Anti-profiteering
In general terms, Goods and Service Tax (GST) is an indirect tax on the supply of goods or services on the value addition at each stage of the supply chain, from purchase of raw materials, manufacture of product or import, till the finished goods are supplied to the final consumer.
Since GST is a destination-based tax that is levied at the point of consumption, GST accumulates with the original price at each stage of the supply chain. However, the “cascading effect” of tax on tax is eliminated through the benefit of Input Tax Credit (ITC) to the supplier.
In the interest of the consumer and public, Section 171 of the Central Good and Services Tax Act, 2017 (CGST Act 2017) as an “Antiprofiteering measure” mandates 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.”
The expression “profiteered” is also statutorily defined to mean “the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both”.
It is further provided that where the National Anti-Profiteering Authority (NAA)/Competition Commission of India (CCI) Authority comes to the conclusion that any registered person has profiteered, penalty equivalent to 10 percent of the amount so profiteered would be imposed (unless the profiteered amount is deposited within 30 days of the date of Authority’s order).
Constitutionality and statutory interpretation
The Hon’ble High Court of Delhi in W.P.(C) 7743/2019 and related matters vide judgment dated January 29, 2024 has recently upheld the Constitutionality of the above provision and relevant Rules of the Central Good and Services Tax Rules, 2017 (CGST Rules), after interpreting the same and making its findings, which include the following from the perspective of the supplier/registered person.
- TAX FOREGONE HAS TO BE PASSED ON AS A COMMENSURATE REDUCTION IN PRICE
- The key word ‘commensurate’ used in Section 171 of the CGST Act 2017 means that whatever actual saving arises to the supplier due to the reduction in rates of tax or the benefit of ITC (in rupee and paisa terms), must be reflected as equal or near about reduction in price charged i.e. the tax foregone by the GST authorities has to be passed on to the consumer as commensurate reduction in price.
- If before the reduction of GST rate or benefit of ITC, the price paid by the recipient/consumer inclusive of the applicable GST at the relevant time was a particular amount, then on account of the reduction or benefit, there has to be reduction in the subject price as a matter of right for the recipient.
- IMPUGNED PROVISIONS ARE NOT A PRICE FIXING MECHANISM AND DO NOT VIOLATE ARTICLE 19(1)(g) OR 300A OF THE CONSTITUTION
- Section 171 of the CGST Act only relates to the indirect-tax component of the price of the goods.
- NAA is not concerned with the price determined by a supplier, who is at liberty to set his base prices and vary them in accordance with the relevant commercial and economic factors or any applicable laws.
- NAA cannot force the supplier to sell their goods or services at reduced prices.
- The supplier can raise prices based on commercial factors, as long as the same is not a pretence, despite reduction in GST rate or benefit of ITC.
- Any variation in price on account of other factors would need to be justified by the supplier.
- The inherent presumption that these must necessarily be a reduction in price is a rebuttable presumption.
- NO FIXED/UNIFORM METHOD OR MATHEMATICAL FORMULA CAN BE LAID DOWN FOR DETERMINING PROFITEERING
- The determination of the profiteered amount has to be computed by the NAA on the basis of the relevant and peculiar facts of each case and on a case-by-case basis i.e. ‘no one size that fits all’ formula or method can be prescribed. in the present batch of matters.
- As long as the methodology determined by NAA is fair and reasonable, no objection can be raised that the specifics of the methodology adopted are not prescribed.
- Not proper or feasible to contemplate any specific period of time for application of the reduced price (as long as direct relation between reduction of tax rate or benefit of ITC exists and no other factor effecting/countering).
- The CGST Rules provides for a comprehensive mechanism for initiation and conduct of anti-profiteering proceedings. However, the decisions of NAA are subject to judicial review before the jurisdictional High Courts.
- GST collected by profiteering suppliers on the additional realization rightly included in the profiteered amount.
- The time limit provided for furnishing of report by the Director General of Anti-Profiteering (‘DGAP’) is directory in nature and not mandatory as GST law is in the nature of a beneficial legislation and promotes consumer welfare.
- Scope of investigation by the DGAP is not restricted to the matter stated in the Complaint, it includes other allied as well as unenumerated matters i.e. scope of the DGAP’s powers is very wide and not limited.
However, the Hon’ble High Court has also clarified that where there is arbitrary exercise of power under the anti-profiteering mechanism (eg. enlarging the scope of the proceedings beyond lawful jurisdiction, failure to consider genuine basis of variations in other factors such as cost escalations, skewed input credit situations etc.), the consequential orders may be set aside on merits.
