CA Ajay Joshi
After introduction and implementation of GST in India, the Government’s aim is to ensure that GST should not lead to general inflation and for this, it becomes necessary to ensure that benefits arising out of GST implementation be transferred to customers/consumers.
The GST law contains a provision on anti-profiteering measure as a deterrent for trade and industry to enjoy unjust enrichment in terms of profits arising out of implementation of GST in India. The anti-profiteering measure would obligate the businesses to pass on the cost benefit arising out of GST implementation to their customers.
As per section 171 of the CGST/SGST Act, 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. It has a provision of constituting an authority by the government to examine 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. The ‘anti-profiteering’ measures enshrined in the GST law provide an institutional mechanism to ensure that the full benefits of input tax credits and reduced GST rates on supply of goods or services flow to the consumer. This institutional framework comprises the NAA, a Standing Committee, Screening Committees in every state and the Directorate General of Safeguards in the Central Board of Excise & Customs (CBEC).
According to the rules, if the Authority (NAA) confirms that there is a need to apply anti-profiteering measures, then it has the authority to order the supplier to reduce its prices or return the undue benefit availed by it along with interest to the recipient of the goods or services. If this can’t be done, then the company can be ordered to deposit the amount in the Consumer Welfare Fund. In extreme cases, the NAA can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.
National Anti-Profiteering Authority:
The Union Cabinet in its 23rd meeting approved the creation of the National Anti-profiteering Authority (NAA) to ensure that businesses pass on the benefits of GST to consumers. The decision to set up the enforcement body marks the government’s resolve to ensure that the latest tax rate reductions on more than 200 items are implemented immediately by businesses. This authority has been granted wide-ranging powers, including to cancel the registration of offending firms in extreme cases
National Anti-profiteering Authority (NAA) has been constituted by the central Government to examine 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. 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 various commodities. This happened even with the availability of the tax credit available from the production stage to the final consumption stage which should have actually resulted into reduction in the final prices. The main reason of inflation was that the supplier was not passing on the benefit to the consumer and thereby indulging in illegal profiteering.
To ensure that the consumer is protected from arbitrary price increase in the name of GST, the National Anti-profiteering Authority will ensure reduction in rate of tax on any supply of goods or services and the benefit of input tax credit is passed on to the recipient by way of commensurate reduction in prices.
The National Anti-Profiteering Authority will consist of a five members committee consisting of a Chairman who holds or has held a post equivalent in rank to a Secretary to the Government of India; and four Technical Members who are or have been Commissioners of State tax or central tax or have held an equivalent post under existing laws. The Additional Director General of Safeguards under the CBEC shall be the Secretary for the Authority.
The tenure of Authority will be two years and the authority shall cease to exist after the expiry of two years from the date on which the Chairman enters upon his office unless the Council recommends otherwise. The Authority will have power to determine the methodology and procedure for 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.
National Anti-Profiteering Authority : Duties
The duties of Authority would be the following:
(i) to determine whether any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices;
(ii) to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices;
(iii) to order,
(a) reduction in prices;
(b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen per cent. from the date of collection of the higher amount till the date of the return of such amount or recovery of the amount not returned, as the case may be, in case the eligible person does not claim return of the amount or is not identifiable, to deposit the same in the Consumer Welfare Fund;
(c) imposition of penalty; and
(d) cancellation of registration.
Application from Interested Parties to the Authority:
All applications from interested parties on issues of local nature shall first be examined by the State level Screening Committee constituted in each State by the State Governments consisting of an officer of the State Government, to be nominated by the Commissioner, and an officer of the Central Government, to be nominated by the Chief Commissioner. The Screening Committee on being satisfied that the supplier has not passed on the reduction in rate of tax on any supply of goods or services or the benefit of input tax credit on to the recipient by way of commensurate reduction in prices, will forward the application with its recommendations to the Standing Committee on Anti-profiteering, which shall consist of such officers of the State Government and Central Government as may be nominated by the GST council, for further action.
