INTRODUCTION
Goods and Services Tax is known as GST. The Goods and Services Act was passed in Parliament on 29 March 2017 and came into effect on 1st July 2017. GST is an Indirect Tax, after the GST Act was brought into India it replaced many indirect taxes such as the Excise duty, VAT, services tax, etc. It is levied on the supply of goods and services. GST in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.[1]
Anti-profiteering is a measure that GST law contains to make sure that the consumers get the benefits out of it not the traders. Anti Profiteering rules prevent business entities from making excessive profits due to the GST. The Anti-Profiteering measure intends to make sure that the tax benefits reach the consumers and not traders. Also, the National Anti-Profiteering Authority was constituted by the Central Government to ensure whether the input tax credits availed by any registered person or the reduction in the tax rate resulted in a reduction in the prices of goods or services or both.[2]
Section 171 of the Central Goods and Service Tax Act, 2017 provides for Anti Profiteering measures. As per the Section, “any reduction in the rate of tax on any supply of goods or services or the benefit of the input tax credit shall be passed on to the recipient by way of commensurate reduction in prices”.[3]
According to Section 171 of the CGST Act, 2017, any benefit from a reduction in tax rates or an input tax credit on any supply of goods or services can only be realized by a proportionate drop in prices. The Court has noted that when a statute clearly states how something is to be done, and a duty is placed on the supplier to extend the benefit of rate reduction by way of commensurate price reduction, the supplier cannot insist on giving extra grammage of the product instead of reducing prices.[4] However, the implementation and the effectiveness of the Anti-Profiteering provisions have sparked debates raising questions about its necessity and whether it creates a paradoxical situation. This blog aims to explore both sides of the argument surrounding Anti-Profiteering under the GST regime.
THE NECESSITY OF ANTI-PROFITEERING
There are lots of benefits arising out of the GST tax regime and one of them will be from the Anti-Profiteering measures those are as follows:
Anti-Profiteering Measures in Business: Under GST, the implementation of Anti-Profiteering measures has an essential role in businesses operating in India. Those measures ensure that the businesses pass the benefits of the reduced tax rates and input tax credits to their consumers by reducing their prices. Under GST, the implementation of the Anti-Profiteering measure claims the business profit margins are mixed due to the reduced prices of goods and services.
Anti-Profiteering Measures on Consumers: The consumers had a direct impact on the implication of anti-profiteering measures under GST. The main objective of the measure is to ensure that the benefits of those measures will be passed on to the consumer like reduced tax rates, and input tax credit which leads to the price reduction of goods and services. It also claims to promote fair and free competition among businesses by preventing no advantage to any businesses that do not pass on the GST benefits to customers. Transparency in pricing is one of the essential benefits for the consumer. Implementation of the GST and the prevention of price hiking can be done through the Anti-Profiteering measure. The purchasing power of the consumers drastically improved after the implementation of the Anti-Profiteering measures under GST. Those reduced prices of goods and services due to the Anti-Profiteering measure have become the disposable income for consumers which led them to buy more goods and services which helps to achieve the economic growth of the country.[5]
Reduction of rate of tax: Under Anti-profiteering in GST, there should be a reduction in the rate of tax as one of the conditions. In this case, the benefits of such a reduction must be passed on to the consumers. The reduction effects can be seen in restaurants, food, and beverages, app-based taxi systems, etc. It is easy to track the reduction in taxes and the prices are listed by the sellers. There are invoices to keep a record of the same.
The benefit of input tax credit: Except for Zero-rated output, almost every industry and sector benefited from the better flow of input tax credit. So, the expectations of the Anti-Profiteering measures correspond with the reduction in the price of supplies. The benefits are passed on to the consumers by way of offers and discounts, it is achieved only by adjusting the input and output tax credit.[6] Anti-profiteering measures correspond with the reduction in the price of supplies. The benefits are passed on to the consumers by way of offers and discounts, it is achieved only by adjusting the input and output tax credit.
