Concept of Anti-Profiteering measures under GST regime

With the onset of GST regime in India, there have been a great many speculations about inflation
hitting a new high. It has been observed that post GST, inflation was present in countries like
Australia, Malaysia, Singapore and Canada. Therefore, in order to control the unreasonable price
changes, the provision of Anti-profiteering is made out in the Central Goods and Service Tax
Act, 2017 to curb the inflationary trends of the GST roll-out. In this article, the concept of Anti-
profiteering measures is delineated and its probable impacts on the entrepreneurs and consumers
alike.

What is Anti-Profiteering?

Anti-Profiteering provision acts as a protective measure for the consumers. It is mentioned under section
171 of Central Goods and Service Tax Act, 2017 (Act). It follows as:-

Section 171: (1) Any reduction in rate of tax on any 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.

(2) The Central Government may, on recommendations of the Council, by notification, constitute
an Authority, or empower an existing Authority constituted under any law for the time being in
force, to examine whether input tax credits availed by any registered person or the reduction in
the tax rate have actually resulted in a commensurate reduction in the price of the goods or
services or both supplied by him.i

In simple words, it has been made mandatory by this Act that any reduction in rate of tax after the
implementation of GST or reduction in the input tax credit shall be passed on to the consumers. This can
be broken down into two parts:-

(1) Reduction in the rate of tax

(2) Reduction in the input tax credit

Reduction in the rate of tax shall result in reduction of cost which, in turn, will reduce the prices of goods
and services. The registered person under GST is expected to pass on this benefit to the consumers by
way of commensurate reduction in prices. For instance, in the month of November, the Central
Government had cut the tax rates on over 200 items, ranging from chewing gum to chocolates, to beauty
products, wigs and wrist watches to provide relief to consumers and businesses.ii Therefore, this reduction
in tax rates call for a reduction in the prices of goods for the consumers.
Reduction in the input tax credit would help the consumers in a similar manner. The term ‘input tax
credit’ is the most used word in the present taxation system. It aims to prevent the cascading effects of
taxation. This is done by crediting the businesses with the input tax they have paid during the course of
business on various products and services. Let us take an example of a manufacturer who pays taxes of
Rs.10, Rs.20 and Rs.70 on 1st, 2nd and 3rd input respectively. Now after manufacturing the product, a tax
of Rs.200 has to be paid on the output product. But the final tax that the manufacturer has to pay is
Rs.100 [200 – (10+20+70)]. The input tax of Rs.100 is credited to the manufacturer. The manufacturer is
thus expected to share the benefit of the input tax credit with the consumers in form of reduced prices
rather than deriving profit from it.

These measures become difficult to implement on FMCG (Fast Moving Consumer Goods) which are sold
at MRP or by the retailers at fixed prices because the supplies are inclusive of taxes. Reduction in the tax
rate is not visible and the sellers can get away with the responsibility of transferring the benefit to the
consumers.

Scheme of Enforcement of Anti-Profiteering Guidelines

To ensure due compliance, the Government has constituted a National Anti-profiteering Authority (NAA)
to enforce Anti-Profiteering measures throughout India. The NAA is a five-member committee consisting
of a Chairman and four other technical members. It is the authority who can determine the methodology
and the procedure to ascertain whether the guidelines are being met or not. The Additional Director
General of Safeguards under the Central Board of Excise and Customs shall be the Secretary to the
Authority.iii

The NAA is duty bound to carry out proper investigations of complaints, identify the aggrieved parties
and pass orders against the accused party. There is a three-stage process for carrying out a proper
investigation. The applications of the aggrieved parties shall be first examined by the Screening
committee constituted in every State, then by the Standing Committee and finally by The Director
General of Safeguards. After the investigation report is handed over to the Authority, the report shall be
checked by the Authority and if the Authority finds the registered person guilty then an order would be
passed for announcing the punishment. Conviction can lead to penalties under the Central Goods and
Services Tax Act, 2017, cancellation of registration and orders which direct the concerned party to repay
the amount to the aggrieved, or transfer the same to a Consumer Welfare Fund if the aggrieved party is
not identifiable.iv

i
Section 171 of Central Goods and Service Tax Act, 2017.
ii
https://timesofindia.indiatimes.com/business/india-business/gst-rejig-tax-rate-on-178-daily-items-reduced-to-18-
from-28/articleshow/61597017.cms.
iii
http://www.cbec.gov.in/resources//htdocs-cbec/gst/AntiprofiteeringWebVersion.pdf.
iv
Anti-Profiteering Rules, 2017, Rule 8.