Author: Atharva Kulshrestha
Anti-profiteering legislation is a novel notion that is being tested for the first time. The goal is to ensure that whatever tax gains are available, they benefit the ultimate customers rather than being pocketed by trade.
While every firm would prefer to increase profits if given the chance, GST is a new idea that is being introduced in India for the first time and is being touted as a big tax reform.
As a result of this experience, GST appears to have the potential to cause general inflation in the short term. The government wants GST to avoid causing general inflation, thus it’s important to make sure that any gains that arise from its implementation are passed on to customers in order to avoid inflation.
Anti-profiteering regulations will help to keep prices in check while also requiring enterprises to pass on the benefit. This will also help in instilling confidence in citizens.
Anti-profiteering measures, according to global experience, are only successful if there is enough advance time for the competent authority to educate consumers and businesses on their respective rights and obligations. The notion of anti-profiteering clauses may have been copied from Australia, which was the first country to do so in July 2000, when it replaced a series of ineffective taxes with a GST.
The Central Government has been given the ability to create an authority to monitor whether the proportionate advantage of an input tax credit allowance or a reduction in tax rates has been passed on to the final consumer.
Section 171 of the Act establishes an anti-profiteering authority to ensure that businesses pass on the benefit of lower tax incidence on goods or services, or both, to consumers.
If the Central Government’s authority discovers that the price being charged has not been reduced as a result of a drop in tax rate or allowance of input tax, it will be able to levy a penalty.
Section 171 of CGST Act and Anti- Profiteering Rules
The act of making or striving to create excessive or unfair gains in an illegal manner is referred to as profiteering. As a result, as the name implies, the anti-profiteering rule under the GST prevents businesses from making excessive gains as a result of the GST’s adoption. To accomplish this, Section 171 of the CGST was adopted, which requires manufacturers and service providers to pass on the benefit they have received as a result of the CGST-
- Reduction in rate of tax
- Benefit of input tax credit
- To the consumer by way of commensurate reductions in prices.
The central government can also set up an Authority or authorise an existing Authority to oversee and enforce compliance with the provision’s requirements under subclause (2) of Section 171. The GST Council issued the Anti-profiteering Rules 2017 [“APR 2017”] to put this clause into practise.
Under the APR Rules, the anti-profiteering structure is three-tiered, comprising a nine-member Standing Committee of the GST Council, a director-general safeguards [“DG”] and a five-member Anti-Profiteering Authority Authority. Rule 3 of the APR 2017, provide for the appointment of a National Anti-Profiteering Authority (“Authority”), which shall be responsible to 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.
Checking Authority for Anti- Profiteering Activities
The government has notified the anti-profiteering authority (APA), which would monitor any unjustified price increases in GST-registered businesses’ items. Under the GST regime, the APA will endeavour to prevent any unwarranted increases in product pricing by taxpayer enterprises.
It will be organised into a three-tiered system, with a Standing Committee on Anti-Profiteering and State-level Screening Committees. Five members, including a Chairman, would make up the National Anti-Profiteering Authority
Salient features of Anti-Profiteering Authority (APA)
• To be set up under Anti-Profiteering Rules, 2017
• Does not cover State of J&K
• Director General of Safeguards
• To determine methodology and procedure
• Cooperation with other agencies (income tax, police, revenue and intelligence)
• Power to summon
• Order monitoring by IGST / SGST / CGST authority
• Tenure of 2 years.
Functions of Anti-Profiteering Authority (APA)
The following monitoring functions will be performed by the Authority under section 171:
(a) The taxpayer’s input tax credit has resulted in a comparable reduction in the price of goods or services.
(b) The drop in pricing as a result of lower tax rates has resulted in a similar reduction in the price of products and services.
Duties and Powers of Anti-Profiteering Authority (APA)
As per Rule 8, APA shall be duty bound to:
1. To assess if a lower tax rate on a supply of goods or services, or the benefit of an input tax credit, has been passed on to the recipient in the form of a price decrease.
2. Locate the registered person who has not passed on the benefit of a lower tax rate on products or services, or the benefit of an input tax credit, to the beneficiary through a price reduction.
The authority to act is also stated as a duty, and it can impose price reductions, profit refunds, recovery, penalties, or even the revocation of GST registration.
The APA’s orders will be based on the principles of natural justice, and an opportunity to be heard will be offered. Further appeals against APA orders are not covered by the rules. It also makes no mention of such orders being final. It states that orders issued by the APA must be followed by the registered individual immediately.
Orders issued by Anti-Profiteering Authority (APA)
- Within three months of the DGS report
- The chance to be heard
- In the event of a disagreement, the majority rule applies.
- Immediate compliance by the registered individual
- There is a lack of clarity as to whether or not the order can be appealed.
