TAX LAW PROJECT 2018-19

JAMIA MILLIA ISLAMIA

ANTI PROFITEERING

Submitted by:-
Priyanshu Agarwal
Sec-A
(20150819)

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ACKNOWLEDGEMENT

It is my imperative duty to thank the following people for the successful completion of my
criminal law project,

- For the clarity he/she brings into teaching thus enabling us to have a better
understanding of his subject. I also feel obliged to thank him/her for providing us with
such easy topics to choose from.
- The very cooperative and friendly staff members in the Central and Law Library who
were instrumental in our finding the necessary books without wasting much time. It has
to be noted that their contribution is essential as our University is yet to get a fully
functional centralized database for its libraries.

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INDEX
 INTRODUCTION

 DETAILED ANALYSIS

1) Reduction of Tax Rate in New Tax Regime

2) Benefit of Input Tax Credit

 THE AUTHORITY

 PROCESS

 OPINION

 CONCLUSION

 BIBLIOGRAPHY

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ANTI-PROFITEERING RULES

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.

INTRODUCTION

The GST Council announced the anti-profiteering rules on 18th June 2016.

Anti-profiteering rules are needed as lessons learnt from other countries show that there has
been inflation and prices have increased after GST implementation. For example, Singapore
saw a hike in inflation when it introduced GST in 1994. It makes it more important for Indian
administrators to keep tabs on prices after implementation of GST. India is doing what many
countries did: initiate anti-profiteering measures at the retail level to protect consumers from
price swindling.

Section 171 has been inserted in the GST Act which provides that it is mandatory to pass on
the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of
commensurate reduction in prices.

The crux of the anti-profiteering is-

 If there is reduction in rate of tax on the supply of goods or services or
 Benefit of input tax credit is now available under GST

Then a registered person must pass on the benefit by reduction in prices

DETAILED ANALYSIS

Section 171(1) casts responsibility to pass on the benefit of GST to the recipient for following
two aspects:

1) Reduction of Tax Rate in New Tax Regime

For example, eating out has become cheaper under GST (mostly 18% GST as compared to
earlier 20.5%). This benefit must be passed on to the consumers.

Passing of benefit due to reduction of tax rate, in case of supplies exclusive of tax or for
immediate services is not a big challenge. This is because the reduction in tax rate will directly
be evidenced by invoices, and the recipient will get benefit of the rate reduction. Such can be
seen now in the cases of eating out and travelling through app-based taxis (reduced by 1%).

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However, in case where contract of supplies is inclusive of taxes, this provision will cast
responsibility on the supplier to reduce the price due to reduction in rate of taxes.

For example, FMCG items are normally sold on MRP basis or some other fixed prices by
retailers. If there is any reduction in rate of tax it has to be passed on to the ultimate recipient.
Accordingly, there will be a need to revise MRP or other prices fixed for such supplies.

However, if GST has a negative impact on the cost, then prices can be increased. For example:
If the output supply was zero-rated in previous regime and also remains zero-rated in GST
regime, the business will not get any input tax credit.

If the tax rates are increased, tax under reverse charge imposed etc. then prices will increase.

For example, domestic LPG was exempt from tax under earlier regime. Now they fall under
5% GST. This will result in an increase in the prices of cooking gas.

2) Benefit of Input Tax Credit

Almost all industries will be affected with respect to passing of benefit due to better credit
chain. In most places, be it service sector, manufacturing, trading, or any specific industry, all
are going to get advantage of better flow of input tax credit except sectors having zero-rated
output supply. So overall the expectations of anti-profiteering provisions are commensurate
reduction in prices of supplies.

For example, radio taxis earlier could not adjust the input VAT on office supplies with the
output service tax payable. Now, ITC on all inputs can be adjusted against output tax. These
benefits are passed on by them in the form of offers and discounts. Similarly, many big stores
have GST sales and special offers to pass on the benefit.

THE AUTHORITY

The Authority shall consist of-

(a) a Chairman

(b) 4 Technical Members (Commissioners of State/Central tax)

The Authority will determine the method and procedure for determining whether the reduction
in rate or the benefit of input tax credit has been passed on by the seller to the buyer by reducing
the prices.

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Duties of the Authority–

1. Determine whether the reduction in tax rate or the benefit of input tax credit has been
passed on by the seller to the buyer by reducing the prices.
2. Identify the taxpayer who has not passed on the benefit
3. The Authority will exist for 2 years from the date on which the Chairman enters upon
his office unless the Council recommends otherwise.

Orders Passed by the Authority

The Authority will order-

1. Reduction in prices
2. Return to the buyer, the benefit amount not passed on along with 18% interest
3. Payment of penalty and
4. Cancellation of registration

 The Authority will pass order within 3 months from the date of the receipt of the report from
the Director General of Safeguards.
 An opportunity of being heard will be given if the interested parties request for it in writing.
 Period of interest will be calculated from the date of collection of higher amount till the date
of return of such amount.
 If the eligible person (i.e. the buyer) does not claim the return or the person is unidentifiable
then the amount must be deposited to the Fund. Interest will be calculated from the date
collection of higher amount till the date it is deposited in the Fund.
 cancellation of registration under GST Act - Rule 133(3) of CGST and SGST Rules, 2017
 Rule 135 of CGST and SGST Rules, 2017 provides that if the taxable person does not
comply, recovery proceedings can be initiated as per provisions of CGST, SGST and
UTGST Act .

