Case study on anti profiteering measure
What is anti – profiteering measure:
As per section 171 of CGST act :- (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. (3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.
How the reduction in rate of tax is calculated:
Reduction in rate of tax is considered to have exist when and only when total tax rate from manufacturing point to point of consumption is reduced, i.e., gross effective rate of tax on all stages of sale is actually reduced. This can be understood with an example:
Suppose we consider here the case of car to identify whether there is, in actual, reduction of rate of tax and if so, how much. For the this we need to compare tax expenditure in pre GST and post GST scenario in the below table:
| Particulars of taxes applicable |
Pre GST |
Post GST |
Benefit to pass on |
| Excise Duty |
12.5 |
– |
|
| NCCD |
1 |
– |
|
| Auto cess |
.125 |
– |
|
| Infra cess |
1 |
– |
|
| CST (.05% on 14.625%) |
.0073125 |
– |
|
| VAT/GST |
16.622 |
29 |
|
| Total |
31.254 |
29 |
2.2543 or Say 2% |
Thus, in case there in 2% reduction in prices of cars is sufficient in compliance with the provisions of this act.
How the benefit of input tax credit is passed on to recipient:
Now, a question arise here is – how the benefit of ITC availed on account of excise duty, NCCD etc on the transition period is passed on the customer which in post GST scenario is not available to dealer.
Here, it is worth of noting that the entire scheme of GST is ITC based i.e. the recipient of the goods and services takes credit of GST paid by him on purchase of goods and services and uses such ITC while discharging GST output tax liability on supply of goods and services. Thus, in any case purchaser is going to purchase the car with ITC benefit and thus no extra benefit needs to be passed on the buyer.
Concluding remarks:
Though the anti-profiteering provision is in the law to curb mal-practices and is intended to operate against the supplier of goods / services. However, supplier shall not be harassed by using the cannons of section 171 of the GST law and if factual matrix proves that there is no unjust enrichment availed by the supplier. To be more precise, adjudication under section 171 is more on facts rather than law. The statutory provision is only an enabling provision to step in, if there is a case of anti-profiteering. Once it is admitted, the facts shall be deciding factor keeping the principles of legislative intention in mind. The Authority shall have to do so based on facts without going into much of legal interpretation.