GUJARAT NATIONAL LAW UNIVERSITY

SEMESTER VIII/BATCH
2018-2023

LAW OF TAXATION II

CONTINUOUS INTERNAL EVALUATION

ESSAY

‘ANTI-PROFITEERING FEATURES UNDER GST’

TABLE OF CONTENTS
INTRODUCTION....................................................................................................................3

WHAT IS THE MEANING OF ANTI-PROFITEERING UNDER GST?........................5

WHAT ARE THE STATUTORY PROVISIONS OF ANTI-PROFITEERING IN GST

LAW?........................................................................................................................................5

JUDICIAL PRONOUNCEMENT..........................................................................................6

LACUNAS AND CONSTITUTIONAL CHALLENGES....................................................8

ANALYSIS, OPINION AND RECOMMENDATION.........................................................9

CONCLUSION.........................................................................................................................9

“It is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit
to the consumer as an anti-profiteering measure”.
 - Central Board of Direct Taxes

ANTI-PROFITEERING FEATURES UNDER GST

INTRODUCTION
The concept of Anti Profiteering however being discussed off late yet in substance was
prevailing in India since former period. "Implementation of Value-Added Tax (VAT) in
India-Lessons for Transition to GST", was a study report published in June 2010 by the
Comptroller and Auditor General (C&AG) of India.1 It point by point detailed a few instances
of profiteering by vendors who neglected to give the tax rate reduction advantages to
consumers. In the wake of examining the records of 13 manufacturers in a state during the
initial three months of VAT implementation, the aforementioned C&AG examination
concluded that the manufacturers didn't cut the MSRP of the products in spite of the dramatic
decline in the tax rate.2 Due to the VAT experience, against profiting clauses were
incorporated into the GST resolution to keep undertakings from profiteering when the GST
was executed in the country.

"Profiteer" signifies making enormous of profit through supply of goods and services or both.
A definitive objective of a welfare government is to pass advantages to the end users, that is
to the recipient of goods and services or the citizens. 3 Therefore, on June 18, 2016, the GST
Council announced the anti-profiteering guidelines. As the name implies, these regulations
prohibit companies from generating excessive profits due to the GST. Anti-profiteering
regulations are required since experiences learned from other nations indicate that inflation
and price increases have occurred after the establishment of the GST4. Singapore, for
instance, experienced an increase in inflation after implementing the GST in 1994. This
occurred despite the accessibility of the tax credit right from the production stage to the final
consumption stage which ought to have actually reduced the final prices. 5This was clearly
happening because the provider was not passing on the advantage to the consumer and

1
Central Board of Indirect Taxes and Customs, https://www.cbic.gov.in/resources//htdocs-cbec/gst/Anti-prof-
FAQs-FINAL-FAQs.pdf (last visited May 11, 2022).
2
CAknowledge, https://caknowledge.com/anti-profiteering/ (last visited May 15, 2022).
3
Central Board of Indirect Taxes and Customs, https://www.cbic.gov.in/resources/htdocs-cbec/gst/Final-GST-
FAQ-31218.pdf (last visited May 15, 2022).
4
KSK Advocates & Attorneys, https://ksandk.com/tax/hul-found-guilty-for-profiteering-delhi-high-court/ (last
visited May 15, 2022).
5
Legal Service India, https://www.legalserviceindia.com/legal/article-815-anti-profiteering-under-gst.html (last
visited May 15, 2022).
accordingly indulging in unlawful profiteering. After the advent of GST, it will be even more
crucial for Indian administrators to monitor prices.6

Anti-profiteering system has been a piece of the economic sector of numerous countries.
Singapore and Australia have additionally carried out GST policies in their economy and
have stuck to the anti-profiteering arrangements also. After implementation of GST the value
of Goods and Services become cheaper than past tax period. 7
The policy of our
administration depends on the government assistance of general public and that's what it
demands assuming prices of goods and services become cheaper than recently charged, a
similar advantage ought to be moved to the end clients. The public authority will not permit
any individual to charge similar rate after GST as they were charging before GST system. If
your business has a lower tax rate than it did before to the implementation of the GST or if
you receive a tax reduction as a result of an input tax credit, you must pass on the savings to
your customers.

India is doing what many other nations have done: implementing anti-profiteering rules at the
retail level to safeguard customers from price gouging8. Clause 171 of the GST Act stipulates
that it is mandatory to pass on the benefit resulting from a reduction in the tax rate or input
tax credit. Since the GST, alongside the input tax credit, is at last expected to bring down
prices, a National Anti-profiteering Authority (NAA) is to be set up to guarantee that the
advantages that accrue to substances because of reduction in costs is given to the consumers.
Additionally, elements that climb rates inordinately, citing GST as the explanation, will be
checked by this body.9

WHAT IS THE MEANING OF ANTI-PROFITEERING UNDER GST?

