Taxation Law Project

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY,

LUCKNOW

TOPIC: ANTI- PROFITEERING MEASURES AND THE ROLE OF GST AUTHORITIES

IN PREVENTING UNJUST ENRICHMENT.

SUBMITTED TO: SUBMITTED BY

Asst. Prof. Dr. Bhanu Pratap Singh Kumari Nimisha
Dr. RML National Law University, Lucknow Enrollment
No:200101082
B.A.LL.B(Hons.)
4th Year, VII
Semester

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TABLE OF CONTENTS

ACKNOWLEDGEMENT 2 INTRODUCTION 3 OBJECTIVES OF ANTI-

PROFITEERING MEASURES UNDER GST 4 LITERATURE REVIEW 5
METHODOLOGY 5 SCOPE 5 SIGNIFICANCE 5 CONCEPT OF
ANTI-PROFITEERING MEASURE 6 WHAT IS PROFITEERING? 6
ANTI-PROFITEERING PROVISIONS UNDER GST 6 ROLE OF GST AUTHORITIES
IN PREVENTING UNJUST ENRICHMENT 7
AUTHORITY FOR CHECKING ANTI-PROFITEERING ACTIVITIES 8
FUNCTIONS OF AUTHORITY 8
DUTIES OF APA 8 IMPACT OF ANTI-PROFITEERING MEASURES ON
BUSINESSES 10 ANTI-PROFITEERING MEASURES ON CONSUMERS 11
ANALYSIS OF ANTI-PROFITEERING MEASURES UNDER GST 12 CONCLUSION
13 REFERENCES 13

ACKNOWLEDGEMENT

I express my deep sense of gratitude to my respected and learned guide, Asst. Prof.

Bhanu Pratap for his valuable help and guidance, I am thankful to him for the encouragement

he has given me in completing the project.

I am also grateful to our respected library teachers for permitting us to utilize all the
necessary

facilities of the Institution.

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I am also thankful to all the other faculty and staff members for their kind cooperation and
help.

Lastly, I would like to express my hearty thanks to my parents and classmates for their moral

support and encouragement.

INTRODUCTION

The Goods and Services Tax (GST) regime, which came into effect in India in 2017, has been
hailed as a landmark reform in the country’s indirect tax system. GST has brought about a
uniform tax structure across the country, eliminating multiple layers of taxes and
reducing compliance costs for businesses. However, one of the concerns that emerged
with the implementation of GST was whether businesses would pass on the benefits of the
new tax system to their customers. To address this issue, the government introduced anti-
profiteering measures under GST, which require businesses to pass on the benefits of GST to
consumers by reducing prices.

Anti-profiteering regime has been a part of the economic sector of many countries. Singapore
and Australia have also implemented GST policies in their economy and have adhered to the
anti-profiteering provisions as well. The implementation of GST came as a changing face of
the economy in India. It changed the indirect tax system up to its core and established a single
and simpler way of collecting indirect taxes. The main aspect of the implementation of GST
was that the burden of tax which was being shifted before in the VAT system changed to the
tax being paid by the person on whom it is levied and its burden not being shifted to
the consumers. With the reduction of tax, there is the reduction in prices as well and to make
sure that the sellers of the businesses do not make any additional profits, the anti-
profiteering scheme is used so that the benefit of tax reduction can be passed to the
consumers.

Further the Study Report released by the Comptroller & Auditor General (C&AG) of India in
June, 2010[1] mentioned about several cases of profiteering wherein dealers were not passing
on the benefit of tax rate reduction to the consumers in the wake of implementation of VAT in
the country. The above C&AG report, after checking the records of 13 manufacturers in a
State in three initial months of implementation of VAT found that the manufacturers did not
reduce the MRP of the goods despite sharp fall in the tax rate post-VAT implementation.
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As a learning from the VAT experience, a legal teeth was provided under the GST law to
incorporate anti-profiteering provisions to check profiteering by businesses when GST was
being rolled out in the country. GST Law provided for constitution of National Anti-
profiteering Authority 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 to ensure that the consumer is
protected from arbitrary price increase in the name of GST.

In this project, we will analyze the anti-profiteering measures and the role of GST Authorities
in preventing unjust enrichment

OBJECTIVES OF ANTI-PROFITEERING MEASURES UNDER GST

The anti-profiteering provisions under the Goods and Services Tax (GST) were introduced to
ensure that businesses pass on the benefits of reduced tax rates and input tax credits to the
consumers. The primary objective of anti-profiteering measures is to protect the interests of
the consumers and to prevent businesses from taking undue advantage of the GST system. By
mandating businesses to pass on the benefits of reduced tax rates and input tax credits to the
consumers, the anti-profiteering provisions aim to ensure that the prices of goods and services
are reduced, and consumers are able to enjoy the benefits of GST.