If the Standing Committee is satisfied that there is a prima facie evidence to show that the supplier has not passed on the benefit of reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices, it shall refer the matter to the Director General of Safeguards for a detailed investigation.
Investigation by Director General of Safeguards:
The Director General of Safeguards shall conduct investigation and collect evidence necessary to determine undue profiteering and before initiation of the investigation, issue a notice to the interested parties (and to such other persons as deemed fit for a fair inquiry into the matter) containing, inter alia, information on the following, namely: –
(a) the description of the goods or services in respect of which the proceedings have been initiated;
(b) summary of the statement of facts on which the allegations are based; and
(c) the time limit allowed to the interested parties and other persons who may have information related to the proceedings for furnishing their reply.
The evidence or information presented to the Director General of Safeguards by one interested party can be made available to the other interested parties, participating in the proceedings. The evidence provided will be kept confidential and the provisions of section 11 of the Right to Information Act, 2005, shall apply mutatis mutandis to the disclosure of any information which is provided on a confidential basis.
The Director General of Safeguards can seek opinion of any other agency or statutory authorities in the discharge of his duties. The Director General of Safeguards, or an officer authorized by him will have the power to summon any person necessary either to give evidence or to produce a document or any other thing. He will also have same powers as that of a civil court and every such inquiry will be deemed to be a judicial proceeding.
The Director General of Safeguards will complete the investigation within a period of three months or within such extended period not exceeding a further period of three months for reasons to be recorded in writing as allowed by the Standing Committee and, upon completion of the investigation, furnish to the Authority, a report of its findings along with the relevant records.
Order of the Authority:
The Authority shall (after granting an opportunity of hearing to the interested parties if so requested) within a period of three months from the date of the receipt of the report from the Director General of Safeguards determine whether a registered person has passed on the benefit of the reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices.
If the Members of the Authority differ in opinion on any point, the point shall be decided according to the opinion of the majority.
Where the Authority determines that a registered person has not passed on the benefit of the reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices, the Authority may order-
(a) reduction in prices;
(b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest;
(c) imposition of penalty as specified under the Act; and
(d) cancellation of registration under the Act.
Any order passed by the Authority shall be immediately complied with by the registered person failing which action shall be initiated to recover the amount in accordance with the provisions of the Integrated Goods and Services Tax Act or the Central Goods and Services Tax Act or the Union territory Goods and Services Tax Act or the State Goods and Services Tax Act of the respective States, as the case may be.
The Authority can direct any authority of central tax, State tax or Union territory tax to monitor the implementation of the order passed by it.
Wherever in the world the GST has been implemented, there has been an initial rise in prices and this has lasted anywhere from six months to just short of two years. The government has to ensure that the prices are under control. However, for this the entire manufacturing chain will have to be mapped and examined and vendors below a certain threshold may not have the kind of paperwork the authority may need to look at.
If the tax on, say, any commodity has come down, whether the price has been reduced by that much. But cost of a component might have increased. It will mean a look into the cost of all the components going into the production of commodity and whether each of the many components has seen an increase or decrease in tax incidence and what the manufacturers of those components has done. The GST law in India, does not have a clear method of assessing the GST benefits for purposes of passing it on.
Some countries which followed Anti-Profiteering measures before GST had clear mechanism defined. Malaysia brought in Anti-Profiteering measures before GST which followed the net profit margin methodology – a normal profit margin was ascertained for each product on a base date and any profit charged beyond this margin was considered unreasonably high. Australia followed a net dollar margin rule – if GST led to taxes and costs falling by $1, prices needed to fall that much. Conversely, if cost increased by that much, prices could too.
Indian GST law, need to have have a clear method of assessing the GST benefits for purposes of passing it on because the reason behind such anti-profiteering measures is to protect the masses, the Government at the same time need to ensure that honest taxpayers are not harassed by these provisions.
(The author can be reached at [email protected])