Anti Profiteering Measure under GST

Discusses anti-profiteering measure under GST. Covers Sec 171 of CGST Act, 2017 and Chapter XV of CGST Rules, 2017 (as amended from time to time)

1. Anti-profiteering
mechanism

2. Disclaimer 2
Theinformationcitedinthispresentationhasbeendrawnfromvarioussources(including
studymaterialpreparedbyTheInstituteofCostAccountantsofIndiaandTheInstituteof
CharteredAccountantsofIndia).Whileeveryeffortshavebeenmadetokeepthe
informationinthispresentationerrorfree,noresponsibilityforanytypographicalorclerical
errorwhichmayhavecreptinwhilecompilingtheinformationprovidedcanbetaken.
Thepresentationhasbeenpreparedtoprovideanoverviewoftheapplicablelawpertaining
tothesubjectmatter.Fordetailedinsightandforbetterunderstanding,itsisadvisedtorefer
torelevantprovisionsintheActandtherelatedrules&notifications.

3. Is Profit bad? 3
•Profitisfine,profiteeringisnot.Don’tletsomeoneprofiteeratyourexpense.
•Profiteeringisatermfortheactofmakingprofitsbymethodsconsidered
unethical.

4. What is anti-profiteering? 4
•Itisamechanismtocurbprofiteering.
•ItsaimistoprevententitiesfrommakingexcessiveprofitsduetoGST.
•TheAuthorityhasbeensettocheckthatthebenefitofGSTispassedonto
theultimateconsumerandthatchannelisnothikingratesinordinatelyciting
GSTasareason.

5. Need for such law? 5
•ExamplesaroundtheworldhaveshownthattheintroductionofGSThasledtoinflation,
withtraderstryingtokeeptheirprofitmarginsconstantandtheultimatebenefitnotbeing
passedontotheultimateconsumer.
•InJune2010,areportbyCAGnamed‘ImplementationofVATinIndia-Lessonsfor
TransitionintoGoodsandServicesTax'indealingwiththeimpactoftheintroductionof
VATinIndiastatedthattheintroductionVATledtoanincreaseinpricesofproducts,
highertaxevasion,profiteeringbymanufacturersanddealersduetonotpassingbenefits
duetotaxratereduction.

6. Legal perspective 6
•Anyreductioninrateoftaxonanysupplyofgoodsorservicesorthebenefitofinputtax
creditshallbepassedontotherecipientbywayofcommensuratereductioninprices.-Sec
171(1)ofCGSTAct,2017
•TheCentralGovernmentmay,onrecommendationsoftheCouncil,bynotification,
constituteanAuthority,orempoweranexistingAuthorityconstitutedunderanylawfor
thetimebeinginforcetoexaminecasescomingunderthepurviewofSec171(1)ofthe
Act–Sec171(2)ofCGSTAct,2017
•Penaltyofprofiteering–10%oftheamountsoprofiteeredasdeterminedbythe
Authority.Nopenaltyincasetheprofiteeredamountisdepositedwith30daysofthe
Order.Sec171(3A)ofCGSTAct
•ChapterXVoftheCGSTRules,2017(Rules122toRule137)detailstheconstitutionofthe
Authority,itsrolesandresponsibilities,powersandconductofsuchAuthority.

7. Legal perspective 7
Reductioninrateoftax
•Anyreductioninrateoftaxinthenewtaxregimeshouldbepassedontothenextlevelofsupply
chain.
•Passingofbenefitswhere
•Suppliesareexclusiveoftax–Notmuchofanissue
•Suppliesareinclusiveoftax–Hmmm….
BenefitofInputTaxCredit
•AlmostallindustriesandsectorsbenefittedfromGSTdueto
•Seamlessflowofinputtaxcredit
•Allowinginputtaxcreditongoodsandorservicesorbothwhichwerenotallowedintheerstwhiletaxregime