Another objective of anti-profiteering measure is to promote a level playing field

among businesses. The GST system is designed to eliminate the cascading effect of taxes and
create a uniform tax structure across the country. Anti-profiteering measures ensure that
businesses do not indulge in unfair trade practices and that they compete on the basis of
quality, service and efficiency rather than on the basis of price. This promotes a
healthy business environment and encourages businesses to focus on long-term growth and
sustainability. In summary, the anti-profiteering provisions under GST are aimed at protecting
the interests of consumers, promoting fair competition among businesses, and ensuring that
the GST system is implemented in the right spirit.

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LITERATURE REVIEW

In order to have a sound and holistic understanding of the nuances and intricacies present in
the concept of ‘Role of GST Authorities’ as well as ‘Anti- Profiteering Measures’, the author
has referred to various sources. In order to have a primary understanding of the mentioned
topic the ‘Guidance Note on Anti-Profiteering’ by ‘The Institute of Cost Accountants
of India’ has been referred. The researcher has used various academic articles.

METHODOLOGY

The methodology used in this study is doctrinal in nature where by the researcher has used
primary and secondary sources in order to understand the concept and importance of
the research topic.

SCOPE

The scope of this project is to examine the role of the GST Authorities like the
Duties, Functions, Authority in checking for Anti- Profiteering Activities with by
analyzing the various relevant provisions of CGST Act 2017, IGST Act 2017, UGST Act
2017 and SGST Act 2017.

SIGNIFICANCE

The significance of anti-profiteering measures are that these measures under GST were
introduced to ensure that businesses pass on the benefits of reduced tax rates to consumers.
These measures have led to increased transparency in pricing and prevention of
arbitrary price hikes by businesses.

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CONCEPT OF ANTI-PROFITEERING MEASURE

While every business would like to earn more and more profits from business, given
an opportunity, it is a fact that GST is a new concept being introduced in India for first time
and claimed as a major tax reform and that experience suggests that GST may bring in
general inflation in the introductory phase. The Government wants that GST should
not lead to general inflation and for this, it becomes necessary to ensure that benefits arising
out of GST implementation be transferred to customers so that it may not lead to inflation.
For this, anti profiteering measures will help check price rise and also put a legal obligation
on businesses to pass on the benefit. This will also help in instilling confidence in citizens.

WHAT IS PROFITEERING?

Section 171 of the Central Goods and Service Tax Act, 2017 provides for Anti Profiteering
measure. As per the Section, “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.” Law provides mandatory for every tax payer to pass on the
benefits arising out of following to the recipient of the goods or services or goods and
services, further reduction of rate of tax on any supply of goods or services and benefit of
input tax credit.

ANTI-PROFITEERING PROVISIONS UNDER GST

The anti-profiteering provisions under GST were introduced to ensure that the benefits
of GST are passed on to the end consumers. These provisions are aimed at preventing
businesses from increasing their profit margins by not reducing prices after the
implementation of GST. The main objective is to make sure that the prices of goods
and services are not increased beyond what is necessary to offset the increased tax
liability of businesses. To enforce these provisions, the government has appointed the Anti-
Profiteering Authority under Section 171 of the Central Goods and Services Tax Act, 2017
(CGST Act). This authority is responsible for investigating complaints of profiteering
and determining whether businesses have passed on the benefits of GST to consumers.
The procedure for
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filing anti-profiteering complaints is outlined under Rule 128 of the CGST Rules, 2017. Any
interested party, including consumers, can file a complaint with the Anti-Profiteering
Authority if they believe that a business has not passed on the benefits of GST to them. The
complaint must be supported by evidence and should clearly state the reasons for the belief
that the business has engaged in profiteering. After receiving a complaint, the Anti-
Profiteering Authority will initiate an investigation and issue a notice to the concerned
business. The authority will then examine the books of accounts and other relevant
documents of the business to determine whether they have engaged in profiteering. If
the authority finds that the business has not passed on the benefits of GST to consumers, it
will issue appropriate orders directing the business to pass on the benefits. The penalties for
non- compliance with the anti-profiteering provisions can be severe. As per Section
122 of the CGST Act, businesses that fail to comply with the orders of the Anti-Profiteering
Authority may be liable to pay a penalty of up to 10% of the amount of profiteering. In
addition, the business may also be liable to pay interest and face other legal consequences.
Thus, the anti- profiteering provisions under GST play an important role in ensuring that the
benefits of GST are passed on to consumers. The appointment of the Anti-Profiteering
Authority and the procedures for filing complaints and determining violations are
essential tools to enforce these provisions. The penalties for non-compliance are
designed to deter businesses from engaging in profiteering and to promote compliance with
the anti-profiteering provisions.

