Brief Introduction
The GST Council’s recent recommendations in its 56th Council Meeting have resulted in widespread rate rationalisation across goods and services. With effect from 22nd September 2025, the tax rates on several products have either been reduced or increased.
Considering this, businesses need to determine whether and to what extent the tax benefit needs to be passed to buyers as a commensurate reduction in price under Section 171. Importantly, the law does not prescribe a formula or a fixed computation mechanism for revising prices. From judicial pronouncements, it is evident that the computation must be carried out on a case-to-case and industry-specific basis.
This article summarises the legal framework and key judicial/administrative pronouncements that emphasize on mechanism to compute such revised value and sets out practicable, defensible computation approaches.
The legal test of ‘commensurate’ under Section 171
At the outset, it is relevant to note that Section 171 of the GST Act provides that any reduction in the rate of taxes or a benefit of an increase in ITC shall be passed on to the recipient. Further, the power to appoint any authority to deal with such cases is vested with the Central Government.
Originally, this power was exercised through the National Anti-Profiteering Authority (NAA), then shifted to the CCI, and now to the GSTAT.
In this context, Notification No. 19/2024 – Central Tax introduced a sunset clause, under which no new complaints can be filed on or after 1 April 2025. However, cases filed before this date remain covered under anti-profiteering provisions.
This creates a situation where the provisions technically remain applicable, but no active authority is currently vested with enforcement powers. Given the recent rate changes, this highlights the need for a clear mechanism or designated authority to ensure compliance.
2. Judicial clarity on passing benefits
Recent rate cuts illustrate the issue: for instance, GST on footwear, umbrellas, renewable energy devices, and solar cookers has been reduced from 12% to 5%, while certain supplies such as pizza bread, chapati, paratha, erasers, pencils, and stationery items have been exempted altogether.
The question is: how should such rate reductions affect the final price of commodities?
Section 171 reads as, “any reduction in the 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.”
Two key elements arise:
1.Reduction in outward tax rate (i.e., lower GST on supplies).
2. Impact of ITC availability (either enhanced benefit or denial/reversal).
Both must be factored in simultaneously, with the net benefit or cost ultimately reflected in the customer price.
In Meenakshi Agarwal, the Authority emphasised that since both reduced tax and ITC benefits come out of government revenue, they must be passed on to consumers.
The Delhi High Court in Reckitt Benckiser clarified the meaning of commensurate:
“Consequently, the word ‘commensurate’ in Section 171 of the Act, 2017 means that whatever actual saving arises due to the reduction in rates of tax or the benefit of the Input Tax Credit, in rupee and paisa terms, must be reflected as equal or near about reduction in price . In other words, tax foregone by the authorities has to be passed on to the consumer as commensurate reduction in price.”
Thus, the actual saving in rupee and paisa terms, arising from tax reduction or ITC benefit, must be mirrored in an equivalent reduction in price.
In other words, tax foregone by the Government should translate into a commensurate price cut for consumers.
Thus, you must compute the quantum of benefit and ensure the price quoted to customers reflects that benefit either by way of price reduction or maybe by an increase in quantity.
3. Practical methodology for price computation
The approach below gives an idea to determine the revised price;
- Identify impacted SKUs/HSNs/SACs – only those affected by rate changes are relevant (DGAP v. Hungry Eyes).
- Compute the direct saving per unit from the tax rate reduction.
- If the rate change also affects ITC availability, compute the ITC effect per unit:
- If ITC is now available (or increases): measure the incremental ITC benefit that accrues per unit (proportionate ITC on inputs and services used to produce the SKU). Add this to the direct tax savings.
- If ITC is denied (or gets reduced): compute the incremental cost per unit because of ITC denial (reversal of capital goods ITC pro rata, denial on inputs, etc.). This amount reduces the net benefit or may create a net cost that must be reflected in a higher base price going forward.
Thus, the revised price should be the base price, including the effect of such ITC lost or ITC benefit received. [Refer Urban Essence for computation of ITC benefit or ITC lost]
4. Impact of ITC: Benefit or burden?
The availability (or denial) of ITC can drastically alter the effective benefit. For instance, even if GST is reduced, a simultaneous denial of ITC on inputs or services may neutralise the advantage and justify higher base pricing.
For instance, in Urban Essence mentioned supra, NAPA applied the following formula, where the rate changed from 18% to 5% with no ITC benefit:
Selling Price = Base Price ± adjustment for ITC denial.
5. Capital goods reversal — a hidden cost
Further, the impact of ITC reversal required on capital goods also needs to be taken into account while computing the revised price. Suppose, if a supply has now become exempt, the ITC on capital goods that are used to provide the exempt supply may be required to be reversed.
Example:
- Capital goods purchased against which ITC of INR 1,20,000 is claimed; useful life = 60 months.
- ITC per month = ₹2,000. If used for 20 months (taxable period), the balance life = 40 months.
- If supply becomes exempt, reversal required = 40 × 2,000 = INR 80,000.
- Suppose 8,000 units to be produced → per-unit cost increase = INR 10.
Such reversals must be factored into revised base pricing before finalising consumer price adjustments.
Thus, the final price may be computed on the basis below;
Net benefit per unit = Direct tax saving per unit + Incremental ITC benefit per unit − Incremental ITC denial cost per unit.
Additionally, it is noteworthy that if there are any changes in the cost of any other supply of goods or services received for providing such supply, then the effect of such cost will also be taken while computing the final revised price of the product [Hungry Eyes].
6. Compute the revised selling price per unit
- If Net benefit ≥ 0: revised selling price per unit = (Average base price + any permitted cost increases) + New GST − (Net benefit passed to customer).
- If Net benefit < 0 (i.e., a net cost to the supplier due to ITC denial): the base price may legally rise, but businesses should consider the competitive and regulatory optics; the increase must be supported by contemporaneous cost calculations and communicated.
7. Legal Metrology compliance on revised MRP
A circular dated 9th September 2025 under the Legal Metrology Act allows manufacturers/importers/packers to declare revised retail sale prices by stamping, stickers, or online printing. However, the original MRP must remain visible, and the revised price cannot overwrite it.
8. Checklist for immediate action when a GST rate change is notified
- Identify impacted HSN/SAC codes and map SKUs.
- Compute average base price for chosen benchmark period.
- Quantify direct tax saving per unit and ITC effect per unit.
- Decide and record the quantum of price reduction to be passed on; update ERP/price lists; note rounding rules.
- Issues of internal memo and external communication where relevant.
Conclusion — balancing compliance and competitiveness
The anti-profiteering provisions require businesses to pass on genuine benefits to consumers while maintaining detailed computation records.
As GST law continues to evolve, businesses must view anti-profiteering not as a compliance burden but as part of a larger governance and consumer-trust framework. With proactive planning, accurate computation, and adherence to legal requirements, companies can transform compliance into an opportunity—enhancing goodwill while safeguarding against litigation.
The views are expressed are the personal views of the author. Any suggestions or feedback can be shared to simran@hnaindia.com.
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Well explained