Benefit of reduction in the GST rate has to be passed on to customers under Anti-profiteering: An Analysis of recent judgement of National Anti-Profiteering Authority (NAA)

INTRODUCTION:

National Anti-Profiteering Authority in their recent judgement in case No.6/2018 dated 07/09/2018 in case of Shri Pawan Sharma Vs. M/s Sharma Trading Company, found that an assessee had involved in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017.

The authority has power to determine the whether the reduction in 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.

BRIEF FACTS OF THE CASE

GSTApplicant filed an application dated 22/11/2017 before the Standing Committee, alleging that the Respondent had not passed on the benefit of reduction in the rate of tax by lowering the price of Vaseline VTM 400 ml., which he had purchased from the respondent, when the Goods and Services Tax (GST) was reduced from 28% to 18% on this product on 15.11.2017.

He had also alleged that he had bought the above product from the Respondent @ Rs. 213.63/- per unit vide tax invoice No. GSA25066 on 26.09.2017 which included GST @ 28% and the Respondent had charged the same price when he had purchased the above product vide tax invoice No. GSA37782 on 15.11.2017 when the GST had been reduced to 18%.

He had thus claimed that the Respondent had in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him.

RELEVANT STATUTORY PROVISIONS

What is Anti-Profiteering?

Section171 of CGST ACT,2017 specify Anti-profiteering Measure which are as under:

(1) 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.

(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, 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.

(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.

Under Rule 122 of CGST RULES, 2017 constitution of National Anti-profiteering Authority was done and Authority will determine the method and procedure for determining whether the reduction in rate or the benefit of input tax credit has been passed on by the seller to the buyer by reducing the prices.

ADJUDICATION & FINDINGS OF NATIONAL ANTI-PROFITEERING AUTHORITY

Detailed investigation under Rule 129 of CGST Rules was completed and responded was asked to furnish copy of invoices for purchase and sales along with copy of returns for relevant periods.

  • Applicant had claimed that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him.
  • Respondent has indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction of tax in respect of the above product to their customers and, therefore, he is liable for action under Rule 133 of the CGST Rules, 2017 .

DECISION of NATIONAL ANTI-PROFITEERING AUTHORITY

National Anti-Profiteering Authority directed to the Respondent to reduce the sale price of the product immediately commensurate to the reduction in the rate of tax as was notified on 14.11.2017 and pass on the benefit of reduction in the rate of the tax to his customers.

The Authority also directed the respondent to –

  1. Return an amount of Rs. 184/- to the applicant with interest @ 18% w.e.f. 28.11.2017.
  2. Deposit an amount of Rs. 5,50,186/ with 18% interest to be calculated from first of the subsequent months in which the profiteering was done.
  3. The Authority has proposed penalty under section 122 of the CGST act 2017 read with Rule 133 (d) of CGST Rules 2017 on the respondent for which notice has been issued.

COMMON ISSUE WHICH NEEDS TO BE ADDRESSED OR NEEDS CLARITY:

  1. Applicability of anti-profiteering clause on which level, whether benefit accruing to the registered person needs to be determined on transaction level or product level basis or equity level basis or GSTN level.
  2. Whether benefit can be passed on by way of provision of extra quantity at same price?.
  3. GST rate changed on 27.07.2017 and 14.11.2017 benefit not passed on to the customers at the time of supply of goods can be passed on subsequent by floating sales promotions schemes.
  4. Benefit can be passed on by way of credit note in transparent manner in case of B to B supply to substantiate claim effectively, since reduction in subsequent price is seems to be difficult task to substantiate claim for reduction in price.
  5. Can GST laws overrides contract?, where in case of tax inclusive contracts and government tender bids.
  6. Whether benefit needs to be passed on to the customers when the supplier incurring loss.
  7. Does this provision contemplate the transactional scenario and requires a supplier to compare the overall rate of cumulative taxes/duties, which he has to pay under pre-GST regime with GST rate on the products dealt with him and pass on the reduction if any ? or
  8. This provision only deal with the reduction of rate time to time by issuing notification for reduction of GST rate of central and state tax, which under post implementation of GST?.
  9. Even if manufacturer passes on discount due to GST to his recipient, how he can prove that such discount given was on account of GST and it was not due to any other market conditions or force. Even if price is reduced, complainant can allege that such reduction was not account of GST benefits but due to low demand, normal trade practices or lesser credit period.
  10. Duration of Anti-profiteering provisions for 2 years for which anti-profiteering authority constituted or forever. It is important to note that section 171 which is main section dealing with Anti-Profiteering does not contains any sunset clause. In Malaysia it was for transitional period.
  11. Whether the benefit of reduction in the rate as well as ITC, both, must be passed on or only any one of these two should be passed?. As per wording used in section 171 of CGST Act,2017, its appears that either reduction in output tax rate Or additional input credits needs to be passed on to the customers.
  12. Another difficulty for assesse in case of complaint the assesse is required to supply entire costing of product and pricing of the product and complainant whether he is a competitor or end recipient (Customer) which receive information regarding his profit margin.

CONCLUSION: 

This decision of National Anti-profiteering authority in this referred case is welcome but  Challenges before assesse for variation in demand and supply which directly hamper price and which may not always be under the control of assesses, since price changes on account of other factors like changes in market segment, product range, decrease in Raw materials price and production cost due to production efficiency, merger or demerger and change in management, sometime external factors like purchasing power of customers, geographical location of customers, global environment and government policy. Most significant challenges before assesse is documentation to substantiate his claim for passing on benefit for reduction of price to ultimate customers. Since in absence of clear cut standard methods for computation of benefit is not been prescribed which will very difficult for assesse to prove the compliance of this provisions.

Malaysia brought in Anti-Profiteering measures before GST which followed the net profit margin methodology and Australia followed a net dollar margin rule but India does not have a clear cut method for assessing the GST benefits for purposes of passing on to the recipient which would be appropriate, acceptable, transparent and legal compliant.

Although the reason/intention behind the implementation of Anti-Profiteering measures is very good to protect the masses or customers, but on other hand the government should also ensure categorially that honest taxpayers are not harassed by these provisions.  

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