ROLE OF GST AUTHORITIES IN PREVENTING UNJUST ENRICHMENT

The Authority constituted by Central Government shall have powers to impose a penalty in
case it finds that the price being charged has not been reduced consequent to reduction in rate
of tax or allowance of input tax credit.

Section 17 on anti-profiteering means shall have a sunset clause. The rules framed for anti-
profiteering as approved by the GST Council indicate that it would operate for a period of
only two years. Thus, it would lease to exist after two years of being in force.

During the two years of initial transition into GST regime, Anti-Profiteering Authority
(APA) shall step in and may ask businesses that have not passed on full benefits of reduced
tax burden to consumers to make up for such benefit, with interest.

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AUTHORITY FOR CHECKING ANTI-PROFITEERING ACTIVITIES

The Government has notified anti-profiteering authority (APA) which will check any undue
increase in prices of products of companies under GST. The APA will work to check
any
undue increase in prices of products by taxpayer companies under the GST regime.

It will work in a three-tier structure- a Standing Committee on Anti-profiteering as well as

State-level Screening Committees. The National Anti-Profiteering Authority would consist of
five members, including a Chairman.

It will also constitute State-level Screening Committees, which will have one officer of the
State Government, to be nominated by the Commissioner, and one officer of the
Central Government, to be nominated by the Chief Commissioner. The Additional Director
General of Safeguards will be the Secretary to the Authority.

 FUNCTIONS OF AUTHORITY
The Authority under section 171 shall have the following monitoring functions :

(a) Input tax credit availed by taxpayer have actually resulted in commensurate reduction
in price of goods / services

(b) The reduction in prices on account of reduction in tax rates have actually resulted in a
commensurate reduction in price of goods / services.

 DUTIES OF APA
As per Rule 8, APA shall be duty bound to :

to determine whether any reduction in rate of tax on any supply of goods or services or
the benefit of the input tax credit has been passed on to the recipient by way of
commensurate reduction in prices.

to identify the registered person who has not passed on the benefit of reduction in rate of
tax on supply of goods or services or the benefit of input tax credit to the recipient by
way of commensurate reduction in prices.

The powers to take action are also listed as duties whereby it can order price
reduction, refund of profit, recovery, penalty or even cancellation of GST registration.

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The Government is committed to ensure all consumers enjoy the benefit of lower prices of
goods and services under GST. Under GST, suppliers of goods and services must pass on any
reduction in the rate of tax or the benefit of input tax credit to consumers by way of
commensurate reduction in prices.

Anti-profiteering Authority (APA) shall act a monitoring and regulatory authority to

curb anti-profiteering practices of tax payers under GST regime. The APA shall be duty
bound to:

Make company reduce the prices

Make company refund the money to the consumer alongwith interest @ 18% p.a.
Order company to deposit the refund amount in the Consumer Welfare Fund (in case the
buyer is not identifiable)
Impose monetary penalty equivalent to amount involved in undue profiteering
Cancel registration of the assessee

However, such action would be based on the recommendations of the Directorate General of
Safeguards. Also such powers would be used in extreme cases.

Affected consumers may file an application, in the prescribed format, before the
Standing Committee on Anti-profiteering if the profiteering has all-India character or before
the State Screening Committees if the profiteering is of local nature.

