Sidharth S Kumar
B.A.LL.B. (Hons.), Advocate

Our nation is moving towards the biggest economic reform scheduled since the dawn of independence through the roll out of the Goods and Service Tax (GST) on July 1. GST has been envisaged as a game changer for the economy and intends to integrate our $2 trillion economy into a single market. One of the significant benefits expected to accrue from GST is the reduction in prices of commodities under the tax regime and its downward effect on retail inflation. However, several States expressed concern that the businesses may be reluctant to pass over the benefit of reduced prices to their customers.

In order to address such concerns, the GST law has been endowed with provisions to constitute a National Anti-Profiteering Authority (NAPA). The authority has the mandate to ensure that the consumers, along with the business houses share the benefits of lower prices. The GST Council has approved the draft Anti-Profiteering Rules.  The Rules do not define the terms Anti-Profiteering or Anti-Profiteering Practices. However, from the broad provisions of the draft rules, it can be surmised that Anti-Profiteering Practices mean any conduct through which the benefit of any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit not being passed on to the recipient by way of commensurate reduction in prices of goods or services. The Rules are yet to be notified by the Government.

Anti-Profiteering Authorities

The Rules allow constitution of National Anti-Profiteering Authority with a Chairman and four other Technical Members nominated by the GST Council. The Chairman shall be a person who holds or has held the post of a Secretary to the Central Government. The Technical Members may be nominated from among the persons who have been Commissioners of State tax or Central tax.

The council can constitute a Standing Committee on Anti-Profiteering comprising of officers of the State Government and Central Government. Further, each State Government can constitute State level Screening Committee. The Screening Committee shall include one officer of the state Government and another officer of the Central Government. Though not explicitly provided for under the Rules, an office of the Director General of Safeguards (DGS) can be established as the investigative arm of the NAPA. It may be noticed that the structure of NAPA has got similarities with the Competition Commission of India, established under the Competition Act, 2002.

The primary duty of NAPA is to determine whether, any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit, has been passed on to the recipient by way of commensurate reduction in prices. NAPA has to  identify the registered person who has not passed on the benefit of reduction in 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.

Three-tier Mechanism

The adjudicatory mechanism to determine anti-profiteering practices can be kicked off with an application submitted before the Standing Committee. The application can be submitted by an interested party or a Commissioner or any other person. The Standing Committee has to determine whether a prima facie case of anti-profiteering can be made out, from the details submitted in the application, within two months from the date of the receipt of the same.

If the Standing Committee forms an opinion of prima facie anti-profiteering activity, the matter shall be referred to the DGS for further investigation. The DGS shall issue notices to the interested parties and collect evidences in the course of the investigation. The investigation has to be completed within two months from the date of reference. The DGS shall report his findings to the Standing Committee along with supporting records.

The NAPA has to consider the report of the DGS and pass orders to curb any anti-profiteering practice, if at all, that has been brought to light in the report. NAPA can provide an opportunity of hearing to the interested parties, if sought by them. The scope of the orders that may be issued by NAPA are:

Reduction in prices;

Payment to the recipient, an amount, equivalent to the amount not passed on by way of anti-profiteering activity, along with an interest at the rate of eighteen percent;

Recovery of the amount, including the interest, not returned, as stated above, in casethe eligible person does not claim return of the amount or is not identifiable;

Imposition of penalty; and

Cancellation of GST registration.

NAPA may also authorize any authority of Central tax, State tax or Union territory tax to monitor implementation of the order passed by it.

Inchoate Rules

The Anti-profiteering Rules, as put out by the CBEC, is half baked and requires more fine tuning, before its notification in the Gazette. The Rules are conspicuous for the absence of definite methods or principles upon which anti-profiteering practices are evaluated. The NAPA has been given powers to formulate methodology and procedure to determine anti-profiteering practices.   Appellate provisions are also absent and are essential in the light of the sweeping powers given to NAPA under the Rules.

The critics of the Anti-profiteering provisions maintain that the Rules would lead to tax terrorism. The tax authorities may invoke the provisions of the Rules to harass the trading community in the absence of proper safeguards. The NAPA, in its present form, reminds about the vestiges of the erstwhile MRTP Commission that regulated unfair consumer practices in the pre-liberalisation period.

The Rules endow wide powers to NAPA for curtailing anti-competitive practices. The rules only lack proper administrative safeguards that can act as channels for effective implementation of the anti-profiteering provisions. Establishment of NAPA would ensure that consumers get a fair deal in the form of reduced prices. It has also been argued by the Government that GST would not leave the businesses at the losing end as the tax rates have been fixed for various commodities after due consideration of the prevailing price trends in the economy. Anti-profiteering provisions would ensure better growth of the economy through lowering inflation and leaving more disposable income with the consumers for savings and expenditure. The GST Council may look up to other jurisdictions, such as Australia, for a more coherent legislation on anti-profiteering mechanism.

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November 2020