Rationale for Anti-Profiteering Provisions
Invariably all the countries implementing GST have faced sudden rise in inflation and the profiteering practices followed by business community were alleged as one of the reasons for rise in inflation. Learning from the global examples, Anti-Profiteering measures have also been inserted in the Indian GST Law.
Legal Provisions
Anti-Profiteering mechanism is provided in section 171 of the CGST Act, 2017. Brief summary of this section is as under
♦ Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit accrued to supplier shall be passed on to the recipient by way of commensurate reduction in prices.
♦ The Central Government is empowered to constitute Authority (National Anti-Profiteering Authority "NAA" or "Authority" henceforth) 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 prices of the goods or services or both supplied by him.
Practical examples to explain legal provisions
♦ AB Ltd is selling packaged FMCG goods (MRP based) at ₹ 50 per kg. in pre GST Regime. This MRP was inclusive of say 12.5% Excise and 13.5% MVAT, totalling to 26% taxation. Post GST said outward supply is subject to 18% GST, if AB Ltd continues to sell its product at ₹ 50 (without even commensurate increase in quantity of its outward supply), prima facie anti profiteering Provisions are applicable, as said company has failed to pass on 8% reduction in tax to its recipients.
♦ Builders and Developers were subject to restricted CENVAT (ITC) in pre GST regime. After introduction of GST builders were entitled for global ITC (except section 17(5) situations). If the builder charges same price for its flats pre GST and post GST, prima facie Anti-Profiteering provisions are applicable.
Consequences if Anti-Profiteering is established
Once Anti-Profiteering is established, Authority may order:
(a) Reduction in prices;
(b) Return of the amount not so passed on;
(c) Deposit of the illegal profit accrued to the Consumer Welfare Fund;
(d) Imposition of penalty; and
(e) Cancellation of registration of the supplier.
Important observations arising out of decided investigation Matters of Anti-Profiteering
♦ No Anti-Profiteering if increase in price charged for output supply is due to reasons like increase in operational cost, establishment expenses, inflation etc.
♦ No Anti-Profiteering if no additional benefit is accruing to supplier out of any increased availability of ITC.
♦ No Anti-Profiteering if no reduction in tax rate applicable to supplier.
♦ Merely because base price of output supply has been increased post GST per se does not substantiate Anti-Profiteering.
Who can file a complaint against profiteering?
Any consumer or organisation experiencing or noticing the non-reduction in the price of the Goods or Services or both to commensurate the reduction in the rate of GST can file a complaint under the Anti-Profiteering provisions with proper evidences.
Any registered recipient of goods, trader, wholesaler or retailer, who could not get the benefit of the input tax credit (ITC) available to their supplier by way of commensurate reduction of the price of the supplies received, can file the complaint with proper evidences.
Even Commissioner on his own can also file a complaint.
Whether complainant is eligible to recover the amount on account of his complaint against profiteering?
Authority can compel the defaulter to return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of 18% from the date of collection of higher amount till the date of return of such amount. When the recovery of the amount including interest cannot be returned to the eligible person may be for reason like eligible person does not claim return of the amount or such person is not identifiable, the recovered amount shall be deposited in the Consumer Welfare Fund constituted under CGST and SGST/UTGST Act, in equal proportions.
How to file complaint against a taxpayer indulging in profiteering
Aggrieved person/user/consumer can file online complaint on website www.naa.gov.in by doing the following processes.
1. Registration (Process is almost similar to creation of e-Mail ID on gmail.com)
2. Log-in
3. Make complaint
The complaint form has 4 parts viz. Parts A, B, C & D.
Part A consists of General Information about the applicant viz. name, address, contact Number, Email ID etc. To avoid hoax complaints applicant has to fill up his requisite details and also upload his Photo Identity Proof e.g. Aadhaar Card, PAN card etc.
Part B consists of General information about the supplier who has not passed on the benefit viz, name, address and contact Number.
Part C consists of particular of Goods or services on which profiteering is alleged by complainant. viz., brief description of such goods and services, earlier price/value per unit, present price/value per unit, earlier MRP/present MRP etc.
Part D consists of actual charge of complainant, i.e. whether or not the benefit of reduction in tax rate has been passed on/whether or not the benefit of ITC has been passed on by the defaulter? Applicant is expected to attach evidence of profiteering like copies of invoice, price list, contract/agreement/product brochures etc., in .jpg, .pig, .doc or .pdf format within 3 MB size.
Further NAA has started helpline No. 011-21400643 to resolve queries related to the registration of complaints against profiteering.
In addition application can also be filed manually in Anti-Profiteering Application Form (APAF-1) before Standing Committee (in case the issue is of pan India nature)/State level Screening Committee (in case the issue of local nature). Address of both these committees are available on website www.naa.gov.in.
Tracking status of application
The complainant can track the application filed online through the 'track complaint' module available on the website www.naa.gov.in, if it is filed online. Otherwise the complainant can contact the Anti-Profiteering Authority at: 011-23741544, 011-23741542; e-mail: dgsafegaurds@nic.in.