Any reduction in the GST rate or input tax credit benefit should be given to the final
consumer, not retained by the firm. 10
This is the reason for GST's anti-profiteering rules.

6
Central Board of Indirect Taxes and Customs,
https://cbic-gst.gov.in/pdf/e-version-gst-fliers/AntiprofiteeringWebVersion.pdf (last visited May 17, 2022).
7
Vishruti Chauhan, Anti-profiteering under GST, IPLEADERS, https://blog.ipleaders.in/anti-profiteering-under-
gst/?amp=1 (last visited May 17, 2022).
8
InsightsIAS, https://insightiasacademy.com (last visited May 18, 2022).
9
CMA Mrityunjay Acharjee, Introduction of anti-profiteering provisions in India and role of CMA, INSTITUTE
OF COST ACCOUNTANTS OF INDIA, https://icmai.in/TaxationPortal/upload/IDT/Article_GST/16.pdf (last visited
May 20, 2022).
10
CMA Mrityunjay Acharjee, Introduction of anti-profiteering provisions in India and role of CMA, INSTITUTE
OF COST ACCOUNTANTS OF INDIA, https://icmai.in/TaxationPortal/upload/IDT/Article_GST/16.pdf (last visited
May 20, 2022).
Under anti-profiteering guidelines, it is unlawful for a business to neglect to pass on the
advantages of reduced GST rates to the final customer, so engaging in unlawful
profiteering.11

The Anti-Profiteering Rules, 2017 specify the individuals from the National Anti-Profiteering
Authority (NAA) and the different committees that will help the NAA in investigating
complaints, the procedure to be followed during investigations, and the authority's liabilities.
Once the enlisted substance that illicitly profited is distinguished, doing the following: 12a)
reduce prices in the event that they have been raised excessively; and b) if price reductions
because of the Goods and Services Tax (GST) have not been given to customers, return the
sum comparable to the price reduction in addition to 18% interest from the date the higher
aggregate was collected might be required. The authority might give a punishment or
repudiate the profiteer's enlistment.

WHAT ARE THE STATUTORY PROVISIONS OF ANTI-PROFITEERING IN GST LAW?

Section 171 of CGST Act, 201713, provides that 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. Chapter XV of the CGST Rules, 2017 comprising of 16
Rules (Rule 122 to Rule 137), contains the detailed mechanism and procedure14.

JUDICIAL PRONOUNCEMENT
The National Anti-Profiteering Authority (NAPA) has questioned the pricing of several
corporations, including Mankind Pharma, Johnson & Johnson, and Colgate Palmolive.
Letters requesting information were sent to no fewer than 50 organisations, and the sales
directors of these companies were asked to “provide cost accounting information”. Some
corporations, like Patanjali Ayurveda, Hindustan Unilever (HUL), Procter & Gamble (P&G),
Nestle, and Hard Castle Restaurants, have been fined or questioned in the past for obviously
failing to pass on the tax rate decrease benefits to customers.

11
CAknowledge, https://caknowledge.com/anti-profiteering/ (last visited May 15, 2022).
12
Central Board of Indirect Taxes and Customs, https://www.cbic.gov.in/resources//htdocs-cbec/gst/Anti-prof-
FAQs-FINAL-FAQs.pdf (last visited May 11, 2022).
13
The Central Goods and Service Tax Act, 2017 No. 12 of 2017, Act of Parliament 2017.
14
Ibid.
In the recent case Dinesh Mohan Bharadwaj v. M/s Vrandavaneshwree Automotive Pvt. Ltd
15
, the National Anti-Profiteering Authority (NAPA) established under the CGST Act, 2017
evaluated these clauses. In its first order on anti-profiteering under Goods and Services Tax
(GST), the National Anti-Profiteering Authority dismissed the complaint against the supplier
of goods, Vrandavaneshwree Automotive Pvt Ltd (Respondent), a Honda car dealer based in
Bareilly, because it did not violate the anti-profiteering provisions of the Central GST Act,
2017. The ruling, issued March 27, notes that the Honda dealer passed on to the applicant the
benefit of the reduction in tax rate after GST by reducing the price of the vehicle by 10,55016.

Thus, it was determined that the respondent (Honda auto dealer) had not violated Section 171
of the CGST Act, 2017; accordingly, the application submitted by Dinesh Mohan Bhardwaj
(complainant or applicant) under Rule 128 of the CGST Tax Rules, 2017 was without merit
and was dismissed.

