ANTI - PROFITEERING

The ideology of anti-profiteering is pretty simple that any benefit arising because of change in the indirect tax law should not be enjoyed by the business but has to be passed on to the consumers. Since indirect taxation is a burden on consumer, any profit arising because of change in tax law should be passed on to the consumers and not to be retained by the business. 

With this basic understanding of the concept of anti-profiteering, we would now proceed to understand the provisions of anti-profiteering under the goods and service tax laws (for brevity ‘GST laws’/’GST’). Section 171 of Central Goods & Services Tax Act, 17 (for brevity ‘CGST Act’) deals with anti-profiteering provisions which states that ‘Any reduction in rate of tax on 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’. 

From the above it is evident that, on trigger of any three events that is (i) any reduction in rate of tax on supply of goods or (ii) any reduction in rate of tax on supply of services or (iii) benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. 

The above can be understood by a simple example. Let us assume the rate of excise duty on laptops was 12.5% under the excise regime and the price of laptop is Rs 1,12,500/- including excise duty. The same laptops were subjected to rate of tax at 5% under the GST regime. The dealer selling such laptops under the GST regime has to reduce the price to the extent of Rs 7,500/- and sell the same at a price not more than Rs 1,05,000/-. In this way it is ensured that the reduction of rate of tax from 12.5% to 5%, the benefit of 7% has to be passed to the recipient by way of commensurate reduction in prices. The same analogy is applicable for services also and the reduction of rate of tax on supply of services and the benefit arising on such reduction should be transferred to the recipient. 

Further, the benefit of input tax credit can also be understood by a simple example. The services of construction of roads was exempted under the service tax regime. Since the said service is exempted, the input tax credit cannot be availed. Since the credit of input tax cannot be availed, the contractor while quoting for tender would have included the input tax credit (taxes/duties paid on purchase of materials and services) in the cost of contract. However, after the introduction of GST laws, the construction of roads was made taxable and the contractor was given an opportunity to avail the credit of input taxes which were purchased preceding one year and lying in stock. Now, such input tax credit is being available (which was not erstwhile available and added in the contract value), the contractor would be benefited on two ends namely one in the form of credit and the same being recovered from the service recipient (because the said credit is added to the contract value). Hence, to avoid such a situation, the contractor has to pass on the benefit of credit to the service recipient by way of reduction of price of the contract agreed earlier.

 

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 various commodities. This happened even with the availability of the tax credit available from the production stage to the final consumption stage which should have actually resulted into reduction in the final prices. The main reason of inflation was that the supplier was not passing on the benefit to the consumer and thereby indulging in illegal profiteering. 

In order to examine whether the above benefits are passed on to the recipients, the central government on recommendations of council, constituted National Anti-Profiteering Authority(for brevity ‘NAA’) under Rule 122 of Central Goods & Services Tax Rules, 2017 (for brevity ‘CGST Rules’). Rule 122 to Rule 137 deals with procedural aspects of the anti-profiteering. 

Constitution of NAA and Procedure for handling the complaints: 

NAA shall consist of a chairman who holds or has held a post equivalent in rank to a Secretary to the Government of India and four technical members who are or have been commissioners of state tax or central tax for at least one year or have held an equivalent post under the existing law to be nominated by Counci l[ Rule 122]. 

NAA is helped by Standing Committee (which shall consist of such officers of State Government and Central Government as nominated by Council) and Screening Committee (state level which consists of officer of State Government to be nominated by Commissioner and one officer of Central Government to be nominated by Chief Commissioner) [Rule 123]. 

NAA has power to determine the methodology and procedure for determination as to whether the reduction in rate of tax on supply of goods or services or benefit of input tax credit has been passed on by registered person to recipient by way of commensurate reduction in prices [Rule 126].

Process Flow for handling complaints by NAA:

 

 

Receipt of Compliant:

The standing committee within a period of 2 months from the date of receipt of written application from an interested party, a commissioner or any other person examine the accuracy and adequacy of evidence provided in the application to determine whether there is a prima-facie evidence to support the claim of applicant that the benefit of reduction in rate of tax on supply of goods or services or benefit of input tax credit has not been passed on to recipient by way of commensurate reduction in price. All applications from interested parties on issues of local nature shall first be examined by State level screening committee and screening committee shall, upon being satisfied that the supplier has contravened the provisions of Section 171, forward the application with its recommendation to the standing committee for further action [Rule 128]. 

Initiation and conduct of Proceedings: 

Where standing committee is satisfied that there is a prima-facie evidence to show that supplier has not passed on the benefit to the recipient, it shall refer the matter to Director General of Anti-Profiteering for a detailed investigation. 

The Director General of Anti-Profiteering after carrying a detailed investigation by issuing notices to interested parties and others involved shall file a report within 3 months from the date of receipt of reference from the standing committee [or within such extended period a maximum of 3 months] to NAA[Rule 129]. 

Order of NAA: 

The authority within a period of 3 months from the date of receipt from Director General of Anti- Profiteering determine whether a registered person has passed on the benefit of reduction in rate of tax or benefit of input tax credit to the recipient by way of commensurate reduction in prices after giving an opportunity of being heard to the interested parties. 

Where NAA determines that the registered person has not passed on the benefit of the reduction in rate of tax or benefit of input tax credit to the recipient by way of commensurate reduction in prices, the NAA may order: 

1. Reduction in Prices
2. Return to recipient, an amount equivalent to amount not passed by way of commensurate reduction in prices along with interest @ 18% from the date of collection of higher amount till date of return of such amount or recovery of amount including interest not returned as the case may be
3. If the recipient is not identifiable or does not claim return of the amount, then 50% of the amount as determined above shall be deposited in fund constituted under Section 57 of CGST Act and balance 50% to be deposited in fund constituted under Section 57 of State GST Act
4. Imposition of Penalty under the Act
5. Cancellation of registration under the

 

If the report of Director General of Anti-Profiteering recommends that there is contravention or even non-contravention of provisions of Section 171 or the rules, but the NAA is of the opinion that further investigation or inquiry is called for in the matter, it may, for reasons to be recorded in writing, refer the matter to Director General of Anti – Profiteering to cause further investigation or inquiry in accordance with the provisions of the act and these rules. 

Any order passed by NAA shall be complied with by the registered person falling which action shall be initiated to recover the amount in accordance with the provisions of the act and rules made thereunder with continuous monitoring of such an order. 

Director of Anti-Profiteering have conducted and concluded investigations and NAA has passed orders in such investigations. The details of the orders passed by NAA are available at www.naa.gov.in