Internal Process/Organisational Structure of NAA
CGST Rules lay down procedure to be followed during adjudication of Anti-Profiteering complaint. Such procedure can be broadly classified as under:
♦ Scrutiny of application
♦ Investigation Examination by Authority
♦ Order by Authority
♦ Implementation of the orders of the Authority
The internal process of Anti-Profiteering is briefly discussed as under:
Scrutiny of application
In terms of Rule 128 of CGST Rules, all applications received from interested parties on issues of local nature shall first be examined by the Screening Committee. The Screening Committee on being satisfied that the supplier has not passed on the reduction in rate of tax on any supply of goods or services or the benefit of input tax credit on to the recipient by way of commensurate reduction in prices, will forward the application with its recommendations to the Standing Committee for further action.
The Standing Committee will examine the accuracy and adequacy of the evidence provided in the application to determine whether there is prima facie evidence to support the claim of the applicant that the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has not been passed on to the recipient by way of commensurate reduction in prices. If it is satisfied then the matter will be referred to the Director General of Safeguards (DG Safeguards) for a detailed investigation.
Investigation
The DG Safeguards shall conduct investigation and collect evidence necessary to determine undue profiteering and before initiation of the investigation, issue a notice to the interested parties and to such other persons as deemed fit for a fair enquiry into the matter. The evidence or information presented to the DG Safeguards by one interested party can be made available to the other interested parties, participating in the proceedings.
The DG Safeguards will complete the investigation within a period of 3 (three) months or within such extended period not exceeding a further period of 3 (three) months for reasons to be recorded in writing as allowed by the Standing Committee and, upon completion of the investigation, furnish to the Authority, a report of its findings along with the relevant records.
Examination by Authority
Authority shall (after granting an opportunity of hearing to the interested parties if so requested) within a period of three months from the date of the receipt of the report from the DG Safeguards determine whether a registered person has passed on the benefit of the reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices.
The Authority may refer the matter to the DG Safeguards to cause further investigation or inquiry.
Order by Authority
The Authority may pass any interim or final order in the proceedings pending before it as is deemed just and proper by it in the facts and circumstances of the case.
Implementation of Order of Authority
Authority may direct any authority of Central Tax, State Tax or Union territory tax to monitor the implementation of the order passed by it. Further any order passed by the Authority shall be immediately complied with by the registered person failing which action shall be initiated to recover the amount in accordance with the provisions of the IGST/CGST/SGST/UTGST Act, as the case may be.
Above Process can be explained with the help of a flowchart as under
Anti-Profiteering Case Study of Hindustan Unilever Limited
Hindustan Unilever Limited (HUL) is considered as cynosure of Anti-Profiteering Provisions. Brief details of the said case as available in public domain are mentioned hereinbelow. HUL had earmarked ₹ 119 crore because it could not immediately lower prices after the GST rates on several products were reduced from 15th November 2017. The company had offered to release the money to the Consumer Welfare Fund, run by the Department of Consumer Affairs.
NAA held that HUL is benefited to the tune of ₹ 535 crore by not passing on gains from lower GST rates to the consumers. After considering the grammage benefit (increase in quantity maintaining same price), the authority has directed the company to deposit ₹ 462.32 crore in the Consumer Welfare Funds of the Centre and the States. NAA order also directed issuance of a fresh notice to HUL asking why penalties should not be levied for violation of Anti-Profiteering rules and has further directed to reduce the prices of products appropriately.
The said NAA order is challenged before Hon'ble Delhi HC. The High Court has stayed the demand of ₹ 462 crore and penalty proceedings and has directed the NAA that no coercive action be taken, and no penalty proceedings be continued against HUL until the final determination of the matter in the court. The High Court has also asked HUL to deposit ₹ 90 crore in two instalments in the Consumer Welfare Fund by mid-May 2019.
Stop Press
The Hon'ble Delhi High Court has stayed Anti Profiteering proceedings against Abbott Healthcare after the company questioned the Constitutional validity of the provisions as well as the National Anti-Profiteering Authority's power to extend the probe to its other products. In past HUL and Jubilant Foodworks (Dominos) have also questioned Constitutional validity of Anti-Profiteering provisions. The said order of Hon'ble Delhi High Court gives an opportunity to all dealers against whom Anti-Profiteering proceedings are initiated to consider filing a letter with Anti-Profiteering authorities, pleading that their proceedings should be stayed, till the time the issue surrounding Constitutional validity is settled by Courts.
Conclusion
Though intention of Anti-Profiteering provisions are noble, demand and supply factors itself are more relevant to determine competitive pricing in today's transparent world. Care should be taken by Authority to dissuade frivolous complaints and spirit of entrepreneurship should not be killed in legal procedures. Lack of definition of what constitutes profiteering may land up majority of NAA orders in further litigation.
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