JUNE 26, 2017

By Sumit Dutt Majumder

ONE of the major objectives of GST is to make the incidence of tax on consumers less by removing cascading of taxes, reducing compliance costs and logistics costs, thus lowering the value of goods, increasing the tax base and above all by reducing the effective rates of taxes from the present level. The Government expects that the benefit of reduction in rates of taxes on any supply of goods or services coupled with the benefit of input tax credit in the entire supply chain should be passed on to the consumer thus bringing down the price of goods and services in GST regime. The Government feels that if the manufacturers, dealers, etc. do not pass on this benefit and thus make extra profit, that additional profit is not actually due to them and this must be returned to the consumer or the society through the Consumer Welfare Fund. Based on this concept, the Government thought of bringing in some Anti-Profiteering measures so as to ensure that the aforesaid benefits do reach the consumers.

Thus, Section 171 of the CGST Act was brought in. It explains that any reduction in rate of tax on any supply or any benefit of input tax credit will have to be passed on to the consumers by way of commensurate reduction in price of the goods or services. It further authorises setting up of an Anti-Profiteering Authority to ensure the foregoing.

Based on the authorization given in the aforesaid Section 171, the Government has come up with the Anti-profiteering Rules, 2017.

Rule 3 explains the Constitution of the National Anti-profiteering Authority (the Authority) which will have four Technical Members and a Chairman.

Rule 4 explains the constitution of a Standing Committee on Anti-Profiteering and a State level Screening Committee in each State.

The National Anti-profiteering Authority, the Standing Committee and State level Screening Committee which have been defined in Rule 5 and 6 explain the appointment, salary etc.

Rules 7 to 10 explain the Processes involved in enforcement of Anti-Profiteering Rules. These two Rules explain elaborately the 'Power to determine the methodology and procedure', 'Duties of the Authority', 'Examination of application by the Standing Committee and Screening Committee, and 'Initiation and conduct of the proceedings.'

Let us understand the processes involved through the following observations.

(i) The process will start with the receipt of an application alongwith evidences by the Standing Committee complaining that the benefit of reduction in rate of tax or that of input tax credit has not been passed on by the supplier to the recipient by way of commensurate reduction in prices.

(ii) Application can be, by an interested party or Commissioner or any other person. 'Interested Party' in terms of Rule 2(e), includes supplier and recipient of supply of goods or services under the proceedings. It may be noted that any other person can also apply . Thus, the consumer welfare activists can also apply.

(iii) Application from interested parties on issues of local nature will first be examined by the State level Screening Committee. On being satisfied that the supplier has contravened the afore-explained provisions of section 171 of the CGST Act, the Screening Committee will forward the application with its recommendations to the Standing Committee. The ‘issues of local nature' that will be first examined by the Screening Committee have not been further elaborated or explained.

(iv) The Standing Committee, on receipt of the application, will make necessary examination to determine whether there is a prima-facie evidence to support the applicant's claim within two months. If the Committee is satisfied, it will refer the matter to the Director General of Safeguards, which is an existing organisation under the Central Board of Excise & Customs, for a detailed investigation.

(v) The DG Safeguards, during the course of its investigation, will follow the principles of Natural Justice and issue notice to the interested parties containing the information specified in Rule 10(3) which is reproduced below:

"10(3) The Director General of Safeguards shall, before initiation of investigation, issue a notice to the interested parties containing, inter alia, information on the following, namely :-

(a) the description of the goods or services in respect of which the proceedings have been initiated;

(b) summary of statement of facts on which the allegations are based; and

(c) the time limit allowed to the interested parties and other persons who may have information related to the proceedings for furnishing their reply."

It will also make available the evidence presented to it by one interested party to the other interested parties, participating in the proceedings.

(vi) The DG will complete the investigation within three months, and furnish its report to the Authority with relevant records.

Rules 11 to 13 deal with 'Confidentiality of information', 'cooperation with other agencies or statutory authorities' and 'Power to summon persons to give evidence and produce documents'. These rules are self-explanatory.

