Dr. Sanjiv Agarwal, FCA, FCS
The provisions on anti-profiteering are contained in the GST law as per following provisions:
CGST Act, 2017 :- Section 171 on Anti-profiteering measures.
IGST Act, 2017 :- Section 20 which stipulate that provisions of the GST Act, 2017 shall apply mutatis mutandis to IGST Act.
UTGST Act, 2017 :- Section 21 which stipulate that provisions of GST Act, 2017 shall apply mutatis mutandis to UTGST Act.
SGST Act, 2017 :- Section 171 on Anti-profiteering measures.
The Rules for Anti Profiteering are contained in Chapter XV (Rule Nos. 122 to 137) of the Central Goods and Services Tax Rules, 2017.
The GST law contains a provision on anti-profiteering measure as a deterrent for trade and industry to enjoy unjust enrichment in terms of profit arising out of implementation of Goods and Services Tax in India, i.e., anti-profiteering measure would obligate the businesses to pass on the cost benefit arising out of GST implementation to their customers.
Section 171 provides that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices.
As per rule 127, Anti Profiteering Authority (APA) shall be duty bound to:
First Judicial Pronouncement
Anti-profiteering provisions have been subjected to judicial scrutiny by the National Anti-Profiteering Authority (NAA) set up under the CGST Act, 2017 recently in Dinesh Mohan Bharadwaj v. M/s Vrandavaneshwree Automotive Pvt. Ltd. vide Order dated 27.03.2018 [Case No. 1/2018 instituted on 27.02.2018 as reported in (2018) 4 TMI 1377; (2018) 92 Taxmann.com 360 (NAA)].
Gist of Order
In its first order on anti-profiteering under Goods and Services Tax (GST), the National Anti Profiteering Authority (NAA) has dismissed the complaint against the supplier of goods, Vrandavaneshwree Automotive Pvt Ltd (Respondent), a Bareilly-based Honda car dealer, by concluding that it did not contravene the anti-profiteering provisions of the Central GST Act, 2017. The order states that the Honda car dealer had passed on the benefit of the reduction in tax rate after GST to the applicant by way of reduction in the price of the car by Rs 10,550.
“We find that the respondent (Honda car dealer) has given details of all the basic components of the price of the car purchased by the applicant … and benefit of Rs 10,550 on account of reduction of tax by about 2 per cent viz. from 31.254 percent (pre GST) to 29 percent (post GST) has already been passed on to the applicant and the amount of Rs 10,550 is inclusive of the ITC (input tax credit) … therefore, no additional benefit on account of ITC is required to be paid by the respondent”.
It was thus held that the respondent (Honda car dealer) has not contravened the provisions of Section 171 of the CGST Act, 2017, and accordingly, there was no merit in the application of Dinesh Mohan Bhardwaj (complainant or applicant), which was filed under Rule 128 of the CGST Tax Rules, 2017 and the same was dismissed.
Details of Complaint
The complainant had alleged that he was not given benefit of reduced rate of tax which amounted to profiteering by the respondent and hence action should be taken against him. His main contention was that the respondent Honda car dealer was supposed to reduce the excise duty (35%), CGST (2%) and VAT (14%), all adding upto 51% from the price and then charging 14% SGST, 14% CGST and 1% cess totaling to 29% on the reduced price.
In its submissions, the car dealer had justified the price charged by him from the applicant and maintained that the contention of the applicant that the pre-GST duties and taxes on such cars amounted to 51% was wrong and in fact, the total pre-GST tax incidence was 29.175% only and hence, there was a very negligible difference in the incidence of tax. It had also submitted that it had reduced the dealer’s margin from Rs. 33,736/- to Rs. 25,826/- and the price of the car by Rs. 4,000/- on account of the change in the colour of the car from Orchid White (premium colour) to Alabaster Silver (base colour), as per the applicant’s request. It was also put on record that on GST being implemented w.e.f. 1.7.2017, ex-showroom price was subsequently changed which was charged from the customer.
The car dealer also submitted the following documents to substantiate its stand:
(a) Audited Balance Sheet & Profit & Loss account for the FY 2016-17,
(b) Copies of purchase invoices from April to September, 2017,
(c) Copies of retail invoices from April to September, 2017,
(d) Copies of returns filed with the Commercial Taxes Department from April to June, 2017,
(e) Price Lists (pre-GST & post-GST), and
(f) Copies of Service Tax returns from April to September, 2017.
Director General of Safeguards (DGSG) investigated the complaint on the following two grounds:
(1) Whether there was substantial reduction in the rate of tax, and
(2) Whether the benefit of reduction in tax rate had been passed on to the applicant.
DGSG found that the dealer’s margin was taken wrongly by applicant as Rs. 25826 instead of Rs. 33619 and that the contention of the applicant that the total incidence of tax on the car was reduced from 51% to 29% post-GST, was also not correct as there was a minor reduction in the tax rate in the post-GST period. Further, the tax rate had remained more or less the same. Even the rate reduction claimed was not correct. It was also revealed that while the total incidence of tax was approximately 31.254% previously, which was fixed as 29% w.e.f. 01 07.2017, thus there was reduction of just over 2%.
The pre-GST and post –GST ex-showroom prices of the car purchased by the applicant were also worked out by the DGSG. The DGSG had also held in its report that provisions of Section 171(1) of the CGST Act, 2017 requiring that “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” had not been contravened.
The Authority based on DGSG’s report and records, observed that it was also clear that though the car of premium colour was booked at an amount of Rs. 9,13,000/- at pre-GST tax rate but when the applicant took delivery of the ‘base colour’ car on 11.7.2017 in the post GST period, the respondent had charged the applicant an ex-showroom price of Rs. 8,98,750/- which correctly included basic price of the car, freight, insurance, dealer’s margin etc, and GST @ 29%. Thus, the benefit of reduction in the tax rate was passed on to the applicant by way of reduction in the price of the car of base colour by an amount of Rs. 10,550/-.
The Authority, on benefit of input tax credit, observed that the applicant has not understood the provisions of Section 171 of the CGST Act, 2017 and the DGSG’s report in its true spirit and context. The entire scheme of GST is ITC based i.e. the recipient of the goods and services takes credit of GST paid by him on purchase of goods and services and uses such ITC while discharging GST output tax liability on supply of goods and services.
The benefit of Rs.10,550/- on account of reduction of tax by about 2% viz. from 31.254% (pre-GST) to 29% (post-GST), as discussed above, had already been passed on to the applicant and the amount of Rs. 10,550/- is inclusive of the ITC. Therefore, no additional benefit on account of ITC is required to be paid by the respondent. Thus, the contention of the applicant is not valid and deserves to be rejected.
The authority thus concluded that the provisions of Section 171 of the CGST Act, 2017 and accordingly, there was no merit in the application of complainant filed under Rule 128 of the CGST Tax Rules, 2017 and the same was dismissed.
Though the anti-profiteering provision is in the law to curb mal-practices and is intended to operate against the supplier of goods / services, in this first complaint which has been disposed of by way of dismissal of complaint in favour of supplier, indicates that the supplier shall not be harassed by using the cannons of section 171 of the GST law and if factual matrix proves that there is no unjust enrichment availed by the supplier, complaints are bound to be dismissed. Another important assertion which ought to be made is that adjudication under section 171 is more on facts rather than law. The statutory provision is only an enabling provision to step in, if there is a case of anti-profiteering. Once it is admitted, the facts shall be deciding factor keeping the principles of legislative intention in mind. The Authority shall have to do so based on facts without going into much of legal interpretation.