Anti Profiteering Measures in GST Law

By Finance Advisory, 3EA
Anti Profiteering Measures in GST Law

"Global experience suggest that anti profiteering provisions are only effective if there is a significant lead-in time to allow the relevant authority to educate consumers and businesses as to their respective rights and obligations."

The GST law contains a unique 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.

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.

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.

While every business would like to earn more and more profits from business, given an opportunity, it is a fact that GST is a new concept being introduced in India for first time and claimed as a major tax reform and that experience suggests that GST may bring in general inflation in the introductory phase.

The Government wants that GST should not lead to general inflation and for this, it becomes necessary to ensure that benefits arising out of GST implementation be transferred to customers so that it may not lead to inflation. For this, anti profiteering measures will help check price rise and also put a legal obligation on businesses to pass on the benefit. This will also help in instilling confidence in citizens.

This is a new concept being tried out for the first time. The intention is to make it sure that whatever tax benefits are allowed, the benefit of that reaches to the ultimate customers and is not pocketed by trade.

The power has been given to Central Government to constitute an authority to oversee whether the commensurate benefit of allowance of input tax credit or reduction in the tax rates have been passed on to the final customer

The authority constituted by Central Government will have powers to impose a penalty in case it finds that the price being charged has not been reduced consequent to reduction in rate of tax or allowance of input tax credit.

Anti-Profiteering Authority (APA) shall act as monitoring and regulatory authority to curb anti-profiteering practices of tax payers under GST regime. The APA shall be duty bound to:

  • Make company reduce the prices
  • Make company refund the money to the consumer along with interest @ 18% p.a.
  • Order company to deposit the refund amount in the Consumer Welfare Fund (in case the buyer is not identifiable)
  • Impose monetary penalty equivalent to amount involved in undue profiteering
  • Cancel registration of the assesse

Section 17 on anti-profiteering means, shall have a sunset clause. The rules framed for anti-profiteering as approved by the GST Council indicate that it would operate for a period of only two years. Thus, it would cease to exist after two years of being in force.

Penalties, to be deterrent will also have to be determined in interest of customers as well as businesses. It will also have to be ensured that there is no hardship, harassment or undue interference by the Authority. At the same time, businesses are expected to be fair and reasonable as otherwise, market forces would lead to fair price determination in absence of any cartelization or unfair trade practice.

It may be noted that anti-profiteering measure in GST law is meant to be a deterrent and is an enabling clause so that reduction in tax incidence due to the GST is passed on to the consumers.

To conclude, it can be said that the anti profiteering provision should be enforced in rare case as an exception, rather than as a rule and should not become a hindrance in free business environment and as a tool to invite corruption.

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Article by: Finance Advisory, 3rd Eye Advisory®