8. Illustration 8Description Pre GST
Purchase price of goods 1,00,000
Excise Duty @ 12.5% 12,500
VAT @ 5.5% 6,188
GST @ 18% -
Landed Cost 1,18,688
Operations Expenses 5,000
Tax on above (15%/ 18%) 750
Total Cost 1,24,438
Sale Price 1,25,000
VAT @ 5.5% 6,875
GST @ 18% -
Total Invoice Value 1,31,875
Profit to dealer 6,750
Tax to Government 20,125 Post GST (price
constant)
1,00,000
-
-
18,000
1,18,000
5,000
900
1,23,900
1,25,000
-
22,500
1,47,500
20,000
22,500 Post GST
(Adjusted)
1,00,000
-
-
18,000
1,18,000
5,000
900
1,23,900
1,11,750
-
20,115
1,31,865
6,750
20,115

9. The Authority 9
National Anti-
profiteering Authority
Standing committee on Anti-
profiteering
State level screening committee

10. State Level screening committee 10
•ConstitutionoftheCommittee[Rule123(2)ofCGSTRules]
•TobeconstitutedbytherespectiveState
•OneofficereachoftheStateGovernmentandoftheCentralGovernment,tobenominatedbythe
CommissionerorChiefCommissionerresp.
•Firstpointofcontactforanyapplicationundertheanti-profiteeringregulations
concerningtheState.AlsotakesupcasesforwardedbytheStandingCommittee.
•Applicationstobeexaminedand,ifdeemokay,tobeforwardedwithrecommendationto
theStandingcommitteewithin2monthsofthedateofreceiptoftheapplication.The2
monthscanbeextendedmaxby1monthifallowedbytheAuthority.

11. Standing Committee 11
•ConstitutionoftheCommittee[Rule123(1)ofCGSTRules]
•AsmaybenominatedbytheStateGovernmentandCentralGovernment
•NextleveltotheStatescreeningcommittee.Alsohasjurisdictionovermattersrelatingto
Nationallevels.
•Withinaperiodof2months(extendableby1month,ifallowedtheAuthority)fromthe
receiptofwrittenapplication(receivedfromaninterestedpartyorfromthe
Commissioner),examinetheaccuracyandadequacyanddeterminewhetherthereisprima-
facieevidencetosupporttheclaim

12. National Anti-profiteering Authority12
•ConstitutionoftheAuthority(Rule122ofCGSTRules)
•AChairman,equivalenttotherankofSecretaryunderGOI
•Fourtechnicalmembers,whohavebeen/areCommissionersofStateorCentralTaxforatleast1year,
tobenominatedbytheCouncil
•AnofficernotbelowtherankofAdditionalCommissionershallbetheSecretarytotheAuthority.
•Power&Duties
•TodeterminethemethodologyandprocedurefordeterminationofcomplianceofSec171oftheAct
•Todeterminewhethertaxratereductionorinputtaxbenefithasbeenpassedon
•Toidentifythosewhohavenotcompliedtotheprovisionofthelaw
•Toorder,asappropriate,within6monthsofreceivinginvestigationfindingsandreport

13. National Anti-profiteering Authority13
•DecisionoftheAuthority
•Aminimumof3membersoftheAuthorityshallconstituteaquorumforthemeetings
•Majorityrules.Incaseofequalityofvotes,theChairmanshallhavetheCastingvote
•Orderpassedtobeimmediatelycompliedbytheregisteredpersonelserecoveryaction
maybeinitiated.TheAuthoritymayrequireanyauthorityofCentraltax,Statetaxor
Unionterritorytaxtomonitortheimplementationoftheorderpassedbyit.
•AuthoritytofurnishperformancereporttotheCouncilbythe10
th
ofthemonth
followingthequarter
•TheChairman&theTechnicalmembersshallholdtheofficeforatermof2yearsoruntil
heattainstheageof65years,whicheverisearlier.Theyareeligibleforreappointment.
•TheAuthorityshallceasetoexistaftertheexpiryof4yearsfromthedateonwhichthe
ChairmanentersuponhisofficeunlesstheCouncilrecommendsotherwise.

