteering Authority set up under the CGST Act, 2017 has been disposing off the complaints under section 171 of the Act.
Accordingly, three complaints have already been disposed of by the Authority (NAA), viz,
|Date of Order||Complaint Against||Business Activity||Citation|
|27.03.2018||Vrandavaneshwree Automotive Pvt. Ltd, Bareilly||Car Dealer||(2018) 4 TMI 1377; (2018) 92 Taxmann.com 360; (2018) 67 GST 429 (NAA)|
|04.05.2018||KRBL Ltd., New Delhi||Basmati rice Manufacturer||(2018) 5 TMI 1760; (2018) 93 taxmann.com 149; (2018) 67 GST 574 (NAA)|
|31.05.2018||Schindler India Pvt. Ltd., Mumbai||Elevator / Lift Manufacturer||
(2018) 6 TMI 687 (NAA); (2018) 94 taxmann.com 163 (NAA)
In a recent Order dated 18, July, 2018, in the matter of Rishi Gupta, Chennai v. M/s Flipkart Internet Pvt. Ltd., Bangalore [reported in (2018) 95 taxmann.com 221 (2018) 7 TMI 1490 (NAA)]. The National Anti-profiteering Authority (NAA) ordered that there was no anti-profiteering established and the complaints was not maintainable and was therefore, dismissed.
According to the factual matrix, the applicant had ordered a Godrej Interio Slimline Metal Almirah through Flipkart on 4th November. 2017 and a tax invoice dated 07.11.2017 for Rs. 14852/- was issued by the supplier, M/s Godrej & Boyce Mfg Co. Ltd., Mumbai. However, at the time of delivery, another invoice dated 29.11.2017 was issued by the Supplier for an amount of Rs. 14,152/-. The Applicant had alleged that he had paid an amount of Rs. 14,852/- to the Flipkart and the excess amount charged should have been refunded to him. It was also alleged that non-refund of differential amount was resorting to profiteering in contravention of provisions of section 171 of the CGST Act, 2017.
This was investigated by Standing Committee and then referred to Director General of Safeguards (DGSG) which has now been renamed as Director General of Anti-profiteering (DGAP). On analysis of both the invoices, it was observed that in the case of invoice dated 07.11.2017, issued by the Supplier, the gross amount of Rs. 15,352/- could be broken into Rs. 11,993.75/- as base price and Rs. 3358.25/- as GST @ 28% and on the gross amount, a discount of Rs. 500/- was given to the applicant by the Supplier. Further, discounted price of Rs. 14,852/- could be further broken into Rs. 11,603.13/- as the base price and Rs. 3248.87/- as the GST@ 28%. Therefore, the base price of the supplier was Rs. 11,993.75/- with discount of Rs. 500/-. In the case of the invoice dated 29.11.2017, it was apparent that the Supplier had charged GST at the reduced rate of 18% on the base price of Rs. 11,993.87/- and hence the price charged to the Applicant was Rs. 14,151.87/-. It was therefore, concluded that the Supplier had charged GST at the prescribed rate of 18% on the base price of Rs. 11,993.87/- and thus he had not increased the earlier base price after coming in to force of the GST. The discount of Rs. 500/- which was offered earlier had been withdrawn by the Supplier vide his invoice dated 29.11.2017 which did not amount to profiteering. Also, the excess amount of GST paid by the Applicant @ 28% at the time of placing order was to be refunded by the Respondent as the same had been reduced to 18% at the time of delivery on 29.11.2017. It was recommended that there had been no profiteering by the Supplier and hence there was no violation of the provisions of the CGST Act, 2017.
On the other hand, respondent (Flipkart) submitted that the excess amount of tax collected by him. The DGAP vide his letter dated 11.05.2018 had informed that as per the letter dated 27.4.2018 received from the Respondent the excess amount of Rs. 700/-collected from the Applicant had been refunded on 18.01.2018. Further, it was only offering a market place which enabled the sellers to offer their products for direct sale to the customers for which it was charging commission and the sellers were entirely responsible for the supply of goods and services and for the payment of taxes. It also informed that there were 7254 cases in which the rate of GST at the time of booking of the orders on his platform was higher than the rate of GST prevalent at the time of delivery and it had initiated the process of refund of the differential amount as per the instructions of the sellers.
The DGAP also stated that the discount of Rs. 500/- which was subsequently withdrawn by the Supplier was given out of the profit margin by the Supplier and hence it could not be treated as an act of profiteering. He had also informed that the Respondent was not a Supplier and hence the refund of excess tax was distinct from profiteering and hence it did not fall under the ambit of Section 171 of the Act.
The NAA after hearing the parties, came to the conclusion that the base price of the Supplier was Rs. 11,993.75/- and on the cum-tax price a discount of Rs. 500/- was offered. It is also revealed that the Almirah was supplied to the Applicant by the Supplier vide invoice dated 29.11.2017 in which the base price was again shown as Rs. 11,993.87/- and GST of Rs. 2158/- was charged @ 18%, as the same had been reduced by the Government of India on 14.11.2017 from 28% to 18%. Therefore, it is clear that the Supplier had charged correct rates of GST which were prevalent at the time of placing of the order and the supply of the Almirah through the above two invoices, therefore, no illegality had been done by the Supplier while executing the order placed by the Applicant. It is also apparent from the record that the Supplier had not changed the base price of Rs. 11,993.75/- which was prevalent at the time of booking on 4.11.2018, at the time of delivery on 29.11.2017. Hence the Supplier has not resorted to profiteering by increasing his base price or appropriated the excess amount of tax charged from the Applicant and hence the allegation of violation of the provisions of Section 171 of the above Act is not established.
The Flipkart was not the Supplier/manufacturer of the Almirah and was only an agent who had offered his platform to the Supplier to sell the Almirah by charging commission, and was also not responsible for collection or refund of GST and hence he cannot be held accountable for contravention of Section 171 of the CGST Act, 2017. It has also been found that the Supplier has refunded an amount of Rs. 700/- through the Respondent which was charged as tax in excess from the Applicant at the time of the placing of the order.
Also, NAA observed that the withdrawal of discount does not amount to profiteering as the same was offered from his profit margin by the Supplier and does not form part of the base price and therefore, also the Supplier cannot be held guilty under Section 171 of the Act.
However, since GST was charged @ 28% on orders placed by payees before 15.11.2017 but supplies were made against them after reduction of rate to 18%, NAA directed the Flipkart to ensure that different refund of excess tax is made to buyers without any delay.
In larger public interest and based on market practices, anticipating that there could be more such cases, NAA also directed the Director General of Audit, Central Board of Indirect Taxes and Customs vide letter No. NAA/2018/DO/08/211 dated 24.5.2018 to audit the major e-platforms and submit its findings to the Authority.
Going by the performance of NAA, it is clear that its very objective seem to have been defeated, firstly due to its late set up and secondly, its reactive approach by which it could only deal with just half a dozen of complaints. It is yet to take suo moto action on malpractices prevalent in the market place. NAA is yet to book a case against any supplier.
Also, there are various vague areas such as arbitrariness in deciding on goods for price change stickers (why only FMCG), passing of commensurate benefits which is highly subjective, time fame for determining transfer of benefit, consideration of volatile input costs such as fuel, exchange rate etc.
It is understood the NAA is presently investigating few more complaints but it is very difficult to prove anti-profiteering as any rate fall could be countered with lowering of discounts.