GST ANTI-PROFITEERING LAW: TAKEAWAYS FROM NAA RULINGS

Statutory Provisions

The provisions are contained in the GST law as per following provisions:

The Rules for Anti Profiteering are contained in Chapter XV (Rule Nos. 122 to 137) of the Central Goods and Services Tax Rules, 2017.

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.

Scope and Objective

Anti-profiteering 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. Sub- section (2) of section 171 of the Act provides for establishment of an authority for an anti-profiteering clause in order to ensure that business passes on the benefit of reduced tax incidence on goods or services or both to the consumers. The Authority, i.e. National Anti-profiteering Authority (NAA) has already been setup .

There have been a dozen of orders passed by National Anti-profiteering Authority (NAA) so far since its constitution. The first order was passed on 27^th March, 2018 and since then the journey has been short but one can draw important conclusions / inferences as a guidance from the NAA orders passed so far.

Though the NAA concluded in more than half of these orders that profiteering could not be established or was absent, yet in the other cases / complaints, indulgence in Anti-profiteering was established and penal action taken. The NAA orders can be tabulated as follows:

NAA Orders: A Snapshot

If we analyze the NAA orders, we find that NAA as well as DGAP have followed their own set of procedures and have drawn inferences generally based on factual matrix, objective of GST and legislative intention with consumer being in focus. The following inferences are worth noting and for guidance.

Underlying Principles 

Based on the Orders of NAA, following principles of anti-profiteering law can be established:

• A supplier cannot be allowed to resort to profiteering.
• GST benefit irrespective of the amount has to be passed on to the buyer.
• Cases of Anti-profiteering have to be determined on case to ease basis taking into account tax benefit, other costs etc.
• Benefit cannot be denied on the grounds of convenience to retailer or customer in terms of price, being in whole number (e.g. on ₹ 5 per pack benefit was 21 paisa only and hence not passed on).
• Rate change should result in commensurate reduction in price of product/ service.
• Anti-profiteering law is applicable to both, B2B and B2C transactions.
• Benefit on a particular product cannot be passed on or transferred to other products of the same company and benefit denied to a class of customers. It should be done product wise, not even an a basket of products.
• Benefit should be passed on at each unit and it can not be averaged out.
• Rate reduction benefit to other similar products having different grammage cannot be accepted as a defense.
• Benefit to be passed on should be by way of commensurate reduction in prices.
• The quantum of profiteering ought to be quantified for passing the benefit /recovery of amount profiteered.
• Withdrawal of discount given out of profit margin is not profiteering.
• Even where MRP cannot be decided or altered by the supplier, not being manufacturer, it is expected to reduce the prices taking into account the effect of reduction in rate of tax, in view of the fact that ITC is claimed.
• Benefit cannot be given to a set of customer arbitrarily and set off against the other set of customers. No such adjustments are permissibly under the law.
• In case of identifiable customers, amount is to be refunded with interest.
• In case of unidentifiable customers, amount should be deposited with Consumer Welfare Fund of Union / respective State.
• Penalty can be levied but after due adjudication, following principles of natural justice.
• Anti-profiteering cases are booked on pan India basis. In other words, NAA has jurisdiction all  over India.
• Complaints / cases are processed either on complaint or on suo moto basis by DGAP.
• Complaints can be made against anti-profiteering irrespective of the amount involved (small or big).
• Over pricing / indulgence in profiteering would tantamount to issuance of incorrect invoices attracting penalty u/s 122 of the GST law.
• Implementation / monitoring of order can be directed to be done of DGAP.

The aforementioned principles or assertions have been drawn from decided orders of NAA based on factual matrix and legislative intention.