PROFITEERING AND ITS IMPLICATIONS UNDER GST

When the finance minister in a media interaction after the 23rd Goods and Services Tax (GST) Council meeting ticked off restaurant owners for not passing the benefits of increased input tax credit to customers, the message to the business community was loud and clear: The government may invoke anti-profiteering measures if there is reluctance in reducing prices of goods and services that are now attracting lower tax rates.

With 10 per cent reduction in rates on many products, there will now be increased focus on the enforcement of anti-profiteering regulations. In many cases, the new rate of 18 per cent is much lower than the pre-GST combined indirect tax rates. Hence, it is essential for businesses to be prepared

How the provisions work

Under GST, the suppliers of goods and services must pass on any reduction in rate of tax or the benefit of input tax credit to consumers by way of commensurate reduction in prices. If this is not done, the consumer's interest is protected by the National Anti-profiteering Authority, which may order:

— Reduction in prices

— Return of the amount not passed on, with 18% interest to the recipient

— Imposition of penalty

— Cancellation of registration of the supplier

Affected consumers may file an application, in a prescribed format, before the Standing Committee on anti-profiteering if the profiteering has all-India character or before the State Screening Committees if the profiteering is of local nature.

Issues & challenges

The anti-profiteering rules contain the bare essentials of a statute for determination of alleged anti-profiteering by the anti-profiteering authority 

— No methodology or procedure prescribed in either the CGST Act or the rules to determine profiteering by the supplier

— Left at the discretion of the authority

— Lack of clarity over whether the computations and calculations would be made state-wise, location-wise, product-wise or at entity-level

Hence, there are provisions in GST to force a supplier to pass on the benefit to accruing under GST regime to the consumers,. However, the Rules need to be made more specific to enable suppliers work out the benefit if any strictly as per the Rules to avoid unnecessary litigation.

The State should further clarify as to how any increase in cost of product/ service which occurs after GST introduction will be recovered from the consumers without inviting an allegation of profiteering or reversal of benefits passed on under GST.