Though there is a legal provision in the GST law itself to take action against of
undue profiteering, Government has taken various steps to ensure action on the
part of manufacturers and suppliers so that the benefit is passed on to ultimate beneficiaries,
i.e., the consumers. Even on existing stocks lying unsold, there is going to be revised prices
put by way of stickers or otherwise. Since old and new (revised) prices would be
displayed, a comparison thereof will show the benefit passed on due to lower tax cascading.
Government has also recently introduced form for making application for complaint of anti-
profiteering by way of a prescribed form called Form APA F-1 which has to be filed
before standing committee or state level screening committee as prescribed in Rules.
However, the form introduced is very complex and consumers will only be
discouraged to file a complaint. Applicant is also required to mention his code, registration
number, HSN code, MRP etc. It is a technical form with many annexures. Separate
application has to be filed for different type of goods and services. For example, if one has a
single invoice for five items, he need to file five forms with copies of invoice(s), proof of
identity,
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so much so that even any professional would find it difficult to lodge a complaint. One of the
measures to curb undue profiteering could be to take a declaration or undertaking
from vendors / suppliers that the due benefits accruing to them because of GST have been
passed on. In case of large clients such as public sector enterprises or banks or large
listed companies, there could even be mechanism of getting verification done by any
external agency / internal auditor etc. Alternatively, such vendors or suppliers could be asked
to tender a Chartered Accountant / Cost Accountant certificate to this effect. CBEC may also
conduct test audits in this regard. Undue or excessive (more than normal or reasonable profit)
is bad, both from ethical as well as legal angle. Further, it is inflationary and does not help
anyone except the profiteer itself or himself. Yes, Government’s revenue may also see a little
upsurge resulting from higher turnover and profits. Prices ought to be brought down in
post GST regime which have otherwise witnessed a rising trend post GST from July, 2017.
This is also one of the reasons why Reserve Bank had not reduced the interest rates in
this week’s monetary policy review, although GST has been introduced and
propagated as non- inflationary tax due to
removal of tax cascading.

IMPACT OF ANTI-PROFITEERING MEASURES ON BUSINESSES

The implementation of anti-profiteering measures under GST has had a significant impact on
businesses operating in India. The aim of these measures is to ensure that businesses pass on
the benefits of reduced tax rates and input tax credit to their customers by reducing
their prices. However, businesses have faced several challenges in complying with these
measures. One of the biggest challenges faced by businesses is the lack of clarity and
guidance on the anti-profiteering provisions. The rules and regulations are complex, and
businesses need to interpret them correctly to ensure compliance. This has resulted in
increased cost of compliance, as businesses have to spend more on hiring experts to interpret
the provisions and comply with them. The anti-profiteering provisions also require businesses
to maintain detailed records of their input and output costs, pricing decisions, and tax
calculations. This has resulted in increased administrative burden, which has also
increased the cost of compliance for businesses.

The impact of anti-profiteering measures on profit margins of businesses has been

mixed. While some businesses have been able to maintain their profit margins by
increasing their
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sales volumes, others have faced a decline in their profits due to the pressure to reduce prices.
The impact of the measures on businesses also depends on the industry they operate in, as
some industries are more price-sensitive than others. Furthermore, the appointment of
the Anti-Profiteering Authority has also created a fear among businesses of penalties
for non- compliance. The authority has the power to impose penalties on businesses found
guilty of not passing on the benefits of reduced tax rates and input tax credit to their
customers. The penalties can range from a mere warning to cancellation of registration under
GST, which can have severe consequences for the business. Therefore, while the anti-
profiteering measures under GST aim to protect consumers from the negative impact of GST
implementation, they have created challenges for businesses in complying with the
provisions. Businesses need to ensure compliance with the anti-profiteering provisions
while maintaining their profit margins, which has increased their cost of compliance and
administrative burden.

ANTI-PROFITEERING MEASURES ON CONSUMERS

The implementation of anti-profiteering measures under GST has a direct impact on

consumers. The primary objective of these measures is to ensure that the benefits of reduced
tax rates and input tax credit are passed on to the end consumers, leading to reduced prices of
goods and services. The anti-profiteering provisions also aim to promote fair
competition among businesses by preventing any undue advantage to certain businesses that
do not pass on the benefits of GST to consumers. One of the major benefits of anti-
profiteering measures for consumers is increased transparency in pricing. As per Section
171 of the CGST Act, 2017, businesses are required to clearly indicate the amount of GST
charged on the invoice, thereby providing transparency to consumers. This not only promotes
trust among consumers but also makes it easier for them to make informed purchasing
decisions. Another important impact of anti-profiteering measures on consumers is the
prevention of price hikes due to the implementation of GST. Businesses are required to pass
on the benefits of reduced tax rates and input tax credit to consumers, which leads to reduced
prices of goods and services. This ensures that consumers do not bear the burden of increased
taxes due to GST implementation. Furthermore, anti-profiteering measures also improve
the purchasing power of consumers. The reduced prices of goods and services due to anti-
profiteering measures translate to more disposable income for consumers, which can be
used to purchase additional goods and
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services. This can have a positive impact on the overall economy as increased
consumer spending can lead to increased demand for goods and services, leading to economic
growth. However, it should be noted that the implementation of anti-profiteering measures
can lead to increased compliance costs for businesses, which can be passed on to consumers
in the form of higher prices. Therefore, it is important for businesses to ensure that they are
compliant with the anti-profiteering provisions to avoid penalties and to ensure that the
benefits of GST are passed on to consumers.

