JAMIA MILLIA ISLAMIA

FACULTY OF LAW

TAX LAWS-II ASSIGNMENT

ON
ANTI-PROFITEERING UNDER GST

SUBMITTED TO: - SUBMITTED BY:-

DR. KIRANBALA RISHIKA JAIN

ASST PROFESSOR B.A.LLB (HONS)

FACULTY OF LAW SEM-VI, SEC-B

JAMIA MILLIA ISLAMIA ROLL NO. 22

 Acknowledgement
Exchange of ideas generates new objects to work in a better
way. Whenever a person is helped and co-operated by others,
his heart is bound to pay gratitude and obligation to them.

I would like to thank my tax laws teacher, Dr. Kiranbala and

my parents for providing me with invaluable support and
guidance which led to the completion and conception of this
project.

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 Index
 INTRODUCTION
 ANTI-PROFITEERING MEASURES UNDER THE GST REGIME
 STATUTORY PROVISIONS OF ANTI-PROFITEERING MEASURE (SECTION 171)
 ANTI-PROFITEERING RULES
 OBJECTIVE OF ANTI-PROFITEERING MEASURE
 CONCEPT OF ANTI PROFITEERING MEASURE
 ANALYSIS OF ANTI-PROFITEERING MEASURE
 DETAILED ANALYSIS
o Reduction of Tax Rate in New Tax Regime
o Benefit of Input Tax Credit
 NATIONAL ANTI-PROFITEERING AUTHORITY
 CONSTITUTION OF THE AUTHORITY UNDER RULE 122 OF CGST RULES, 2017
 CONSTITUTION OF THE STANDING COMMITTEE AND SCREENING COMMITTEE
UNDER RULE 123 OF CGST RULES 2017

 POWER TO DETERMINE THE METHODOLOGY AND PROCEDURE UNDER RULE 126 OF

CGST RULES, 2017
 DUTIES OF THE AUTHORITY UNDER RULE 127 OF CGST RULES, 2017
 EXAMINATION OF APPLICATION BY THE STANDING COMMITTEE AND SCREENING
COMMITTEE UNDER RULE 128 OF CGST RULES, 2017
 INITIATION AND CONDUCT OF PROCEEDINGS UNDER RULE 129 OF CGST RULES,

2017
 ORDER OF THE AUTHORITY UNDER RULE 133 OF CGST RULES, 2017
 DECISION TO BE TAKEN BY THE MAJORITY UNDER RULE 134 OF CGST RULES, 2017
 COMPLIANCE BY THE REGISTERED PERSON UNDER RULE 135 OF CGST RULES, 2017
 PROCESS
 CONFIDENTIALITY OF INFORMATION
 CRITICISM
 CONCLUSION

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'Profit is fine, profiteering is not. Don't let someone profiteer at your expense.'

INTRODUCTION

India introduced Goods and Services Tax (GST) in July 2017 to remove the cascading effect
of erstwhile indirect taxes and bring in a framework of broader and seamless tax credit. The
GST regime sought to simplify compliances and lower the overall cost of goods and services
in the economy to ultimately benefit the end consumers. Historically, many countries who
introduced GST or value-added tax found to it to have an inflationary effect in the initial
years. This inflationary effect has largely been attributed to the benefit accruing due to GST
was not being passed on through the transaction chain to the ultimate customer.

Under the anti-profiteering provisions businesses are required to pass on the benefit of
reduction in tax rate and increase in input tax credit on any supply of goods or services. This
implies that benefit needs to be passed on at each supply level and not at entity level. If an
entity is engaged in supplying more than one product or service then for each such supply the
benefits, if any, needs to be computed and passed on to the recipient. This process would be
more complex for determining the benefit with respect to common costs. There could be
cases where losses are incurred in certain products, even in such cases the benefit may have
to be passed on if applying GST has resulted in reduction in losses.

ANTI-PROFITEERING MEASURES UNDER THE GST REGIME

First of all let us discuss what is profiteering? Profiteering as dictionary meaning suggests it
is to make an excessive or unfair profit that too illegally. As the meaning is clear, so comes
the anti-profiteering authority purpose becomes clear. In actual any reduction in rate of tax
under GST or benefit of input tax credit (ITC) should have been passed on to the buyer by
reducing the prices i.e. ITC is available from the production stage to the final stage which
will reduce the prices but this was not happening as the supplier was not passing on the
benefit to consumer so was getting illegal profit.