Rules 14 to 18 explain the Decision making process in the Authority and it covers 'Order of the Authority', 'Decision to be taken by the majority', 'Compliance by the Registered person', 'Monitoring the order' and 'Tenure of Authority'. These are discussed below:

(i) On receipt of the report from DG Safeguards, the Authority will give an opportunity of hearing to the 'interested parties' and make the determination whether the registered person has passed on the aforementioned benefits out of reduced tax rate and availment of credit to the consumer.

(ii) Where the aforesaid determination is in the affirmative, the Authority will pass an order, in terms of Sub-Rule (3) of Rule 14. The punishments/penalties specified in aforesaid Rule 14(3) are as follows :

(a) The person will be ordered to reduce prices of the goods/services under the proceeding;

(b) The person will be ordered to return to the recipient an amount equivalent to the amount not passed on, alongwith 18% interest; otherwise the amount with interest will be recovered from the person and deposited into Consumer Welfare fund referred to in Section 57;

(c) A penalty will be imposed as prescribed under the Act;

(d) Registration will be cancelled.

The author's view is that these penal provisions are to be interpreted as follows:

(a) Order for reduction in prices will be applicable to the goods/services under the current proceeding for which payment has not been made and also for the prospective supplies.

(b) Return of an amount to the recipient or deposit in the Welfare fund will be applicable to the goods/services under the current proceeding and for which payment to the supplier has already been made, and will also be applicable to the goods/services for past supplies.

(c) As for the imposition of penalty, the offending person would be liable to penalty as prescribed under the CGST Act, i.e. in terms of Section 122, 123, 127 etc. of the Act and this would be independent of the actions mentioned at (a) or (b) above. Going by the penal provisions of the CGST Act mentioned above, whereby a person merely becomes liable to penalty under the circumstances given therein, it may be inferred that the imposition of penalty under Anti-Profiteering Laws would be the discretion of the "authorities".

(d) Same logic as at (c) above would be applicable to the provision of 'Cancellation of registration' at Rule 14(3)(d). It will be the discretion of the Authority whether or not to cancel the registration, and it is not mandatory.

(iii) The decision of the Authority will be by the majority. In case of difference of opinion on any point, that will be decided according to the opinion of the majority.

(iv) An order by the Authority will have to be complied with immediately, failing which recovery proceedings as per the relevant Act will be initiated.

(v) The Authority may require any authority of the CGST, SGST or UTGST to monitor implementation of the order passed by it.

(vi) The tenure of the Authority will be two years, unless the Council recommends otherwise.

Conclusion

At the beginning of this article, the genesis of introduction of Anti-profiteering provisions was briefly discussed. Apprehensions have been expressed after the release of the Anti Profiteering Rules, 2017 that this legislation would bring back 'Inspector Raj' and its attendant inconveniences to the Trade and Industry, and that the power to penalise and cancel the registration would lead to chaos and disruption in business. While responding to these apprehensions, the Union Finance Minister and the Union Revenue Secretary have given assurance through media to the effect that these provisions would be rarely used and that these are merely deterrent provisions. These assurances will have to be translated into clear-cut and unambiguous guidelines, particularly because the Rules do not say so or give that impression. These Rules will be applicable to all the suppliers and recipients in the GST regime. The discretion as to which cases would be subjected to these provisions must not be thrust upon the field officers; it will be too risky for them to apply discretion. Therefore, the guidelines/notifications must clearly lay down as to which type of cases are to be picked up for investigation and which are to be left alone. The help and support of Consumer Welfare forums and their activists may be considered for this purpose. Thus, even as it's a well-intentioned measure keeping the interest of consumers in mind, at the same time, the honest manufacturers, dealers and other taxpayers in the supply chain must not be made to suffer. These provisions need delicate handling with care.

(The Author is former Chairman, CBEC and author of the book "Know your GST - GST Unraveled" to be published soon.)