Constitution of the Standing Committee and Screening Committees

1. The Council will constitute a Standing Committee and a state level Screening
Committee on Anti-profiteering,
2. Standing Committee will comprise of officers of the State and Central Government as
nominated by it.

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3. The State level Screening Committee will be established in each State. It will consist
of-

 1 officer of the State Government, nominated by the Commissioner and

 1 officer of the Central Government nominated by the Chief Commissioner.

Rule 128. Examination of application by the Standing Committee and Screening- The
Standing Committee shall, within a period of two months from the date of the receipt of a
written application, in such form (ARFP1) and manner as may be specified by it, from an
interested party or from a Commissioner or any other person, 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.

Appointment, salary, allowances

(1) The Chairman and Members of the Authority will be appointed by the Central Government
on the recommendations of a selection committee (constituted by the Council)

(2) The Chairman shall be paid a monthly salary of Rs. 2,25,000 (fixed) and other allowances
and benefits If a retired officer is selected as a Chairman, he will receive a monthly salary of
Rs. 2,25,000 minus amount of pension.

(3) The Technical Member shall be paid a monthly salary of Rs. 2,05,400 (fixed) and along
with allowances of a group ‘A’ officer. A retired person will have his salary reduced by the
pension amount.

(4) The Chairman and technical members will hold office for two years from the date on which

he enters upon his office, or until he becomes 65 years old. He will be eligible for
reappointment. A person cannot be a Chairman if he is 62 years or above.

Secretary to the Authority

The Additional Director General of Safeguards under the Board shall be the Secretary to the
Authority.

PROCESS

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Confidentiality of information

The parties will provide information on confidential basis. They may be required to furnish
non-confidential summary thereof. If, in the opinion of the party providing such information,
the information cannot be summarized, then such party will submit to the Director General of
Safeguards a statement of reasons why summarization is not possible.

Cooperation with other agencies or statutory authorities

The Director General of Safeguards may seek opinion of any other agency or statutory
authorities if required.

Power to summon persons to give evidence and produce documents

The Director General of Safeguards, or an officer authorised by him will have the power to
summon any person necessary either to give evidence or to produce a document or any other
thing. He will also have same powers as that of a civil court and every such inquiry will be
deemed to be a judicial proceeding.

OPINION

The reason for such a provision is quite clear – wherever GST has been implemented, there has
been an initial rise in prices and this has lasted anywhere from six months to just short of two
years.

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The government has already warned the businesses that there will be raids.

But is it an easy task?

As PwC, points out, the entire manufacturing chain will have to be mapped and examined and
vendors below a certain threshold may not have the kind of paperwork the authority may need
to look at.

But what will the authority look into? If the tax on, say, simple printers has come down, whether
the price has been reduced by that much? But cost of a component might have increased. It will
mean a look into the cost of all the components going into the production of printers and
whether each of the many components has seen an increase or decrease in tax incidence and
what the manufacturers of those components has done?

Malaysia also brought in Anti-Profiteering measures before GST which followed the net profit
margin methodology – a normal profit margin was ascertained for each product on a base date
and any profit charged beyond this margin was considered unreasonably high.
Australia followed a net dollar margin rule – if GST led to taxes and costs falling by $1, prices
needed to fall that much. Conversely, if cost increased by that much, prices could too.

India, does not have a clear method of assessing the GST benefits for purposes of passing it on
would be appropriate, acceptable and compliant.

While, the reason behind such anti-profiteering measures is to protect the masses, the
government should also ensure honest taxpayers are not harassed by these provisions.

CONCLUSION

If a super-market you frequent is selling you grocery at a higher price stating that it is due to
GST, you can file a complaint to the anti-profiteering authority. Similarly if you are aware that
the cost of your toothpaste has moved lower, but your grocery-wala tries to pull a fast one on
you by selling it to you at the old price, you know whom to complain to.

This is a tool that the Centre needs to wield effectively to keep prices under check and ensure
that businesses do not pocket all the gains.

Profit is fine, profiteering is not.

John Stuart Mill sums up the history of price-fixing saying, “governments have thought
themselves qualified to regulate the condition better than the persons interested. There is

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scarcely any commodity which they have not at some place or time endeavored to make either
dearer or cheaper than it would be if left to itself.” Section 171 of the CGST Act takes us back
deep into this history of state-control.

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BIBLIOGRAPHY

 Guide to GST on Services (HSN Code wise taxability of all services), march 2018 ,
by Rakesh Garg and Sandeep Garg
 Commercial's GST Incorporating Bare Act With Short Comments Book 2018
by Commercials and English
 GST Ready Reckoner (6th Edition 2018) 2018 by V.S.Datey
 Guide to GST on Services (HSN Code wise taxability of all services) 27 March 2018
by Rakesh Garg and Sandeep Garg

 GST Knowledge To Grow your Business (vol Book 1) 29 June 2017 by C.A Suresh
Prabhakar Prabhu

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