Anti-Profiteering under GST in India: Regulatory Measures and Compliance for Business

By Srinivas Raman

The goods and services tax (GST) is a game changer for India’s indirect tax system, removing cascading taxes and simplifying administration.

The new regime also ensures that the tax rebate obtained by sellers or service providers under GST will be passed on to the final consumers.

Towards this end, GST legislation includes anti-profiteering measures under the Central Goods and Services Tax Act, 2017 (Act) and the Anti-Profiteering Rules, 2017 (Rules).

These measures ensure that businesses do not make excessive or unfair profits or charge unwarranted hikes under the guise of the GST. Further, it allows for tax benefits to reach consumers through suitable reduction in product prices.

Anti-Profiteering compliance under GST

The Act mandates that any reduction in the tax rate on any supply of goods or services or the benefit of input tax credit availed by the seller – is passed on to the consumer via commensurate reduction in prices.

In addition, the Rules state that businesses must compulsorily pass on the benefits of GST to consumers or face the risk of severe penalties, which could include the revocation of registration.

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Enforcement of GST anti-profiteering measures

The Act calls for the establishment of an Authority, which is empowered to check whether business entities are complying with the anti-profiteering law.

According to the Rules, the Authority shall have the power to determine the method and procedure to determine whether the tax reductions on the supply of goods or services or benefit of input tax credit has been passed on by the registered entity to the consumer.

If the Authority identifies registered persons or entities who have not passed on tax benefits, it could do the following:

• Order the defaulting person or entity to reduce prices;
• Return excess money to the customer with an interest at the rate of 18 percent on the amount collected; and
• Cancel the business registration of the violating firm under the Act.

The Rules further lay down the method for receiving a complaint regarding profiteering activities by any registered business, and outline the procedure for carrying out investigation and inquiry proceedings resulting from the complaint.

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Grey areas in the anti-profiteering law under GST

The current anti-profiteering law has been termed draconian by industry stakeholders as it gives unbridled powers to government bureaucracy.

Various practical aspects remain unclear in the scope of both the Act and the Rules, and the federal government and GST Council are yet to announce clarifications. These include:

• No clearly drawn out mechanism for determining anti-profiteering;
• The Authority is endowed with highly discretionary powers to determine if prices are commensurately reduced, which is susceptible to abuse of power;
• The Rules merely outline the procedure to be followed for investigation and inquiry and are not detailed in nature; and
• Lack of clarity regarding whether an entity de-registered under the Rules can re-commence business after paying the imposed penalty.

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Failure of compliance under GST is costly

The government has announced that these anti-profiteering measures will be applicable only during the initial period of the GST regime; severe penalties will be levied only in case of repeat offenders.

Nevertheless, as of July 1, every business registered under GST will come within the ambit of the anti-profiteering law. Any customer can make a complaint against a registered business pertaining to non-transfer of benefits under GST. Every registered business must comply with any orders passed by the Authority; failing to do so will invite legal action.

At the same time, all businesses will need to clearly calculate the tax benefits availed by them under GST for their supply of goods or services, and ensure that such reductions are adequately reflected in the price of the output sold to customers.

International Business Advisory Manager Sahil Aggarwal adds a clarification here: “It is to be noted that every reduction in tax rates or increase in input tax credit may not necessarily result in reduction of prices as there may be factors offsetting reduction of taxes, such as increase in forex rates and increase in cost of raw material, which could cause an increase in the price”.

Until further clarifications are issued by the government, businesses will need to adhere to these compliance requirements to avoid the risk of facing severe penalties.

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