Anti profiteering mechanism under the GST regime

It was widely perceived that the anti profiteering mechanism set up under the GST regime was an initial nudge aimed to ensure that companies passed on the ‘benefit’ – be it a fall in tax rates, or an enhanced input tax credit – arising from the GST roll-out to the end consumer by way of commensurate reduction in prices.

The adjudicating authority, National Anti-Profiteering Authority (NAA) set up in 2017, had a two-year tenure. But this was extended twice, till November 2022, with the mantle passed on to CCI subsequently.

This extension contrasts with international precedents, such as Australia’s approach, where similar provisions were enforced, following the introduction of GST, although with a sunset clause.

In late January, Delhi High Court, responding to many writ petitions filed by India Inc across sectors from FMCG to real estate, upheld the constitutional validity of the anti-profiteering provisions. It noted that the objective of Section 171 of Central GST Act, which mandates the passing on of GST benefits, is grounded in consumer welfare equity principles.

The court also clarified that there may be instances where the anti-profiteering mechanism is arbitrarily applied, either, by enlarging the scope of proceedings beyond the jurisdiction or by failing to consider legitimate factors, such as cost escalations, which offset the reduction, or skewed input credit situations. In such cases, the remedy lies in setting aside orders on merits.

The immediate consequence is that India Inc, contending with complexities of a multiple tax-slab structure, with competing and complicated classification and a plethora of litigation on GST rates, now faces a Damocles’ sword over its head.

In addition to the challenges of determining profiteering, companies may also be liable for reimbursing excess profits, interest charges from the date of sale and potential monetary penalties. These financial repercussions could be compounded by the disallowance of such payments as business deductions for income-tax purposes, effectively resulting in a double whammy.

Many would argue that after almost seven years of GST implementation, prices should be determined by market forces, not by statute. With possible GST rate rationalisation in the next 12-18 months, India Inc would be worried about these provisions even more.