Anti-profiteering
In general terms, Goods and Service Tax (GST) is an indirect tax on the supply of goods or services on the value addition at each stage of the supply chain, from purchase of raw materials, manufacture of product or import, till the finished goods are supplied to the final consumer.
Since GST is a destination-based tax that is levied at the point of consumption, GST accumulates with the original price at each stage of the supply chain. However, the “cascading effect” of tax on tax is eliminated through the benefit of Input Tax Credit (ITC) to the supplier.
In the interest of the consumer and public, Section 171 of the Central Good and Services Tax Act, 2017 (CGST Act 2017) as an “Antiprofiteering measure” mandates 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.”
The expression “profiteered” is also statutorily defined to mean “the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both”.
It is further provided that where the National Anti-Profiteering Authority (NAA)/Competition Commission of India (CCI) Authority comes to the conclusion that any registered person has profiteered, penalty equivalent to 10 percent of the amount so profiteered would be imposed (unless the profiteered amount is deposited within 30 days of the date of Authority’s order).
Constitutionality and statutory interpretation
The Hon’ble High Court of Delhi in W.P.(C) 7743/2019 and related matters vide judgment dated January 29, 2024 has recently upheld the Constitutionality of the above provision and relevant Rules of the Central Good and Services Tax Rules, 2017 (CGST Rules), after interpreting the same and making its findings, which include the following from the perspective of the supplier/registered person.
- TAX FOREGONE HAS TO BE PASSED ON AS A COMMENSURATE REDUCTION IN PRICE
- The key word ‘commensurate’ used in Section 171 of the CGST Act 2017 means that whatever actual saving arises to the supplier due to the reduction in rates of tax or the benefit of ITC (in rupee and paisa terms), must be reflected as equal or near about reduction in price charged i.e. the tax foregone by the GST authorities has to be passed on to the consumer as commensurate reduction in price.
- If before the reduction of GST rate or benefit of ITC, the price paid by the recipient/consumer inclusive of the applicable GST at the relevant time was a particular amount, then on account of the reduction or benefit, there has to be reduction in the subject price as a matter of right for the recipient.
- IMPUGNED PROVISIONS ARE NOT A PRICE FIXING MECHANISM AND DO NOT VIOLATE ARTICLE 19(1)(g) OR 300A OF THE CONSTITUTION
- Section 171 of the CGST Act only relates to the indirect-tax component of the price of the goods.
- NAA is not concerned with the price determined by a supplier, who is at liberty to set his base prices and vary them in accordance with the relevant commercial and economic factors or any applicable laws.
- NAA cannot force the supplier to sell their goods or services at reduced prices.
- The supplier can raise prices based on commercial factors, as long as the same is not a pretence, despite reduction in GST rate or benefit of ITC.
- Any variation in price on account of other factors would need to be justified by the supplier.
- The inherent presumption that these must necessarily be a reduction in price is a rebuttable presumption.
- NO FIXED/UNIFORM METHOD OR MATHEMATICAL FORMULA CAN BE LAID DOWN FOR DETERMINING PROFITEERING
- The determination of the profiteered amount has to be computed by the NAA on the basis of the relevant and peculiar facts of each case and on a case-by-case basis i.e. ‘no one size that fits all’ formula or method can be prescribed. in the present batch of matters.
- As long as the methodology determined by NAA is fair and reasonable, no objection can be raised that the specifics of the methodology adopted are not prescribed.
- Not proper or feasible to contemplate any specific period of time for application of the reduced price (as long as direct relation between reduction of tax rate or benefit of ITC exists and no other factor effecting/countering).
- The CGST Rules provides for a comprehensive mechanism for initiation and conduct of anti-profiteering proceedings. However, the decisions of NAA are subject to judicial review before the jurisdictional High Courts.
- GST collected by profiteering suppliers on the additional realization rightly included in the profiteered amount.
- The time limit provided for furnishing of report by the Director General of Anti-Profiteering (‘DGAP’) is directory in nature and not mandatory as GST law is in the nature of a beneficial legislation and promotes consumer welfare.
- Scope of investigation by the DGAP is not restricted to the matter stated in the Complaint, it includes other allied as well as unenumerated matters i.e. scope of the DGAP’s powers is very wide and not limited.
However, the Hon’ble High Court has also clarified that where there is arbitrary exercise of power under the anti-profiteering mechanism (eg. enlarging the scope of the proceedings beyond lawful jurisdiction, failure to consider genuine basis of variations in other factors such as cost escalations, skewed input credit situations etc.), the consequential orders may be set aside on merits.
