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CMA Rohit Vora

Anti-Profiteering provision has been incorporated into GST law, to ensure that the reduction of tax incidence is passed on to the consumers.

Profiteering is defined as the sale or offering for sale any basic necessity or prime commodity at a price grossly in excess of its true worth.

A strict interpretation of Section 171 of the GST law requires a registered taxable person to pass on the benefit of every rupee accruing on account of additional input tax credit or reduced tax rate, to the next level of supply chain. Even the transition provisions under the GST law (Section 140 (3)) proposes to allow the credit of eligible duties and taxes in respect of inputs held in stock, subject to the condition that the person passes on the benefit of such credit by way of reduced prices to the recipient.

Every taxable person under GST Law will have to do the ‘IMPACT ANALYSIS’ on his business to find out due to changes in existing tax regime, what are the additional benefits he will be able to get by way of ITC , no retention and different taxes for which no set off was allowed.  What will be the savings on account of input tax and output tax, Savings will have to be worked out.   Similarly, additional tax burden, if any also will have to be worked out considering new provisions of the GST Law.  If there is a savings then such savings will have to be passed on to the customer and that will be the legal requirement to demonstrate that savings have been passed on to the customers’ otherwise penal provisions will attract.

So essentially, First, It is computation of saving and then to ensure that such benefits are passed on to Consumer at large.

It is important, therefore, that  organizations  not only analyses the direct impact of the tax changes on their own operations, but also the benefits they should expect to have passed on to them by their suppliers as a result of cost reductions from tax changes they enjoy.  These may include reduced capital costs or other input costs arising from the tax changes.

Government and / or specific professional institute can ensure better compliance by giving publicity of the Anti-Profiteering provisions and making the public sector enterprises, large business houses and Companies Board of Directors to give a public commitment on quarterly basis of complying with Anti-Profiteering Provisions under the GST Law.

Further the professional who audits the annual return of the dealer and furnish his report as per clause 44 of the GST Law should specifically mention about the compliance as per Sec 140 (3) & Sec. 171 of the GST Law.

The above measures will ensure the real benefit of GST is availed by the people of India and also control inflation.  It also will help the industry to give-up the fear of the any Authority examining their books at a later date.

Simple Impact of tax changes on retail products is explained below:

Ex: I
Particulars Pre GST Post – GST Difference to be passed on
Basic Price 100.00 100.00
Excise Duty 12.50
CGST 12.50
K VAT 16.31
SGST 12.50
Landed Cost 128.81 125.00
Input Credit 16.31 25.00
Net Landed Cost 112.50 100.00 12.50
Ex: 2
Particulars Pre GST Post – GST Difference to be passed on
Basic Price 100 100
Excise Duty 12.5
CGST 12.5
CST 2.25
SGST 12.5
Landed Cost 114.75 125
Input Credit                     – 25
Net Landed Cost 114.75 100.00 14.75

The above Simple Analysis requires additional support of Complex Manufacturing Sector – Service Sector where inter/ cross effect of multi product, multi service input- output relationship may prevail. The analysis / effect may be more complex when multi rate structure may also prevail. These are where complex analysis and effect to show that available more input tax credits are passed on to customer. Systematic costing records of mapping of input tax credit of various goods and services for multiple output of goods / services.

CMA are well experienced and trained to deal with input – output and other resource utilization and application of scientific cost accounting principles coupled with good technical backup of in-depth product and services are concerned .  Yes, Organizations which are well experienced with keeping of systematic prescribed costing records have edge over others.

It is now social function and duties of experienced Cost and Management Accountants to educate all sectors the best principles and methodology of Cost Management and benefits analysis to comply with the requirements of ensuring Anti Profiteering as GST getting implemented.

This GST- Cost Benefit & Cost Management Analysis has many concept and logics and will be dealt with in continuation with many verticals in gradual phases

(This write up is joint efforts of Associate Partner CMA T K Jaganathan and Professional Associates under guidance and directives of Controlling Partner CMA Rohit J Vora)

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April 2024