India had its first experience with Anti Profiteering provisions when GST came into play in 2017. The idea behind introducing anti-profiteering in India was to control inflation which was observed in other countries where GST had been rolled out such as Australia, Malaysia, etc.
LIST OF TOPICS COVERED:
Background & Definition
- Section 171 of the CGST Act, 2017 lays down the anti-profiteering provisions in India. Further, the mechanism, methodology, process, the authority has been prescribed under Rule 122 to Rule 137 of the CGST Rules, 2017.
- The anti-profiteering provisions require passing of benefit accruing to a supplier on account of reduced tax rates or seamless flow of ITC to the buyers on account of GST being rolled out.
- For eg. In case the tax rate on certain goods reduced from 21% to 18%, or the ITC under GST is available as against the previous restrictions (i.e. Cenvat credit and VAT credit was not eligible for set-off interchangeably, etc.) the benefit of such reduction should be passed on to the buyers in the form of commensurate reduction in prices.
National Anti-Profiteering Authority (NAA)
- As per Section 171(2) of the CGST Act, 2017, the Central Government has the powers to form an authority and empower such authority to determine if anti-profiteering provisions are being adhered to. The Central Government shall appoint the Chairman and members on recommendations of the Selection Committee.
- If such authority comes to a conclusion that any registered person has profiteered under the anti-profiteering provision, then a penalty of 10% has been prescribed if the penalty has not been paid within 30 days of passing of the order.
- The tenure of the provision has been extended from two years to four years. Therefore, now the authority is expected to work until 2021.
- Constitution of NAA:
- Duties of NAA:
- To determine if the reduction in tax rate or benefit of ITC has been passed to the recipient by way of commensurate reduction in prices;
- To identify such a person who has not passed on such benefits to the consumer;
- To pass an order for a reduction in prices, return the commensurate reduction to the recipient along with 18% interest, the imposition of penalty, cancellation of registration;
- To furnish a quarterly report to the Council.
Director-General of Anti-Profiteering (DGAP)
- The DGAP is the investigative arm in the anti-profiteering mechanism. It can summon the interested parties or make an inquiry or call for the relevant documents for the investigation. It can take help from technical experts in the due course of an investigation.
- The time limit given to DGAP to complete its investigation is 6 months from receipt of a reference from the standing committee; this period can be extended further for 3 months for reasons to be recorded in writing.
- The functions of DGAP include the following:
- Conduct investigation to collect the evidence necessary to determine whether the benefit of reduction in the 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.
- Coordinating with the NAA, the Standing Committee, and the State level Screening Committees.
Standing Committee & Screening Committee
- GST Council has constituted a Standing Committee, having members from both State and Central governments.
- Every State shall have one State-level Screening Committee. It will have one member from the State government and one-member from the Central government as nominated by the respective appropriate authority.
- State screening committee shall forward an application of a local nature, relating to profiteering to the Standing Committee if it is satisfied that Section 171 of the CGST Act has been contravened.
- If the Standing Committee is satisfied that the supplier has breached section 171 of the CGST Act and there is evidence in support of the allegation, the case shall be transferred to DGAP for further investigation.
- The Committees shall complete the investigation within a period of 2 months from the date of the receipt of a written application or within such extended period not exceeding a further period of 1 month for reasons to be recorded in writing.
Procedure For Investigation
Issues Relating To The Anti-profiteering Mechanism
- Tenure of Anti-profiteering: The anti-profiteering provisions were introduced right after GST was rolled out. The tenure was set for 2 years i.e. 2019. However, in 2019, the GST Council extended such tenure by another 2 years. Therefore, now the sunset for anti-profiteering is expected to be 2021. However, with the pandemic hitting the economy hard and tax collections at an all-time low, the Council may further extend the lease of anti-profiteering.
- Constitutionality of NAA: The absence of a judicial member on the NAA is a matter which has been discussed on various occasions. Further, no appellate mechanism has been prescribed for any grievances. Furthermore, a lot of discussions have been done around the anti-profiteering provisions to be in breach of Article 19 of the constitution of India which grants a fundamental right to all citizens to carry on trade.
- Absence of a standard methodology to compute commensurate reduction: The provisions mention that commensurate benefits should be passed on to the recipients. However, there is no standard methodology or formula which has been prescribed for computing such benefit. This has created a lot of confusion as the NAA itself has adopted varying methods in several cases.