14. Procedure –Anti Profiteering
investigation
14
State Level Screening
Receives application on issues
of local nature or takes cases
forwarded by Standing
Committee.
Screens the relevant cases
If satisfied, forwards the
application with its
recommendation(s) to the
Standing Committee.
Timeline –2 months,
extendable by 1 month
Standing Committee
Receives written application
from interested party or the
Commissioner
Examines accuracy and
adequacy of evidences
May refer matter to State
screening committee
If satisfied, refers case to the
Director General of Anti-
profiteering
Timeline –2 months,
extendable by 1 month
Director General
Issues notice to the parties to
collect info and do enquiry.
Investigates and Collects
additional evidences
Timeline –6 months,
extendable up to another 3
months
Submits report to NAA with
findings and records
NAA
Issues relevant Order within
6 months of DG report
Opportunity for hearing only
in case of written request.
May ask DG for further
investigation or inquiry
related to the case.
Upon receipt of DG report,
may even ask DG to do
investigation relating to
matter not covered in the
report.

15. Other matters 15
•TheprovisionsofSec11oftheRighttoInformationAct,2005,shallapplymutatis
mutandistothedisclosureofanyinformationwhichisprovidedonaconfidentialbasis.
Rule130(1)ofCGSTRules
•WheretheDirectorGeneralofAnti-profiteeringdeemsfit,hemayseekopinionofany
otheragencyorstatutoryauthoritiesinthedischargeofhisduties.Rule131ofCGSTRules
•TheAuthority,DirectorGeneralofAnti-profiteeringoranofficerauthorisedbyhimin
thisbehalf,shallhavethepowertosummonanypersonandshallhavepowerinany
inquiry,asprovidedinthecaseofaCivilCourtundertheprovisionsoftheCodeofCivil
Procedure,1908.Rule132(1)ofCGSTRules
•Everysuchinquiryshallbedeemedtobeajudicialproceedingswithinthemeaningof
sections193and228oftheIndianPenalCode.Rule132(2)ofCGSTRules

16. Powers of NAA -Order 16

17. How to file complaint 17
•Online:www.naa.gov.in
•Helpline:011-21400643(onworkingdays)
•Email:[email protected](forNationallevelcomplaints),[email protected]
(NAA),forstatescreeningcommittees,pleaserefertothewebsite
•Physical:
•DirectorateGeneralofAnti-profiteering,Dept.ofRevenue,MinistryofFinance,2
nd
floor,BhaiVeer
SinghsahityaSadan,BhaiVeerSinghMarg,Golemarket,NewDelhi-110001.
•NationalAnti-profiteeringAuthority,Dept.ofRevenue,MinistryofFinance,6
th
Floor,TowerOne,
JeevanBharati,ConnaughtPlace,NewDelhi-110001.

18. Practical consideration 18
•Verydifficulttoestablishone-to-onecorrelationbetweeninputtaxcreditoninward
suppliesandtaxpayableonoutwardsupplies.So,ultimately,itwillcometothemargins.
Howitwillbedetermined?Absolutenumber,%ofCostprice,%ofsaleprice??It
becomesaverysubjectivematter.
•Benefitsininwardsuppliesnegatedwithincreaseinoperationalcosts.Howthiswillbe
viewedfromaanti-profiteeringperspective.TheLawisclear,benefitoflowerinputtax
creditneedstobepassedon.
•Therearenodetailedrulesrelatingtocomputationmechanism,documentstobe
maintained,limitationperiodetc.Thiskeepsthedoorajarfortheauthoritytoexerciseits
discretionarypowers!!

19. Practical consideration 19
•Withnoroomforanydeviationprescribed,thelawmaybeviewedasstraightjacketingand
mayleadtounwantedharassmentbytheauthorities.
•Article301ofourConstitutionprovidesfreedomoftradeandcommerce.Canputting
restrictionsontheprofitsoftradebeseenasviolationofourfundamentalrights?
•TheappointmentofNAAlieswiththeCentralGovernment.Duetotheconcurrent
natureofthetaxlaws,sometaxpayersareunderStatejurisdiction.Howwillthe
jurisdictionofStateTaxbedeterminedbytheCentralGovernment?

20. Summing Up 20
Pass on the
benefit to the
next level
Input
Tax
credit
benefit
Tax rate
reduced

21. Thank You
Manmohan Daga
Daga & Associates
9804199500
[email protected]