Since GST as a reform envisaged a reduction of cascading with increased input tax credits in
the value chain, coupled with a decrease in headlines rates, the law has an inherent provision
to ensure such aforesaid efficiencies are passed on to the consumer with a commensurate
price change both for B2B and B2C businesses in both goods and services. This law is what
is known as anti-profiteering, through which the Government and GST Council wants to

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ensure that the reform’s efficiency and rate rationalization benefit the society at large with
reduced pricing.

Anti-profiteering provisions have been enacted under the GST regime in India to curb undue
profiteering by businesses and ensure that the benefits by way of a reduction in the price of
the goods/services are passed on to the consumer. The provisions require businesses to pass
on the benefit arising on account of (a) reduction in the rate of GST or (b) increase in input
tax credit, to consumer.

STATUTORY PROVISIONS OF ANTI-PROFITEERING MEASURE (SECTION 171)

The following is the text of section 171 of the CGST Act, 2017:

“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.”

OBJECTIVE OF ANTI-PROFITEERING MEASURE

Section 171 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.

ANTI-PROFITEERING RULES

The GST Council in its meeting on 18th June, 2017 approved and the Government has
released the Anti-Profiteering Rules, 2017 which extend to whole of India except to State of
Jammu and Kashmir.

These rules or guidelines for implementation of this provision in relation to who will
implement this provision, constitution and business rules for authority to monitor, possible
cost audit monitoring, from when this provision will be implemented and how authority will
check and implement.

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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.

ANALYSIS OF ANTI-PROFITEERING MEASURE

The power has been given to Central Government to constitute an authority to oversee
whether the commensurate benefit of allowance of input tax credit or reduction in the tax
rates have been passed on to the final customer.

The crux of the anti-profiteering rules 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:

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.

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.

NATIONAL ANTI-PROFITEERING AUTHORITY

A National Anti-Profiteering Authority (hereinafter referred as Authority) has been

constituted for efficient administration of these provisions. Any consumer can approach the
Authority with documentary evidence against any supplier who has not passed on the
specified benefit.

The Authority is entrusted with the power to determine whether the benefit of GST is passed
on; to identify persons who have not passed on the benefit; to order reduction of prices; to
repay the customer an amount which is not passed on along with interest/imposition of
penalty on the supplier; cancellation of registration etc.

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So the National Anti-profiteering authority is being made by the central government to check
whether the ITC availed by any registered person or reduction in taxes have actually
benefited the consumer or not. It is designed to know prices remain under check and business
do not pocket all the gain from GST.

A tax reform of this magnitude in a country as large as India with a federal structure was
expected to have teething issues, but what is welcome has been the response from the
Government and the GST Council in addressing these problems and finding solutions both in
the interim and the medium term.

One of the key reasons for the implementation of GST was to create a unified market by
replacing the plethora of Central and states levies with this destination-based tax, where both
the center and states can concurrently tax the same base across the value chain of both goods
and services and remove all the inefficiency of tax cascading in our legacy regime.
Rationalization of headlines rates was another exercise that, to begin with, was limited as the
multiple rate structure was derived through the equivalence method of maintaining the
effective rates under the erstwhile Central and state indirect tax regime under GST. Only
months into GST did the GST Council really begin the exercise of rationalizing rates on
several goods and services by bringing down the rates, an exercise which will continue in the
coming month.

The process of investigations for compliance with anti-profiteering has been laid down and is
complaint-based. Both the process of filing complaints and the rules of anti-profiteering are
being evaluated in consultation with industry for changes. All complaints will go through a
rigorous screening process both at the state and Central level by committees constituted for
this purpose before they are deemed fit for investigations by the investigating authority, the
Director General of Safeguards.

If investigations reveal a case for adjudication, it will be referred to the National Anti-
profiteering Authority for due action. It is still early days in this journey, with complaints
being raised and some being looked at by the investigating authority. What might be critical
is for companies to ensure they are compliant with the law. Depending on the sector and their
respective supply chains, the industry will have to evaluate what approach or methodology
they will need to adopt to ensure and demonstrate with documentary evidence how they have
passed on both input tax efficiency and rate decreases through commensurate price changes.

