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Anti-Profiteering Under GST: Meaning, Authority and Issues

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. That is the anti-profiteering measure would obligate businesses to pass on the cost benefit arising out of GST implementation to their customers.

Meaning of Anti-Profiteering

As the name suggests, these rules prevent entities from making excessive profits due to the GST. Since the GST, along with the input tax credit, is eventually expected to bring down prices.

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 the ultimate customers and is not pocketed by trade.

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 must 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.

As per Section 171 of the CGST/SGST Act, any reduction in tax rate on any supply of goods or services, or any benefit of ‘input tax credit’, must be passed on to the recipient (for example, customer) by the registered person (e.g., trader) through a commensurate reduction in prices.

Thus, if a trader is paying, say, Rs 100 less in the new tax rate on a certain item, he has to compulsorily sell that item for Rs 100 cheaper, so the customer benefits proportionally. Failure to do so would mean the trader is indulging in ‘profiteering’.

However, if GST has a negative impact on the cost, then prices can be increased. For example: If the output supply was zero-rated in previous regime and also remains zero-rated in GST regime, the business will not get any input tax credit.

If the tax rates are increased, tax under reverse charge imposed etc. then prices will increase. For example, domestic LPG was exempt from tax under earlier regime. Now they fall under 5% GST. This will result in an increase in the prices of cooking gas.

However it has been the experience of many countries that when GST was introduced there has been a marked increase in inflation and the prices of the commodities. This happened in spite of the availability of the tax credit right from the production stage to the final consumption stage which should have actually reduced the final prices. This was obviously happening because the supplier was not passing on the benefit to the consumer and thereby indulging in illegal profiteering.

So, Central Government constitute National Anti-Profiteering Authority to examine that whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

Constitution of Authority

  • There shall be 5 member Committee including a Chairman who holds or has held a post equivalent in rank to a Secretary to the Government of India
  • 4 Technical members who have been commissioners of state tax or central tax or have held an equivalent post under Existing laws.
  • Additional Director General of CBEC shall be Secretary to the Authority.
  • Maximum time for which authority will work is 2 years from the date when chairman hold his office until any further notification will be recommended by Council.

Problems in Anti-Profiteering Measures

  • No way is defined as how one will pass-on benefit to ultimate consumer. The word “Commensurate Reduction” is used but meaning and how such reduction will be done is not defined under Anti-Profiteering Rules. So it is a subjective matter and depends on person to person
  • How will businesses compute the benefit resulting from increased credits and reduction in rates? Will it be calculated at a company level or product level?
  • Can I add additional expenses which I am required to incur due to GST while computing the cost and then arrive at the benefit?

Let’s say there is a company called Hindustan Supplies (fictitious name) which has its roots in all products of FMCG and is also into Beverage and Health Drinks involving Aerated Water. Now post GST, Hindustan Supplies. will have a much lower burden on Toothpastes by 8-9% however on its Coconut flavored low-fat Aerated Water Drink, the effective tax on this Drink has increased much higher than before. So now should the Company pass on the benefit on a Product to Product level and pass on the 8-9% of value of Toothpaste and bear the losses on the Healthy Drink business. Or it should see at its Income statement and if everything remains constant then only it should pass the benefit to the Consumer.

  • How many layers of Price Reduction do we need to monitor and then to be passed? i.e. whether Input supplier will also pass on benefit to output supplier or only output supplier is liable to pass on benefit to ultimate consumer.

Conclusion

If a super-market you frequent is selling you grocery at a higher price stating that it is due to GST, you can file a complaint to the anti-profiteering authority. Similarly if you are aware that the cost of your toothpaste has moved lower, but your grocery-wala tries to pull a fast one on you by selling it to you at the old price, you know whom to complain to.

This is a tool that the Centre needs to wield effectively to keep prices under check and ensure that businesses do not pocket all the gains.

Profit is fine, profiteering is not. So, don’t let someone profiteer at your own expense.