THE PARADOX OF ANTI-PROFITEERING
However, there are a lot of benefits under the Anti-Profiteering measures, but undertakings are also faced with several challenges in complying with these measures. They are:
Lack of Clarity and Guidance: The lack of clarity and guidance on the Anti-Profiteering provision is one of the biggest challenges faced by businesses. The rules and regulations of the measures are complex, and businesses need to be able to interpret them correctly so that they can comply with them. As a result, it has increased compliance costs by increasing the cost for businesses to hire experts to interpret and comply with those provisions.
Administrative Burden: Businesses have also been required to keep detailed records of their input and output costs, pricing decisions, and tax calculations under the Anti-Profiteering provisions. As a result, there has been an increase in administrative burden as well as higher costs of compliance for businesses. It also requires the business to do tax calculations and maintain proper books of accounts. So, that will be one of the biggest challenges for businesses under the Anti-Profiteering measures.
Profit Margins of Business: The effect of Anti-Profiteering measures on business profitability has been mixed. As some businesses managed to maintain their profit margins through increased sales volumes, others were facing a decrease in profit margins due to the pressure of price reductions under the Anti-Profiteering measures. In particular, as certain sectors have a greater price sensitivity compared to others, the impact of measures on businesses is also dependent upon the industry in which they operate.
National Anti-Profiteering Authority (NAA): Moreover, the fear of penalties in respect of failure to meet obligations has also arisen amongst businesses because of the establishment of an Anti-Profiteering Authority. The authority has the power to impose sanctions on firms that have been found guilty of not making the benefits of reduced rates and input tax credits for their customers.[7] Penalties may be imposed from a simple warning to the withdrawal of registration in the Goods and Service Tax system, which may have severe consequences for businesses.[8]
In the case of Kumar Gandharva vs. KRBL Limited[9], the authority stressed upon the fact that the input tax credit that was utilised was less than the output tax paid. In another case of Dinesh Mohan Bhardwaj vs. Vrandavaneshwree Automotive Pvt. Ltd.[10], the authority considered a comparative analysis of costs from pre and post-GST regime to compute the benefit.
CONCLUSION
In conclusion, the Anti-Profiteering measures under GST are clear benefits for the consumers because of the reduction of prices in goods and services, transparency of the pricing system and there are a lot of criticisms like maintaining profit margins, compliance with the lack of rules and guidelines under the Anti-Profiteering measures also the penalties from the National Anti-Profiteering Authority (NAA). So, the Anti-Profiteering measures have both the necessity and paradox, and it is according to the businesses and consumers.
Author(s) Name: Mohamed Ali.N (The Tamil Nadu Dr. Ambedkar Law University, School of Excellence in Law, Chennai)
Reference(s):
[1] ‘Goods and Services Tax (GST) What Is GST in India? Indirect Tax Law Explained’ (Clear Tax, 21 March 2023) <https://cleartax.in/s/gst-law-goods-and-services-tax>> accessed 7 July 2023
[2] Jain S, ‘Anti-Profiteering under GST: Meaning, Authority and Issues’ (Masters India, 14 March 2023) <https://www.mastersindia.co/blog/anti-profiteering-gst-meaning-authority-issues/>> accessed 7 July 2023
[3] Central Goods and Service Tax Act 2017, s 171
[4] L’Oreal India (P.) Ltd. v Union of India [2022] 143 taxmann.com 131 (Delhi)
[5] Khurana M, ‘Analysis of Anti-Profiteering Provisions under GST and Their Impact on Businesses and Consumers’ (TaxGuru, 2 March 2023) <https://taxguru.in/goods-and-service-tax/analysis-anti-profiteering-provisions-gst-impact-businesses-consumers.html#:~:text=The%20anti%2Dprofiteering%20provisions%20under%20GST%20were%20introduced%20to%20ensure,after%20the%20implementation%20of%20GST>> accessed 7 July 2023
[6] Vishruti Chauhan, ‘Anti-Profiteering under GST’ (iPleaders, 8 November 2020) <https://blog.ipleaders.in/anti-profiteering-under-gst/#References>> accessed 7 July 2023
[7] Central Goods and Service Tax Act 2017, s 171 (3A)
[8] Ibid 4
[9] Kumar Gandharva v KRBL Limited 2018 (5) TR 150
[10] Dinesh Mohan Bhardwaj vs. Vrandavaneshwree Automotive Pvt. Ltd. 2018 (3) TR 149