The NAPA made following observation in the case of Mool Chand Mittal v. Elan Limited 17:-
"In this connection it would be suitable to mention that every manufacturer launches
marketing campaigns and pays commission for selling his flats/houses/shops in the normal
course of his business which is as of now implicit the cost of every project and hence, the
Respondent cannot claim any concession on this ground. Moreover, there is no provision
under Section 171 (1) to consider the costs incurred by the Respondent while calculating the
profiteered amount. Hence, the above claim of the Respondent cannot be accepted". Thus the
said contention lost its ground for need of express provision in such manner. This seems like
a serious lapse in GST regulation as on the off chance that the authority decides
computational methodology how the builders were supposed to realize they had contravened
Section 171 of CGST Act, 2017. Secondly, in the case of Jotbir Singh Bhalla v. Sun City
Projects Pvt. Ltd.18, arose the question of distributing the above calculated profiteered amount
qua purchaser. The anti-profiteering rule allows government to step into the shoes of
enterprises and covertly aims to regulate prices of goods or services regardless of conditions,
which violates the fundamental freedom to commerce or profession.
15
Dinesh Mohan Bharadwaj v. M/s Vrandavaneshwree Automotive Pvt. Ltd, 2018 (4) TMI 1377 - the national
anti-profiteering authority.
16
Aanchal Magazine, First order on GST anti-profiteering, INDIAN EXPRESS LIMITED
https://indianexpress.com/ article/business/economy/first-order-on-gst-anti-profiteering-naa-says-car-dealer-
complied-with-norms-5123695/ (last visited May 18, 2022).
17
Mool Chand Mittal v. Elan Limited, MANU/NT/0068/2020.
18
Jotbir Singh Bhalla v. Sun City Projects Pvt. Ltd 2020 (12) TR 3806.
Godrej via Flipkart: Sh. Rishi Gupta (Applicant) v. M/s. Flipkart Internet Pvt. Ltd.
(Respondent)19 Applicant ordered a Godrej Interio Slimline Metal Almirah through the
Respondent on 04.11.2017 and a tax invoice dated 07.11.2017 was sent to him for 14,852/-
by M/s. Godrej & Boyce Mfg. Co. Ltd. (Supplier). On November 14, 2017, the Indian
government cut the tax rate (GST) from 28 percent to 18 percent. The Supplier sent a second
invoice for the amount of 14,152/- on 29.11.2017, at the time of delivery. Respondent
informed the Applicant via letter dated 27.04.2018 that an excess amount of 700/- was
refunded on 18.01.2018. Respondent was not the Supplier / Manufacturer of the Almirah; he
was merely an agent who offered his platform, i.e. a marketplace, to the Supplier to sell the
Almirah in exchange for a commission; he was not liable for tax collection or refund (GST).
Therefore, he cannot be held responsible for violating Section 171 of the CGST Act of 2017
Profiteering allegations brought by the Applicant against the Respondent and Supplier are
unproven; therefore, the current application is not maintainable and is dismissed. As there
may be multiple instances in which e-platforms received extra tax (GST) at the time of
booking, refunds are required. The Authority has therefore already instructed the Director
General of Audit, Central Board of Indirect Taxes and Customs, by letter No.
NAA/2018/DO/08/2011 dated 24 May 2018, to conduct an audit of the major e-platforms and
submit its results to the Authority. As an agent, the Respondent provided a marketplace
where vendors may offer their products for direct sale to buyers, for which it charged a
commission. Trade discount is a component of the Supplier's trade margin, and the
withdrawal of trade discount does not constitute profiteering. Profiteering cannot be invoked
because the basic price has remained unchanged. Although "base price" is not defined in the
statute, it appears to be the "taxable value" of the referenced commodity. The authority can
automatically take steps to ensure that all recipients receive their benefits.

LACUNAS AND CONSTITUTIONAL CHALLENGES

 Freedom of Trade
Article 301 of our Constitution guarantees the freedom of trade, business, and interaction
across the entire Indian territory. Article 302 nonetheless permits the legislature to impose
appropriate limits. Anti-profiteering rules or restrictions on the profits of trade for all

19
Godrej via Flipkart: Sh. Rishi Gupta v. M/s. Flipkart Internet Pvt. Ltd. 2018 (7) Tmi 1490- National Anti-
Profiteering Authority.
commodities or services may be viewed as a breach of the fundamental right to free
commerce, and as such, may be susceptible to judicial review.20

 Effect on State Taxes/Taxpayers

It is important to highlight that only the central government has the jurisdiction to create
authorities under section 171. Article 302 also permits the Parliament to establish such limits,
although Article 304 imposes rigorous requirements for state legislatures to enact such
restrictions. In this case, the implementation of anti-profiteering measures pertaining to -
State Tax (i.e. SGST) administered by any government OR - Registered Persons, under State
Jurisdiction for all taxes may be subject to court scrutiny.

