Anti Profiteering under GST - an alternative viewpoint

[pranav deshpande]

Anti-profiteering is a welcome socio-economic measure brought about by the Government, under the GST regime. The objective of the legislation is to ensure that any benefits arising from a reduction in the tax incidence, is not enjoyed by the subject being taxed, but is passed on to the person from whom such tax is recovered. This is also in alignment with the principle of unjust enrichment. 

However, on the implementation front, there could be a challenge, given the way the section pertaining to anti-profiteering has been drafted and it's placement in the scheme of things. The challenge is interpretational, of course, but does not detract from the possibility of it's being advanced, in the face of litigation. I have attempted to list the possible challenge, below.

Section 171(1) reads as follows:

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.

Now this section is under Chapter XXI – Miscellaneous, whereas the transitional provisions are covered by Chapter XX. It is not clear why a provision that has been sought to be enacted specifically to cover a situation of profits arising from a regime change is not placed in Chapter XX. But that is just one part of it. 

When section 171(1) is read, it speaks of any reduction in rate of tax on “supply” of goods or services. The concept of “supply” was not there under VAT laws or under service tax laws. Earlier, we had terms like 'sale' 'lease' 'service' 'manufacture' 'entry' etc, all of which existed till 30th June 2017 but which got subsumed within one word, 'supply' but with effect from 1st July 2017 and not prior to that. 

That being the case, it is then possible to hold an interpretation that section 171(1) ultimately provides that anti-profiteering has to be tested, not between ST/VAT and GST regime, but between GST at a higher rate on any product/service and GST at a lower rate on any product/service. That is to say, any query on anti-profiteering, that seeks to compare pre-GST and post-GST models, may well be responded to and the authority may well reach a conclusion of anti-profiteering, but the specific section covering anti-profiteering between tax rates pre GST and taxes post GST is not in existence, as the anti profiteering section is restricted only to reduction in GST rates.

This is an interpretation that could be subject to a lot of legislative scrutiny, along with the usual arguments for substance-over-form, legislative intent, equity and the like. But as the Hon'ble Supreme Court has said - in interpreting a section, one has to look at what has been said. And what has been said under section 171(1) is  limited.

It remains to be seen if this interpretation becomes the subject matter of a challenge and how it pans out in the Courts.