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The entire exercise is complex and surrounded by many questions: Will such an exercise be
at the legal entity, product category or SKU level in case of goods? How will input tax
efficiency for common services be looked at for allocation purposes? How was transition
credits passed for those with presumptive credits?

For rates rationalized in the initial months, how were such benefits of a decrease in rates
passed on in the chain especially when industry rightly had challenges of re-stickering stocks
with old MRPs? What will be the most equitable way to approach these issues so that
companies can clearly demonstrate they have complied with the law? Profiteering is a right in
commerce, but how will you differentiate that from anti-profiteering? Price increases due to
factors outside GST are a reality, but how do you implement such decisions? How can other
business imperatives such as an increase in raw materials costs be factored in this exercise?

The whole process requires rigorous thought, implementation and documentation to stand the
test of scrutiny, compliance and governance. Any investigation of this nature can have brand
and financial implications if not executed and demonstrated appropriately. This requires
proactive decision making by managements to avoid surprises.

CONSTITUTION OF THE AUTHORITY UNDER RULE 122 OF CGST RULES 2017

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.

POWER TO DETERMINE THE METHODOLOGY AND PROCEDURE UNDER RULE 126 OF CGST
RULES 2017

The Authority may determine the methodology and procedure for determination as to
whether the reduction in the rate of tax on the supply of goods or services or the benefit of
input tax credit has been passed on by the registered person to the recipient by way of
commensurate reduction in prices.

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CONSTITUTION OF THE STANDING COMMITTEE AND SCREENING COMMITTEES (RULE 123
OF CGST RULES 2017)

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.
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.

DUTIES OF THE AUTHORITY (RULE 127 OF CGST RULES 2017)–

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.

EXAMINATION OF APPLICATION BY THE STANDING COMMITTEE AND SCREENING

COMMITTEE UNDER RULE 128 OF CGST RULES 2017

(1) The Standing Committee shall, within a period of two months from the date of the receipt
of a written application, in such form 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.

(2) All applications from interested parties on issues of local nature shall first be examined by
the State level Screening Committee and the Screening Committee shall, upon being satisfied
that the supplier has contravened the provisions of section 171, forward the application with
its recommendations to the Standing Committee for further action.

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INITIATION AND CONDUCT OF PROCEEDINGS UNDER RULE 129 OF CGST RULES 2017

(1)Where the Standing Committee is satisfied that there is a prima-facie evidence to show
that the supplier has not passed on the benefit of 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, it shall refer the matter to the Director General of Safeguards for a
detailed investigation.

(2) The Director General of Safeguards shall conduct investigation and collect evidence
necessary to determine whether the benefit of reduction in the rate of tax on any supply of
goods or services or the benefit of input tax credit has been passed on to the recipient by way
of commensurate reduction in prices.

(3) The Director General of Safeguards shall, before initiation of the investigation, issue a
notice to the interested parties containing, inter alia, information on the following, namely:

(a) the description of the goods or services in respect of which the proceedings have
been initiated;

(b) summary of the statement of facts on which the allegations are based; and

(c) the time limit allowed to the interested parties and other persons who may have
information related to the proceedings for furnishing their reply.

(4) The Director General of Safeguards may also issue notices to such other persons as
deemed fit for a fair enquiry into the matter.

(5) The Director General of Safeguards shall make available the evidence presented to it by
one interested party to the other interested parties, participating in the proceedings.

(6) The Director General of Safeguards shall complete the investigation within a period of
three months of the receipt of the reference from the Standing Committee or within such
extended period not exceeding a further period of 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.

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ORDER OF THE AUTHORITY UNDER RULE 133 OF CGST RULES 2017

(1) The Authority shall, within a period of three months from the date of the receipt of the
report from the Director General of 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.

(2) An opportunity of hearing shall be granted to the interested parties by the Authority where
any request is received in writing from such interested parties.

(3) Where the Authority determines that a registered person has not 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 order

(a) reduction in prices;

(b) 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 eighteen percent
from the date of collection of the higher amount till the date of the return of such
amount or recovery of the amount including interest not returned, as the case may be,
in case the eligible person does not claim return of the amount or is not identifiable,
and depositing the same in the Fund referred to in section 57;

(c) imposition of penalty as specified under the Act; and

(d) cancellation of registration under the Act.