 Hazardous Implementation
Global experience demonstrates that anti-profiteering rules can only be effective if there is
ample time for the competent authority to educate consumers and enterprises on their
respective rights and responsibilities. In Australia, the GST transition period began precisely
one year prior to the implementation of GST. During this time period, the government made a
number of steps to prepare the necessary parties to comply with and utilise the anti-
profiteering regime's various provisions. In contrast, the Anti-Profiteering Rules 2017 were
drafted only ten days prior to the commencement of the GST, demonstrating haphazard
implementation and a lack of legal clarity.

ANALYSIS, OPINION AND RECOMMENDATION

The anti-profiteering provision is in the law to curb mal-practices and is intended to work
against the supplier of goods/services, in the case of Dinesh Mohan Bharadwaj v. M/s
Vrandavaneshwree Automotive Pvt. Ltd, the complaint which has been disposed of via
dismissal of complaint in favor of supplier, indicates that the supplier shall not be harassed by
using the cannons of section 171 of the GST regulation and assuming factual matrix proves
that there is no unjust enrichment availed by the supplier, complaints will undoubtedly be
dismissed.

Another important assertion which should be made is that adjudication under section 171 is
more on facts instead of regulation. The statutory provision is just an enabling provision to
step in, in the event that there is a case of anti-profiteering. Once it is admitted, the facts shall
20
ClearTax, https://cleartax.in/s/anti-profiteering-gst-law (last visited May 20, 2022).
be deciding factor keeping the principles of legislative intention in mind. The Authority shall
have to do so based on facts without going into much of lawful interpretation.

From the consumer's perspective, Anti-Profiteering Provision is essential to ensure that they
receive the benefits they deserve. Considering the concerns and challenges facing the
industry as well as the labour involved in reworking the cost sheet and re-fixing prices, it is
also recommended that:
 A acceptable range for margin variation be prescribed, for instance, fluctuation up to
10 percent of existing margins. If variance remains within this bandwidth, no
registered person should be subject to penalties under Section 171 of the CGST Act.
 The Secretary may specify a turnover level below which the provisions of section 171
do not apply.
 Furthermore, specific rules encompassing all areas, including calculating technique,
documents to be preserved, etc., should be defined for amounts beyond the threshold
limit, so that no discretionary power is left in the hands of any authority, which could
result in tax payer harassment.

CONCLUSION
The Goods and Services Tax Act, 2017 came into effect in India on July 1, 2017. The Goods
and Services Tax is the most significant tax change since India's independence. The GST
planned to integrate various sorts of government and state taxes. It connects all Indian states
to the hypothesis of "One Nation, One Tax." The GST re-joined India, and with the GST, we
eliminated a few obstacles from the past tax system. We have been subjected to various
duties collected by each state on the interstate transportation of goods and arrangement of
services. There were cascading consequences of various duties, and a definitive consumers
were forced to bear the weight.

The changing essence of the economy lately have brought major promising and less
promising times in the economy. It is urgent to comprehend that simple policing isn't an
answer for the issues and as great it is to have a high level methodology for progress in the
economy, the execution of these strategies is the significant part. Against exploitative is a
significant and effective system in itself as it has been executed in different nations too. Be
that as it may, the dubiousness in wording and strategies and methodology of power has
placed up a question mark on the pragmatic execution of the equivalent. Simple
policymaking isn't sufficient and subsequently, appropriate safeguards and measures ought to
be given with the goal that any future question can be settled in a successful way. The powers
of the expert in such matters ought to be surveyed and clearness ought to be given on the
execution of such arrangement in various conditions. India doesn't have a reasonable strategy
for evaluating the GST benefits for reasons for passing it on would be suitable, satisfactory
and consistent. While the explanation for such enemy of exploitative measures is to safeguard
the majority, the public authority ought to likewise guarantee genuine taxpayers are not
bothered by these provisions. An enrolled taxable individual participated in supply of
products or potentially services might plan all exchanges by contrasting cost differences
because of progress in tax structure. The planning might consider appropriate taxes under the
current regulations (Central Excise Duty, VAT, CST, Entry Tax, Service Tax) as well as
under the proposed regulation (CGST, SGST or IGST), keeping different elements steady. 21
At every possible opportunity, the exchange planning for merchandise ought to be kept up
with at item level, utilizing the expense bookkeeping records.

A point by point investigation of cost change because of dubious elements like money
demonetization, expansion, occasional cost variances, and so on and its effect on the
organization's evaluating strategy may likewise be embraced to legitimize expansion in net
overall revenue, if any. It is likewise prudent that an assessee relocating to GST system
distinguishes and evaluates input taxes that are not qualified as credit under the current
system. Such information might assist assessees with showing why cost of their products as
well as services have not been diminished even after extra info tax credit qualification or
decreased tax rate under GST system.

21
Lakshmikumaran & Sridharan, Anti-Profiteering measure and price control mechanism under GST,
LEXOLOGY https://www.lexology.com/library/detail.aspx?g=329e1f1b-b2c0-4474-a974-5805f54894c2 (last
visited May 22, 2022).