Ever since it was first implemented, India’s anti-profiteering clause under the GST law has attracted considerable discussion. Although the anti-profiteering mechanism was introduced with the intention of curbing unjust price swindling, has it been successfully, effectively implemented?
What is meant by “Anti-Profiteering” ?
In very simple terms, it means that whatever reduction in GST rate or benefit of input tax credit is enjoyed by the business should be reflected in the price at which their product is sold to end consumers. That is,if a business is paying ten rupees less for an item,then that item should become ten rupees cheaper to the consumer.
Let’s look at an example. GST on food items in India varies from 5% to 12% to 18% depending on variables such as type of establishment, location of service providers, ingredients and so forth. In India the GST on chocolate and other foods prepared using cocoa products is 18%. If a chocolate bar is priced at Rs 118,this would include the 18% GST. That is, the price is calculated as 100+18, equalling Rs 118. Now if the GST was lowered to 5%, the chocolate bar must only be sold at Rs.105. If the business willfully continues to sell it at Rs.118, that would mean they’ve engaged in “profiteering”, which means to obtain unfair profits illegally.
Why was the Anti-Profiteering Clause introduced?
After the introduction of VAT (Value Added Tax) in 2005, the nation witnessed a spike in corporate profiteering practices. It made sense to foresee that the introduction of GST would tempt corporations to indulge in such practices again as the unified tax system under GST would result in a decrease of tax burden on most commodities and goods. One could say the main objectives behind the anti-profiteering clause are:
1) To protect consumers and their interests from corporations that might take advantage of them
2)To make sure benefits from lowered GST rates and availability of ITC are passed down to the customer.
How Effective has the Implementation been?
The Anti- Profiteering clause has attracted considerable discussions regarding its impact as well as its method of implementation ever since its introduction. From the trader’s perspective, central criticisms arise from the lack of clarity surrounding the formula to calculate the profiteered amount when there’s a cut in GST rates, as well from the absence of a concrete methodology to determine the benefits that are to be passed down to the end customer.
As per Rule 126 of the CGST Rules 2017, the National Anti- Profiteering Authority ( NAA ) was given the power to determine the formula adopted for the same mentioned above, but the formula was subject to variability depending on the nature of the goods or services involved in a case (The NAA was later replaced with the Competition Commission of India ( CCI ) in December of 2022, vesting the body with power of adjudication in GST/ITC related cases. However the investigative power is retained by the DGAP, a wing of NAA).
On top of this there’s ambiguity regarding the time frame within which a complaint can be made against a non commensurate price reduction. This implies that the business has to reduce the price commensurately no matter the amount of time that has passed. This essentially means a business can be exposed to scrutiny endlessly.
Simply put,there’s no definite guiding principle to implement the law practically other than leaving the case up to the understanding of the authorities and then to wait for them to determine the specifics.
Lack of industry-specific, tangible techniques to be employed by the businesses that would aid them to determine the benefits, profiteered amount e.t.c make it difficult for them to comply with the rules adequately while keeping a profit margin. This implies that a business can be held guilty if their actions don’t match with the visions of authorities.
It can be assessed that even though the primary objective behind the provision was to safeguard consumer interests,insofar it has only helped improve pricing transparency, while significantly increasing the administrative burden and cost of compliance on the side of the businesses. The effectiveness of a law is dependent on its execution, and when it comes to the Anti-Profiteering clause, the mechanism through which it is implemented is flawed.
How can an Anti-Profiteering complaint be filed?
Any consumer or organization that experiences non- reduction in price of the goods or service despite reduction in the rate of GST can file a complaint with evidence.
The person/organization may download the complaint form from dgsafeguards@gov.in and post the complaint at the following address-
Directorate General of Safeguards,
Dept. of Revenue, Ministry of Finance,
2nd Floor,
Bhai Veer Sahitya Sadan,
Bhai Veer Singh Marg,
Gole Market, New Delhi- 110 001
It is notable that in the digital era an online system for complaints is still in development and not available to people yet
Global Scenario
Australia, Malaysia and Singapore are countries that adopted Anti-Profiteering law under the GST regime. But there are key differences between these countries and India when it comes to the implementation of the law. For example, after introducing the “Competition and Consumer Act 2000”, Australia employed a three year transitional period as prescribed by the act, whereas in India despite having a two-year transitional period Anti-Profiteering law continues to operate. Australia’s objective was not price control, but to control price exploitation. Unlike India they adopted a straight jacket formula to calculate the benefits to be passed down, namely the Net Dollar Margin rule. The formula is that if the GST caused the tax and cost to fall by $1, then the prices should also fall by $1. The Australian Competition and Consumer Commission ( ACCC ) has also issued comprehensive guidelines to determine ‘unreasonably high prices’. India lacks any such comprehensive mechanism, which deters the law’s intended effectiveness further.
Conclusion
The Anti-Profiteering law can be an effective mechanism to discourage price swindling, to encourage price transparency,and to keep a healthy economic system in general. However it should have a definite framework with proper guiding principles to enforce it with effectiveness. Without a well defined structure, the objectives of such a law cannot be actualized with efficiency. India’s current Anti-Profiteering law disregards variables that affect the pricing while computing the amount profiteered. It heavily relies on tax and ITC benefits to determine the amount profiteered while ignoring other significant factors such as cost of supply, competition e.t.c. If such flaws can be rectified in a systematic manner the law can actually fulfill its objectives more efficiently.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
