Anti-Profiteering Provisions Under GST and our Suggestions

1. Wharton’s Law Lexicon and Black’s Law Dictionary has defined “Profiteering” as “Taking advantage of unusual or exceptional circumstances to make excessive profits” and anti-profiteering is a measure taken against profiteering.

2. Section 171 of the Central Goods and Services Tax Act, 2017, makes it mandatory to pass on the additional benefit received to the clients or customers and this should be in proportion to the benefit received. It lays down:

“any reduction in rate of tax on supply or goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices”.

3. Due to changes in the indirect tax regime, there might be a situation whereby prices would increase due to higher rate of GST but simultaneously suppliers would get the benefit of additional Input Tax Credit.

4. It might also happen that the product is inclusive of all taxes but the total output tax of the product has been reduced. For example, GST rate of mobile phones are at 12% as against the Central Excise rate of 12.5% and VAT rate of 5% or 14%, depending on the State. In such cases also the differential tax may result into profits to the supplier on account of introduction of GST.

5. Such circumstances are advantageous to the suppliers but are against the interest of the consumers. Therefore, anti-profiteering ensures the protection of consumers from such unwarranted situations.

6. The anti-profiteering provision does not specify any mechanism to check whether there has been a “commensurate reduction” in the price after the introduction of GST. As per Rule 7, the Authority can determine its own system for determining whether the commensurate reduction in prices is passed to the consumers. Rule 14 empowers the Authority to levy penalty or cancel the taxpayer’s registration. Further, as per Rule 16 Authority has the power to pass any order and the same has to be complied with immediately.

7. Issues are coming related to authentication of manner and accuracy of computed benefit by the supplier. Also there are difficulties in computing common credit which is additionally available to the organization and proportionately required to be passed on to a particular project or product. Further, the rules left the computation mechanism open ended and dispute may arise in this regard.

Our Suggestions

8. The consumers have to remember one thing before seeking benefit under anti-profiteering measure is that it can only be passed on when there is some additional benefit availed by the supplier after the introduction of GST. Otherwise a supplier cannot be mandated to pass on any benefit which he himself has not availed.

9. Further, it is preferable for the supplier to have mutually agreed with the recipient upon the amount of benefit computed, along with all the facts, based on which benefit has been computed. In case there remains any such credit which would be very nominal and complicated to compute, it can be consented on mutual understanding because of the complexity and lesser amount. Also, it is advisable to the suppliers to have a certificate from an Independent Chartered Accountant regarding the computed benefit.

10. Companies, which are not being able to figure out the mechanism which should be adopted to calculate the proportion in which the benefit should be passed on, it is advisable to write a letter to the department and Government, asking for clarification, so as to avoid any adverse actions in future.

GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.