GST and Anti-Profiteering Law! Are we complying? Is the Government ready?

The Goods and Services Tax ('GST') Law has now penetrated deep into business and commercial operations of India Inc. The paradigm shift from the contemporary style of levying Indirect Tax in the world's biggest democracy has not been free from technical, legal and practical glitches. Assessee have been facing numerous hurdles in implementing the 'One Nation One Tax', in their day to day operations.
From interpreting the legal provisions from the bare law coupled with the clarificatory Circulars, Press Releases and Tweets, the Government and the tax payers seem to be adapting gradually to the dynamics involved in the new tax.
Readers would here recall that the Government had stressed heavily on compliance with the 'Anti-profiteering' provisions incorporated in the GST Law. The said provision requires an assessee to pass on to the recipient by way of commensurate reduction in prices, (i) any reduction in rate of tax, or (ii) benefit of input tax credit. While it may be relatively simpler to identify reduction in rate of tax, the challenge lies in identifying, analysing, quantifying and passing on the benefit of input tax credit to be GST compliant. In recent FAQs on this subject, it was concluded that "National Anti-Profiteering Authority is a mechanism devised to ensure that prices remain under check and to ensure that businesses do not pocket all the gains from GST because profit is fine, but undue profiteering at the expense of the common man is not."
The intent of this provision seems to ensure that no one, regulated by the GST Law, makes undue profit/ gains on account of lowered tax incidence while transiting from the erstwhile regime to the GST regime. Another objective attached to the said provision was to control inflation. While there may be cases requiring commensurate reduction wherein, the ultimate output tax in terms of percentage increases significantly, however, on account of enhanced input credits, the effective tax is neutralised or may even be lowered, when compared to the erstwhile regime.
For instance, service tax credit was not available to traders in the erstwhile regime. Going forward, input tax credit of GST paid on input services, subject to certain conditions, will be available to traders. Even if there is an increase in the rate of tax of the traded goods, the availability of input credit will be required to be statutorily factored in.
A question here remains that whether mere enactment of an Anti-Profiteering provision in a Parliament passed law is enough to ensure the objective sought to be achieved by the Law makers? The Government had notified Anti Profiteering Rules, 2017 ('Rules') in order to make the Anti-Profiteering statutory provision effective. To put these Rules briefly, they provide for constitution of a 5 member National Anti-Profiteering Authority vested with certain powers and duties. A Screening Committee at Central level, a Standing Committee at the State level and Director General of Safeguards, also constituted therein, will be involved in the process of ensuring compliance with Anti-profiteering.
One of the Rules provide that the constituted National Authority may determine the methodology and procedure for determinationas to whether the Anti-Profiteering provision has been complied with. By far, no such determination in exercise of the discretionary power has been laid down. India Inc. as per their understanding has been exhumed in the process of determining whether a commensurate reduction in prices in required or not. Divergent practices are being followed to determine and implement a commensurate reduction in prices such as on a product level, on a gross/net level, on an entity level, on product level, on SKU level etc. Legal issues followed up by litigation may mount up if the Authority lays down any methodology and procedure, contrary to the subjective understanding developed by India Inc., at large.
The jurisdiction of the constituted Authorities under the Rules is invoked only upon a written application being received by the Standing Committee. The Standing Committee, upon being satisfied that there is prima facie evidence of non-compliance, is bound to refer the matter to the Director General of Safeguards for investigation. However, it has been observed that offices of certain State Authorities have been issuing notices/ communications to businesses requiring them to declare a comparative of the pre and post GST product pricing. The moot question here is whether these notices/ communications have any legal sanctity? Given the fact that the Anti-Profiteering Rules clearly vest powers and duties to examine the evaluation of Anti-Profiteering only on the Authorities constituted therein, can such notices/ communications be issued?
Another aspect which requires attention is that larger business houses may be compliant, however, the anti profiteering provision loses its relevance and the salutary objective sought to be achieved if compliance is not followed till the goods/ services reach the ultimate end customers.
Let's assume there is a business chain comprising of a manufacturer, a whole sale distributors, a retailer and then the ultimate customer. The manufacturer and the whole sale distributor comply and reduce the prices, however, the retailer does not do so and chooses to enhance his profit margin. Under this situation, the ultimate purpose of Anti-Profiteering clearly stands defeated. Though, the GST provision requires compliance with Anti-profiteering at every level, one may argue that the Authority will be under duty to ensure that the retailer (in the cited example) or for that matter any other defaulter, complies or faces consequences by way of penalty or to the extent of cancellation of registration. The question, however, is that given the demographics and scale of operations of retailers/ businesses that deal with customers, in India, will the Anti-Profiteering Authority constituted be given sufficient resources to effectively discharge its duties. Also, how will persons not registered under GST be made Anti-Profiteering compliant? Would the Screening Committee/ Standing Committees endowed with the power to examine applications for non-compliance have sufficient means to match up and adhere with the requirement at law? Given the trail of enforcement of provisions in India, it is imperative that the Government ensures that due weightage is given to the Anti-Profiteering Authority to not make it a toothless tiger! The result of an ineffective Anti-Profiteering Authority may be catastrophic since the end customer, who bears the ultimate burden of Indirect Tax, will be severely hit.
Internationally, Australia and Malaysia have implemented and experienced the Anti-Profiteering effect. Australia implemented GST ('New Tax System'- NTS) in the year 2000 and vested the power with the Australian Competition and Consumer Commission ('ACCC') to oversee pricing responses to the NTS. The ACCC was to address consumer concerns on the possibility of business houses taking advantage of tax changes and charging unreasonably high prices. A substantial number of complaints were examined and heard during the 3 year tenure of ACCC.
Apropos Malaysia, GST was implemented in the year 2015. To examine Anti-Profiteering, the Price Control and Anti-Profiteering Act, 2011 was bought into force. Initially, a set of Regulations were brought into effect which were made applicable to all goods. Thereafter, a new set of Regulations (effective January 01, 2017) were implemented to check on Anti-Profiteering only on 'Food and Beverages' & 'Household goods'. A formula based approach was implemented to determine unreasonably high profits.
The operation of the Anti-Profiteering provision is expropriovigore i.e. it operates by its own force. At every stage, may it be a notification to lower the rate of tax or an amendment resulting in greater availability of input credit, the assessee has to be compliant. In other words, at every stage of change in the legal provision which results in reduction of rate of tax or provides benefit of input tax credit, the Anti Profiteering provisions come into full play thereby obliging the business to be compliant seamlessly.


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