Clarifications & FAQ’s By CBIC
Some key clarifications and FAQs issued by CBIC on anti-profiteering provisions:
Q.1: What is ‘profiteering’?
Profiteering means “to make or seek to make an excessive or unfair profit, especially illegally”. As per Sec. 171 of CGSTA / SGSTA, 2017, the suppliers of Goods or Services should pass on the benefit of any reduction in the rate of GST on such supplies or the benefit of Input Tax Credit (ITC) to the recipient by way of commensurate reduction in prices. Any willful action of not passing of such benefit to the recipient of supplies under GST law amounts to “profiteering”.
Q.2: Who can file the complaint against profiteering?
Any ‘interested person’ which includes a consumer or trader, supplier, recipient, any organization or the Commissioner of GST, experiencing or noticing the non-reduction in the price of the Goods or Services, incommensurate with the reduction in the rate of GST or the benefit of ITC, can file the complaint under the anti-profiteering provisions, with proper evidence.
Q.3: How to seek guidance/clarifications regarding the filing of complaints against profiteering?
NAA, Delhi has established an Anti-profiteering Helpline: 011-21400643, which provides information relating to the guidelines for registering a complaint against profiteering or to resolve any queries regarding registration of complaints.
Q.4: How to know the status of the complaint against profiteering?
The complainant can track the application filed online through the ‘track complaint’ module available on the website www.naa.gov.in if it was filed online. Otherwise, the complainant can contact the DG- Anti-profiteering at 011-23741544; 011-23741542; e-mail: email@example.com, to seek the status.
Q.5: What actions can be taken by NAA against a person who had not passed on the benefit of reduction in the rate of GST or the benefit of ITC, by non-reduction of the price of the supplies?
Where it is found that a registered person had not passed on the benefit of the reduction in the rate of tax on the supply of Goods or Services; or the benefit of ITC to the recipient by way of commensurate reduction in prices, NAA may order:
(a) Reduction in prices;
(b) Return to the recipient an amount equivalent to the amount not so passed on, with interest @ 18%;
(c) Deposit of the illegal profit accrued to the Consumer welfare fund;
(d) Imposition of penalty; and
(e) Cancellation of registration of the supplier.
Q.6. Is the complainant eligible to recover the amount on account of his complaint against profiteering?
The National Anti-profiteering Authority, in terms of the Rule 127 read with the Rule 133 of CGST/SGST Rules, 2017, can compel the defaulter to return to the recipient, an amount equivalent to the amount not so passed on, by way of commensurate reduction in prices along with interest @ 18% from the date of collection of higher amount till the date of return of such amount. In such a case, it is only the recipient of Goods/Services is eligible to receive the amount.
*These FAQs are not exhaustive. For the complete list, www.cbic.gov.in can be visited.
Rulings Passed By NAA
Some key rulings passed by NAA are:
|Hindustan Unilever Ltd.||Credit carried forward in Tran-2 should be passed on to the buyers. Cost of packing material write-off on account of change in MRP, reduction in area based refunds, etc. cannot be allowed as deduction.|
|Jubilant Food Works Ltd.||Profiteering should be computed on the product or SKU level; not on the entity level. Further, the scope of the investigation can go beyond the product against which the complaint was filed. Benefits|
|Abbott Healthcare Ltd.||Reduction in MRP on account of change in the rate of tax from 28% to 18%, when the base price was increased would not tantamount to the passing of benefit to the consumer.|
|Lifestyle International Pvt. Ltd.||The retailer needs to pass on benefits to consumers, even if the manufacturer or vendor has not reduced prices. Further, trade discounts cannot be considered as a reduction in prices in lieu of tax reduction. Operational costs cannot be set-off against the benefits derived from a reduction in the tax rate.|
|Whirlpool of India Ltd.||An interim stay has been passed by Delhi HC on NAA’s order. Petitioner has contended that the allegation of an increase in the price of refrigerator exactly equivalent to an amount equal to a price reduction is not tenable. Further, a writ of prohibition against NAA’s expansion of the scope of the investigation was also admitted.|
Recently, most of the above and other multiple writ petitions were filed challenging the constitutional validity of the anti-profiteering provisions before different High Courts. The basic premise being the absence of judicial members in the authority. In 2020, the Supreme Court intervened and transferred all the writ petitions on this specific subject to Delhi High Court for disposal. The petitions are due for hearing in November 2020.