JULY 25, 2017

By Rohini Mukherjee

THE GST baby is now more than three weeks old. While the trade and industry is struggling to cope with the revolutionary tax reform, the biggest conundrum giving the businesses sleepless nights is the provision concerning anti-profiteering.

Manifestly, the rationale behind "anti-profiteering" provision is self-explanatory viz. the benefit of reduction in prices occasioned by the new tax regime ought not be pocketed by the supplier and such benefit should be made available to the end consumer. Though the GST law is in full force now, several crucial questions such as the manner of computing the benefit, whom to pass on the anti-profiteering benefit, the extent and time period for which the benefit has to be passed on remain unanswered.

Section 171 of the Central Goods and Services Tax Act, 2017 and the corresponding provisions of the respective State GST Acts mandate that any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit is to be passed on to the recipient by way of commensurate reduction in prices. Further, the provision enables the Central government to set up an Authority or authorise an existing Authority to monitor and enforce compliance with the requirements of the provision.

A bare reading of the aforesaid provision against anti-profiteering indicates that the anti-profiteering provision is triggered by the existence of either of the two benefits, namely, the reduction in the rate of tax or the benefit of input tax credit. The lacuna in the existing law pertaining to implementation and enforcement of the anti-profiteering provision opens up a Pandora box of questions.

Whether passing either one of the benefits contemplated in the provision is sufficient compliance?

The primary question is, whether passing on either the benefit arising out of reduction in rate of tax OR the benefit of input tax credit would be sufficient compliance of the provision of anti-profiteering? If not, whether the benefit has to be computed in toto?

In a situation where on the one hand, the rate of tax has increased in GST and on the other hand, certain input tax credit avenues have opened up,whether the cumulative effect is to be taken into consideration? If not, the question that arises here is as long as there is input tax credit benefit, whether the same has to be necessarily passed on to the recipient?

Whether the anti-profiteering benefit is to be passed on to the immediate recipient or the end consumer?

Another pertinent question is whether the benefit is required to be passed on to the end consumer down the chain. The provision uses the term "the recipient" which would literally mean the immediate recipient of the registered person (supplier) who is required to comply with this provision. If this line of interpretation is adopted, it would imply that as long as it is ensured that the anti-profiteering benefit is passed on to the immediate recipient, it is not the liability of the said supplier to ensure that the same is passed on down the supply chain to the end consumer also. Such an interpretation defeats the purpose sought to be achieved by the provision which is to ensure that the end consumer is not hit by inflation and any benefit emanating up the supply chain is passed down the order.

Computation of benefit: Whether product wise or State wise?

The trade and industry is in a dilemma as to the manner in which the benefit is to be calculated. Whether the benefit is to be calculated at a product level? As the anti-profiteering benefit may be different for different sets of products of a business, the computation of such benefit at a product level seems appropriate.

Whether the benefit has to be necessarily computed at the State level?This is of particular significance in situations wherein owing to the existence of varied rates of VAT under the erstwhile regime, the benefit under the anti-profiteering provision is different across States. In such a case, the moot point is whether a different quantum of benefit is required to be passed on in different States or is it sufficient compliance to adopt a weighted average method for computation of a single figure of benefit to be passed on in all the States. However, taking a weighted average method approach may invite allegations of non-compliance as the benefit owed to one set of consumers in one State is being passed on to another set of consumers in a different State. Here, one may hasten to argue that the only requirement should be to ensure that the person does not withhold the benefit and there is no such mandate that the benefit is required to flow at a transaction level.

What is commensurate reduction in price?

This brings us to the most intriguing question: What precisely does the government mean by "commensurate reduction in price"? A literal reading would imply a reasonable reduction in price and not an accurate reduction. Here, another important question is the periodicity of passing on the anti-profiteering benefit. In a case of passing on of transitional anti-profiteering benefit, is it permissible to pass on the benefit for a reasonable period, say, six months.

Inexplicably, neither the Act nor the Rules answer these fundamental questions. The lack of clarity is an open invitation to scrutiny and litigation.

The above is a mere indicative list of the plethora of questions faced by the trade and industry in its attempt to unearth the mysteries of the mandate against anti-profiteering. It is the need of the hour for the government to release some clarifications regarding methodology, including calculations and periodicity to arrive at the anti-profiteering benefit.

(The author is Principal Associate, Lakshmikumaran & Sridharan and the views expressed are strictly personal.)