Anti-Profiteering -II

[CA Akash Phophalia]

In the last article we had discussed about some facts that were pleaded by the assessee and the arguments of the revenue against the pleadings. In this article we will further discuss about the other grounds undertaken in the proceedings under Anti Profiteering.  

Consumer Promotion Schemes (CPS)

While pleading the case of anti-profiteering it was argued by the assessee that the peak sale period of the product is seasonal and before reduction in rate of tax the product was being sold under CPS during the lean season by offering additional quantity or along with some additional products and such CPS were usually withdrawn during the peak seasons.

The department argued that the assessee was not competent to either increase the quantity of the product or to reduce the MRP as the product was not in its stock and it had already availed of full ITC on the said product and hence, the argument is not sustainable.

Author’s View – It is felt that the argument taken by the assessee, if substantiated by the corroborative evidences, can sustain in its favour in the court of law.

Non-availability of Methodology

Another fine argument made by the assessee while pleading for anti-profiteering cases is that Section 171 of CGST Act 2017 provides that any benefit of reduction in the rate of tax should be passed on to the recipient by way of commensurate reduction in the prices but he act did not provide any methodology for determining the meaning of the term “commensurate reduction in prices”. It was also stated that in the case of Kunj Behari Lai and Ors v State of HP 2000 (2) TMI 826 - SUPREME COURT it was held that the legislature could not create any substantive rights or obligations or disabilities through general rule making powers unless the same was specifically contemplated by the provisions of the Act under which such powers were exercised. He further argued that in the case of Petroleum and Natural Gas Regulatory Board v Indraprastha Gas Llimited and Ors 2015 (7) TMI 1130 - SUPREME COURT it had been held that if on reading of the statute in entirety a power did not flow, a delegated authority could not frame a legislation as that would not be in accord with the statutory provisions nor would it be for the purpose of carrying on the provisions of the act.

It was replied by the department that the Methodology and procedure as required, are already promulgated under Rule 126 of the CGST Rules, 2017. It is the duty of the assessee to make calculations under Section 171 of the CGST Act 2017 and mathematical calculations will be different in each case. It was further stated that the authority is not required to make mathematical calculations but it is that assessee who had to arrive at the amount of benefit which is required to be passed upon.

Author’s View – Absence of methodology may result in non-applicability of provision, as thought by the assessee, was not a justifiable argument in cases of anti-profiteering. Being each situation needs to be dealt in particular manner, hence, uniform calculation cannot be codified. A broad codification as directed in the law itself seems a proper methodology and procedure.

Paucity of time

Another argument taken by the assessee was that commensurate reduction in price due to reduction in rate of tax needs time needs a reasonable time and there are usually several practical issues and legal requirements needs to be complied with. He further contended that it was impossible to change the entire pricing mechanism, labeling and packaging overnight and it was settled that the law could not force a person to do a thing which was impossible as was enshrined in the legal maxim “Lex Non Cogit Ad Impossibili.” 

The authority contended that reduction in rate of tax and ITC extended by the government if for the benefit of the ultimate consumer and it should go to the customer. These are the concessions given by the Government from its own revenue and the suppliers cannot appropriate them as they are not entitled to do so. Both the benefits must go to the considers and in case they are not identifiable the amount so collected by the suppliers should be deposited in the CWF (Consumer Welfare Fund)  so that it can be used in the public interest. It was rightly said that in case of any legal or logistical difficulty the amount of benefit collected by the suppliers can always be deposited in the CWF but cannot be retained by the suppliers as it does not belong to them.

Other Arguments

1. Pricing – A Multi Factor

It was contended by the assessee that the pricing of the product was a complex exercise and they were usually not priced individually and in isolation at the unit level and several considerations such as those of demand, supply, product range, supplier’s position in market and entity level operational costs etc. were also taken into consideration to determine the price of a product and hence product wise price reduction was not required to be done.

2. Right to Trade - Infringed

It was further argued by the assessee that article 19(1)(g) of the constitution granted him right to carry on trade or business and to fix prices and earn profits which could not be subjected to unreasonable restrictions under section 171.  He has also alleged that neither the constitutional provisions nor the CGST act empowered the authority to get into the realm of price fixation at an individual product level and there was no intention to move away from free market price principles to an administered price mechanism.

3. Losses in business / Increased cost

It was further said by the assessee that it had incurred various expenses and there was overall increase in expenses of the firm but the same was not considered earlier and hence no profiteering being done.

It was stated by the Authority that it is only concerned with the passing of the benefit of reduction in rate of tax to the consumers and it has no mandate to be a price regulator. Further, the motive of the anti-profiteering proceedings are not concerned with the fixation of prices or margins of profits but limited to finding out whether the benefit of tax reduction has been passed on to the consumers or not. It was also stated that it is illogical for the assessee to top up his margins from the amount of tax reduction which he is legally required to pass on to his consumers.

Conclusion

The various arguments placed by the assessee, as above, and replies of the authority it can be fairly understood that the law makers are strictly confined to passing on the benefit of reduction in rate of tax to the ultimate consumers and will not allow the assessee to take benefit of the sacrifice of the revenue of the government. However, corroborative evidences with logics, law and facts can save assessee from the situations of anti-profiteering but the probability of such situations are bleak.

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CA Akash Phophalia

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