ANALYSIS OF ANTI-PROFITEERING MEASURES UNDER GST

The anti-profiteering measures under GST have been subject to criticism by businesses who
argue that the measures are difficult to implement and lead to increased compliance
costs. Critics have also pointed out that the anti-profiteering provisions do not take into
account the fact that businesses may have incurred additional costs due to the implementation
of GST, which may justify an increase in prices. However, despite the criticism, the anti-
profiteering measures have been effective in ensuring that businesses do not unfairly
benefit from the implementation of GST. By preventing businesses from profiteering,
the measures have helped to maintain the credibility of the GST system and protect the
interests of consumers. The measures have also increased transparency in the pricing of goods
and services, which has helped to prevent price hikes due to GST implementation. In terms of
future implications, the anti-profiteering measures are likely to remain an important part of
the GST system. As businesses continue to adjust to the new tax regime, the anti-profiteering
provisions will help to ensure that businesses do not take advantage of consumers. It is also
possible that the anti- profiteering measures will be refined in the future, as businesses
provide feedback on the effectiveness of the measures and suggest ways to improve the
system. The anti-profiteering measures under GST have been subject to criticism by
businesses, but they have been effective in ensuring that businesses do not unfairly benefit
from the implementation of GST. The measures have also helped to increase transparency in
the pricing of goods and services and protect the interests of consumers. While there may be
room for improvement, the anti- profiteering measures are likely to remain an important part
of the GST system in the future.

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CONCLUSION:

In conclusion, the anti-profiteering measures under GST were introduced to ensure that
businesses pass on the benefits of reduced tax rates to consumers. These measures have led to
increased transparency in pricing and prevention of arbitrary price hikes by businesses.
However, there have been some criticisms of the measures, particularly regarding the
complex compliance requirements and potential for subjective interpretation of the
rules. Despite these criticisms, it is important to note that the Anti-Profiteering Authority has
been active in investigating complaints and enforcing compliance. This has led to
increased accountability and deterrence of non-compliance by businesses. Moving forward, it
will be important for the Anti-Profiteering Authority to continue to evaluate and
improve its processes to ensure fair and efficient enforcement of the rules. Additionally,
businesses must prioritize compliance with the anti-profiteering measures and take steps
to streamline their processes to reduce compliance costs. Overall, the anti-profiteering
measures under GST have had a significant impact on businesses and consumers alike.
While there have been challenges and criticisms, the measures have succeeded in
increasing transparency and preventing price gouging. As GST continues to evolve and
adapt, it will be important for anti-profiteering measures to remain a key part of the
framework to ensure fair and equitable implementation of the tax.

REFERENCES

Section 171 (3A) definition of the term profiteered and penal consequences: Taxsutra (no
date) Trusted Online Tax information.
Available at: https://www.taxsutra.com/gst/experts-corner/section-171-3a-definition-
term- profiteered-and-penal-consequences?sid=592 (Accessed: 18 October 2023).
Anti-Profiteering.pdf (idtc-icai.s3.amazonaws.com)

Srinivasan, S.B.& S. (2018) Anti-profiteering provision under GST and its

effectiveness, Legal Era. Available at: https://www.legaleraonline.com/articles/anti-
profiteering-provision-under-gst-and-its-effectiveness (Accessed: 18 October 2023).
AntiprofiteeringWebVersion.pdf (cbic-gst.gov.in)

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Jena, A.R.C. (2020) Provisions of anti-profiteering mechanism under GST law,

TaxGuru. Available at: https://taxguru.in/goods-and-service-tax/provisions-anti-
profiteering-mechanism-gst-law.html (Accessed: 18 October 2023).

 Remembrance (no date) India Law Journal. at:

Available https://www.indialawjournal.org/a-critical-analysis-of-national-anti-
profiteering- authority-and-its-constitutional-validity.php (Accessed: 18 October
2023).
 https://icmai.in/TaxationPortal/upload/IDT/Article_GST/20.pdf
 Bhadra, A. (2019) Anti – profiteering under GST – Issues & Challenges, TaxGuru.
Available at: https://taxguru.in/goods-and-service-tax/anti-profiteering-gst-
issues- challenges.html (Accessed: 18 October 2023).
 Explore informational articles on personal finance: Kotak Securities (no date) Invest
in Share Market. Available at: https://mtrade.kotaksecurities.com/ksweb/Meaningful-
Minutes/5-Things-to-know-about-anti-profiteering-rules-under-GST (Accessed: 18
October 2023).

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