YET ANOTHER ANTI-PROFITEERING COMPLAINT DISMISSED

[Dr. Sanjiv Agarwal]

The GST law contains a provision on anti-profiteering measure as a deterrent for trade and industry to enjoy unjust enrichment in terms of profit arising out of implementation of Goods and Services Tax in India, i.e., anti-profiteering measure would obligate the businesses to pass on the cost benefit arising out of GST implementation to their customers.

Section 171 provides that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices.

As per rule 127, Anti­ Profiteering Authority (APA)  shall be duty bound to:

• determine whether any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit has been passed on to the recipient by way of commensurate reduction in prices.
• identify the registered person who has not passed on the benefit of reduction in rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices.
• pass an appropriate order.

When this provision was inserted in GST law, there were apprehensions all around that this is going to be draconian provision and will be used as a harassment tool by tax authorities. If the first two cases have to be believed, this has proved to be wrong.

Automobile Case

These provisions had been subjected to judicial scrutiny by the National Anti-Profiteering Authority (NAA) set up under the CGST Act, 2017 recently in Dinesh Mohan Bharadwaj v. M/s Vrandavaneshwree Automotive Pvt. Ltd vide Order dated 27.03.2018 [Case No. 1/2018 instituted on 27.02.2018 as reported in 2018 (4) TMI 1377 - THE NATIONAL ANTI-PROFITEERING AUTHORITY ].

In its first order on anti-profiteering under Goods and Services Tax (GST), the National Anti­Profiteering Authority (NAA) has dismissed the complaint against the supplier of goods, Vrandavaneshwree Automotive Pvt Ltd (Respondent), a Bareilly-based Honda car dealer, by concluding that it did not contravene the anti-profiteering provisions of the Central GST Act, 2017. The order states that the Honda car dealer had passed on the benefit of the reduction in tax rate after GST to the applicant by way of reduction in the price of the car by ₹ 10,550.

"We find that the respondent (Honda car dealer) has given details of all the basic components of the price of the car purchased by the applicant ... and benefit of ₹ 10,550 on account of reduction of tax by about 2 per cent viz. from 31.254 percent (pre GST) to 29 percent (post GST) has already been passed on to the applicant and the amount of ₹ 10,550 is inclusive of the ITC (input tax credit) ... therefore, no additional benefit on account of ITC is required to be paid by the respondent”.

It was thus held that the respondent (Honda car dealer) has not contravened the provisions of Section 171 of the CGST Act, 2017, and accordingly, there was no merit in the application of  Dinesh Mohan Bharadwaj  (complainant or applicant), which was filed under Rule 128 of the CGST Tax Rules, 2017 and the same was dismissed.

Rice Case

Now in its yet another Order dated 04.05.2018 in Kumar Gandharv v. KRBL Ltd 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY , National Anti-profiteering Authority has upheld the trade practice and pricing of rice manufacturer and dismissed the complaint as it proved to be substantially false.

In the instant case, applicant was aggrieved that benefit of reduction in the rate of tax on ‘India Gate Basmati Rice’ has not been passed on to customers as its maximum retail price (MRP) had been increased resulting in margin of profit also being increased. The complaint was examined by Standing Committee on Anti-profiteering and forwarded to Director General of Safeguards (DGSG). In pre-GST regime, there was no tax on packed basmati rice whereas w.e.f. 1.7.2017, GST @ 5% was imposed on branded packed rice resulting in availability of input tax credit. It was reported that the ‘India Gate’ brand was not registered brand and the product become taxable @ 5% only from 22.09.2017 vide Notification No. 28/2017-CT (Rate) dated 22.09.2017.

It was observed that the rice manufacturer was able to take input tax credit ranging from 2.69% to 3% during September – November, 2017. It was contended that the GST rate on outward supply of their product was 5% and the ITC available to discharge the GST liability was not sufficient and the balance amount of GST was paid by the Respondent in cash therefore, there was no benefit of ITC which could be passed on to the consumers.

Further, the prices of 'rice' being an agricultural product, changed frequently because of the market forces and the other cost factors and were not solely dependent on the tax rates. It also contended that the price of paddy had increased by more than 30% in the year 2017 as compared to the year 2016 which constituted 75% of total cost of production. However, because of stiff competition in the market, they had not passed on the total cost burden to the consumers and had increased the price of their product by 8% only from ₹ 540/- to ₹ 584/- in spite of increase in the raw material costs by more than 30%.

The NAA observed that the “India Gate Basmati Rice” sold by the Respondent was not liable for tax before the implementation of the GST and after coming into force of the CGST Act, 2017 it was levied GST @ 5% w.e.f. 22.09.2017. The Respondent was also made eligible to avail !TC w.e.f. the above date. However, the ITC claimed by the company was not sufficient to meet his output tax liability and he had to pay the balance amount of tax in cash as is evident from the perusal of the table prepared by the DGSG. It was further observed that it was also apparent from the returns filed by the respondent for the months of September, 2017, October, 2017 and November, 2017 that the ITC available to then as a percentage of the total value of taxable supplies was between 2.69% to 3% whereas the GST on the outward supply of his product was 5% which was not sufficient to discharge its tax liability. Moreover, in this case the rate of tax has been increased from 0% to 5% instead of reduction in the same. Therefore, there was no reason for treating the price fixed by the Respondent as violation of the provisions of the Anti-Profiteering clause.

Also, there was an increase in the purchase price of paddy in the year 2017 as compared to its price during the year 2016 which constitutes major part of the cost of the above product. It is further revealed from the record that the Respondent had increased the MRP of his product from ₹ 540/- to ₹ 585/- which constituted increase of 8.33% keeping in view the increase in the purchase price. Therefore, due to the imposition of the GST on the above product as well as the increase in the purchase price of the paddy, there does not appear to be denial of benefit of ITC as has been alleged by the Applicant as there has been no net benefit of ITC available to the Respondent which could be passed on to the consumers.

It was, therefore, held that there was no substance in the application of the applicant and there was no violation of section 171 of the CGST Act 2017 and as such, the application was  dismissed without cost.

Relief for Businesses

Going by this ruling also, it can be asserted that anti-profiteering clause in GST law is neutral to trade and industry and in case business entities are able to prove that their pricing is reasonable and free from any unjust enrichment, the complaint is going to be dismissed. In future, the bogus complaints may even bear the brunt of costs as well as reprimand.