DECISION TO BE TAKEN BY THE MAJORITY UNDER RULE 134 OF THE CGST RULES 2017

If the Members of the Authority differ in opinion on any point, the point shall be decided
according to the opinion of the majority.

COMPLIANCE BY THE REGISTERED PERSON UNDER RULE 135 OF THE CGST RULES 2017

Any order passed by the Authority under these rules 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 Integrated Goods and Services Tax Act or the Central

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Goods and Services Tax Act or the Union territory Goods and Services Tax Act or the State
Goods and Services Tax Act of the respective States, as the case may be.

PROCESS

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.

CRITICISM

While no doubt this is a good step towards consumer protection, it comes with its own
ambiguities/ drawbacks since the concept of anti-profiteering is still at a nascent stage in
India. Various challenges are being faced by the business community in complying with anti-
profiteering rules.

The anti-profiteering provisions do not prescribe the specific guidelines on records or

documentation to be maintained to prove compliance with the rules. A definite method for
computing the benefit on implementing GST has also not been prescribed. Absence of clear

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guidelines could lead to ambiguity and businesses will be constrained in proving the
compliance with these provisions.

Absence of specific time limit with respect to operation of the anti-profiteering provisions
makes it unclear for the industry as to how long the specified benefits need to be passed on,
especially in situations where their overall cost may have increased due to various
commercial factors.

Businesses are very dynamic and pricing is determined based on the market forces in most of
the cases. Even though the regular price increase does not come under the purview of anti-
profiteering, justifying the same could become a difficult task for the businesses.

In Malaysia, which implemented GST in the recent past and has now withdrawn the same,
exact methodology for computation of the benefits on account of GST was prescribed.
Australia, Canada and New Zealand are some of the other countries which had put in similar
provisions when GST was implemented. In Australia, a commission was formed to oversee
the pricing after introduction of GST and to control cases of undue profiteering. It had also
set up a national GST price hotline to deal with consumer complaints. In spite of many such
initiatives, anti-profiteering provisions are controversial and often result in disputes and
litigation. There are many factors in determining the benefits of GST and each factor would
differ from one company to another even in the same industry.

In the recent past, businesses in various sectors have received notices under anti-profiteering
provisions. Big players in retail and FMCG industries are already dealing with the issues on
the ground. In view of the challenges discussed above, businesses need to take up various
precautionary measures in order to mitigate the adverse effects of the anti-profiteering
provisions.

Businesses should consider evaluating the likely impact of anti-profiteering clause and
review its pricing policy for the product and/or services. Even where there is no benefit
accruing to the company, the same has to be properly documented so that it can be explained
to the authorities, if need arises.

In case of goods statutorily required to display maximum retail price (MRP) on the packages,
the MRP may need to be decreased/increased, as the case may be in harmony with the MRP
related rules/law in this regard.

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Any reduction in rate of tax on any supply of goods or services or the benefit of input tax
credit should have been passed on to the recipient by way of commensurate reduction in
prices. However it has been the experience of many countries that when GST was introduced
there has been a marked increase in inflation and the prices of the commodities. This
happened in spite of the availability of the tax credit right from the production stage to the
final consumption stage which should have actually reduced the final prices. This was
obviously happening because the supplier was not passing on the benefit to the consumer and
thereby indulging in illegal profiteering. National Anti-profiteering Authority is therefore
being constituted by the central Government 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, this is
to ensure that the consumer is protected from arbitrary price increase in the name of GST.

CONCLUSION

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.

Anti-profiteering provisions are a positive step towards protecting consumer interests and
rein in undue profiteering so that GST does not add to inflation in the economy. While the
effect of anti-profiteering provisions may not be apparent immediately, the impact would be
visible in due course. However, GST is a new and evolving law, hence, there’s still a sense of
confusion and lack of clarity on many aspects. Lot more clarity is expected on various related
issues including the ones highlighted above to make compliance with the anti-profiteering
provisions smooth, certain and hassle free. One step may be to adopt a soft approach vis-à-vis
the businesses where there is no prima facie mala fide intent. This would go a long way in
building the confidence and trust among the businesses.

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