Power to cancel Registration of Assesse
Anti-Profiteering Authority (APA) shall act as a monitoring and regulatory authority to curb anti-profiteering practices of tax payers under GST regime.
The APA shall be duty bound to:
- Make the corporation lower its prices.
- Require the company to reimburse the money to the customer, plus interest at a rate of 18% per year.
- Order the reimbursement to be deposited in the Consumer Welfare Fund (in case the buyer is not identifiable).
- Impose a monetary penalty equal to the amount of undue profiting involved.
- Cancel the assesse’s registration.
However, such action would be based on the Directorate General of Safeguards’ recommendations. In extreme instances, such powers would be deployed as well.
When the ability to deregister or revoke a registration is used too frequently and too carelessly, it can stifle enterprise and inspire fear and distrust among taxpayers.
Penalties may be appropriate, but taking away the freedom to do business may be excessive and even unconstitutional. There may also be disagreements about disproportionate profiteering, which may not be the case because other expenditures / overheads may offset the profit, if any, benefiting from GST efficiency. It will also add to the number of disagreements and lawsuits.
In fact, rather than having the power to cancel registration (which essentially means taking away the right to do business because registration is required), it would have been preferable if a cost audit was directed in such cases and then appropriate action taken, if necessary, on a case-by-case basis.
Indirectly, this could mean that the government will now decide or mandate how businesses should operate or what gross profit margins they should have or maintain.
This will also call into question the enterprise and entrepreneur’s business acumen.
In fact, one of the penalties that could be considered in such circumstances is a significant reduction in the GST compliance rating.
Why are businesses concerned about anti-profiteering legislation?
- There is no obvious mechanism for determining whether or not someone is profiting.
- Only the mechanism for investigation and inquiry is outlined in the rules.
- Under the Central GST Act, the administration has discretionary rights to arrive at a comparable reduction.
- Vulnerable to legal challenges disputing Parliament’s “excessive delegation”.
- There is no clarification on whether de-registered businesses can resume operations.
The Anti-Profiteering Rules, 2017 were adopted by the GST Council at its meeting on June 18, 2017, and the Government has released them. They apply to the entire country except for Jammu and Kashmir.
There will be a sunset clause in Section 17 on anti-profiteering. The GST Council passed anti-profiteering provisions, which state that it will only be in effect for two years. As a result, after two years of operation, it would be leased to continue to exist.
Impact on Automobile Sector
While anti-profiteering rules will apply to all producers, dealers, and service providers, they will have a greater impact on high-value items and services where the shift will be more evident.
For example, in the case of autos, where prices range from Rs 40,000 and up (for two-wheelers) to Rs 3 lakh and up for cars and other vehicles, even a 5% discount would be a significant comfort to customers.
Vehicle manufacturers are projected to profit from lower manufacturing costs due to lower input costs and input tax credits on capital goods, inputs, and input services.
Although the general tax rate on services will increase from 15% to 18%, the provision of nearly full input credit to manufacturers may offset this 3% increase. The tax rate on certain services has been reduced from 15 percent to 12 percent.
Suppliers would be able to leverage lower costs through renegotiations due to lower production costs of various spare parts / auxiliary components.
Logistics management would become more efficient, which would assist automotive manufacturers and dealers. The GST regime’s ability to set off all taxes would also benefit them.
Penalties must be decided in the interests of both customers and businesses in order to be deterrent. It will also be necessary to guarantee that the Authority does not impose any excessive burden, harassment, or interference.
At the same time, firms are expected to be fair and reasonable, because in the absence of cartelization or unfair trade practises, market forces would lead to fair pricing setting.
It should be emphasised that the anti-profiteering provision in the GST statute is intended to act as a deterrent as well as an enabling clause, allowing for the GST’s lower tax incidence to be passed on to consumers.
This is a problematic clause that should only be activated if a credible complaint is made. Both the centre and the states will, in due course, establish the method for filing complaints when the facts demonstrate that the advantage of a tax cut has not been passed on to the complainant, as well as the amount of penalty to be imposed.
Many components of the project are yet unfinished. An authority will be given the authority to investigate this. The finer laws and regulations, as well as the punishments, are unknown. The yardstick that will be used for such a measurement must also be specified.
To sum up, the anti-profiteering provision should be applied in exceptional circumstances rather than as a rule, and it should not be used as a barrier to free enterprise or as a weapon to encourage corruption.
Anti-profiteering laws must also apply to the government, as GST should not result in excessive tax collection, i.e. extraordinary tax revenue increase, that exceeds GDP growth.
Can this be considered and investigated? Allow for a level playing field for both the tax collector and the taxpaying public. Because it is an indirect tax, the tax paid is also a cost that must be recovered from the client.