Meaning of profiteering:
It is a situation where a person seeks or exacts exorbitant profits without adding value to the supply or adding lesser value in the supply as compared to price charged. Under such situations profits are earned as a result of scarce supply of goods and/or services or any other reason.
Thus, this results in interfere by government to reduce the price forcefully in the economy so that customers are protected from being exploited. Under GST these measures are added so as to pass on the benefit of GST system to the ultimate customers.
Why anti-profiteering measures in GST:
The proposed GST regime is expected to reduce overall burden of indirect taxes in the economy. Under pre GST era, indirect taxes are indirectly paid by customers and hence post GST any reduction of taxes shall also go into the pockets of customers. However, past experience indicates that any such benefit never/lesser pass on to the customers. Hence, provisions as to anti profiteering are essential to pass on the benefit of taxes paid to customers.
Anti-profiteering measure in GST
Provision relating to anti-profiteering measure is given in section 171 under the chapter – XXI of the central goods and services tax act, 2017 (act no 12 of 2017) which is reproduced as below:
(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,
- 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.
(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.
The provision provides that the central government may by law constitute an authority or entrust an existing authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and /or services supplied by him.
Further, the authority shall exercise such function and have such powers, including those for imposition of penalty, as may be prescribed in cases where it finds that the price charged has not been reduced as aforesaid.
It may also be noted that the above said concept is not new to India as in the state of Bengal, the West Bengal Anti-profiteering Act, 1985 was enacted to prevent profiteering in certain articles in daily use.
This is an attempt to ensure that business do not take advantage of GST and should pass on the benefit of GST input tax credit available or reduction in the rates to the consumer.
The success of the scheme depends on:
- Anti-profiteering measure that are used for identifying the profiteers.
- The proper checks and balances that are deployed by government agency so that undue power given to designated authority is not misused and that results unnecessary harassment of traders.
- Timing of implementation of these measures will also play an important role in ascertaining its success.
With detailed guidelines / rules regarding the above scheme is yet come, the business man and small trades will to be very conscious before setting their prices of supply after the implementation of GST. If trades are panning the increase the price of their price in next few month, it is batter to increase the price before GST implementation otherwise it will be very difficult to prove before authority that the benefit of tax save is actually been passed on the customers. Further, a back end working shall be done by every business man to ensure that tax save due to GST results in price reduction of supply.