NOVEMBER 26, 2019

By Dr G Gokul Kishore

IN the previous parts, issues relating to anti-profiteering provisions under GST and implementation of the same have not been discussed. The lacunae in the statute, absence of methodology, non-consideration of business practices and orders raising eye-brows have been subject of intense debate. Except bringing an amendment to Section 171 of CGST Act to provide for mandatory penalty and certain amendments to rules, all the issues and concerns raised, remain unaddressed. In this 63 rd part, we intend to talk about two issues which have escaped public scrutiny.

Absence of power to initiate investigation suo motu

Section 171 is cryptic. Therefore, all things - substantive and procedural - have been left to CGST Rules. As per Rule 128, Standing Committee is the body vested with powers to consider complaints alleging profiteering. State-level Screening Committee is another body which is empowered to consider complaints of local nature but it shall forward the same to the Standing Committee if further investigation is required. This provision uses the word 'written application' from an 'interested party' or Commissioner or 'any other person' and such application is commonly referred as complaint. National Anti-Profiteering Authority (NAPA) and the investigation arm viz., Directorate General of Anti-Profiteering (DGAP) cannot be covered under 'interested party' or 'any other person' as they are the adjudicators and prosecutors respectively and they themselves cannot be the complainants.

However, Rule 127 titled 'Duties of the Authority', includes identification of registered person who has not passed on the benefit of reduction in tax rate or benefit of ITC as one of the duties of NAPA. It is not known how a quasi-judicial body vested with adjudication powers will itself don the attire of investigator and find out persons who have passed on or not passed on the benefit of rate reduction. This provision should be interpreted to mean that once DGAP gives a finding in its report that a taxpayer has not passed on rate reduction benefit to recipients, then NAPA should conduct proceedings in respect of such persons which includes identification and determination. This provision, by itself, may not mean that NAPA can initiate a complaint or suo motu direct some Commissioner to file a complaint before Standing Committee and get the same considered. But, as per press reports, investigations have been initiated against companies as per NAPA's directions. One can find orders passed by NAPA where a certain State-level Screening Committee itself has initiated investigations with DGAP's report containing findings on profiteering and NAPA accepting such findings eventually.

Does the 'Methodology & Procedure' prescribed by NAPA help?

Rule 126 of CGST Rules empowers NAPA to determine methodology and procedure. According to this provision, NAPA may determine the methodology and procedure for determination as to whether the reduction in tax rate or benefit of ITC has been passed on. This rule is unambiguous as to the power conferred on NAPA. It is empowered to determine i.e. prescribe the methodology and procedure for arriving at or determining the issue whether a particular person has complied with Section 171 or not. 'Determination' refers to considering the issue judiciously and passing an order affecting rights of the parties. This rule does not empower NAPA to frame any regulations to provide for initiation of investigation based on complaint or direction by NAPA itself.

However, if the document titled 'Methodology and Procedure' uploaded in NAPA's website is seen, Para 9 of this document states that NAPA may inquire into any alleged contravention of the provisions of Section 171 on its own motion or on receipt of information from any interested party as defined in Rule 137 of CGST Rules. Such assumption of 'suo motu' powers to inquire alleged contravention of provision on anti-profiteering appears to be erroneous. Even presuming for a moment NAPA does have such power and such regulation is sustainable, the same is against principles of natural justice as one cannot be,both the prosecutor as well as judge. There is no requirement of proven bias as the same is inherent and arises from the provisions itself.

Can a complaint be withdrawn?

A recent order dated 20-11-2019 Case No. 58/2019 - 2019-TIOL-58-NAA-GST by NAPA (as also an earlier order - 2019-TIOL-39-NAA-GST brings an interesting issue to the fore. A complaint was lodged by buyer of a flat alleging the promoter of not passing on ITC benefit arising out of GST and thus guilty of Section 171. Later, a settlement or compromise was reached between such buyer and the promoter whereby the latter agreed to pass on ITC benefit. Based on such compromise, the buyer had withdrawn the complaint. The respondent-promoter argued that the basis for proceedings did not exist on withdrawal of complaint but NAPA did not accept. According to NAPA, such withdrawal amounts to abetment of offence committed by the promoter under Section 171. It held that there is no provision in the CGST Act or CGST Rules for withdrawal of complaint lodged in anti-profiteering matters and a compliant once filed has to be investigated and orders passed.

As per the order, once cognizance of the complaint has been taken by the Screening Committee, the applicant was not entitled to withdraw the same. The order presumes (it uses "appears") that the complaint was withdrawn due to undue influence exercised by the promoter. It is not clear as to the documents or evidences on record based on which such conclusion was reached. It was also held that the complainant-buyer has not only compromised his interest but also of other flat buyers.

Provisions of Civil Procedure Code permitting withdrawal of suit has been held as not applicable to proceedings before NAPA. But, it should have acknowledged that its own 'Methodology and Procedure' is silent on such an important issue. NAPA may direct the jurisdictional Commissioner to file a complaint on behalf of other buyers and proceedings can be initiated afresh against the promoter. But, when statutory provisions do not bar withdrawal of complaint, not allowing a person to withdraw a complaint appears to be not correct. As per Section 32E(4) of Central Excise Act, 1944, an application for settlement shall not be allowed to be withdrawn by the applicant. In the absence of such express provision in CGST Act or CGST Rules, the stand adopted by NAPA may not be legally sustainable. The intention of the Authority may be laudable - it seeks to protect the interest of recipients by ensuring that GST benefits are passed on to them. But, the manner of achieving such objective leaves a lot to be desired. NAPA is a quasi-judicial body and the judicial processes should invariably be followed in every step. The proceedings before NAPA are not in the nature of trial under criminal law. Contravention of Section 171 is a civil offence. Civil Procedure Code may not apply to proceedings before NAPA but withdrawal of complaint by the complainant does not require any provision as the same is inherent in the right to file complaint. If right to file a plaint is provided, then right to withdraw is just a corollary.

Amending anti-profiteering provisions

When absence of methodology on how to pass on the benefit of GST rate reduction or ITC benefit is pointed out, NAPA has been consistently holding that the same is a mathematical exercise and does not require any specific methodology. It appears, according to NAPA, absence of formula, methods or guidelines does not prejudicially affect the person against whom investigations are undertaken and orders demanding huge sums are passed. As per the order mentioned in this article, once a person has filed complaint alleging profiteering, it cannot be withdrawn. In terms of 'Methodology and Procedure' issued by it, NAPA has suo motu powers to order investigation. These are some of the issues which require an urgent amendment to be recommended by the GST Council and then appropriately clarified by CBIC. Otherwise, both the anti-profiteering provisions and the body will be vulnerable to judicial challenge.

[To be continued…]

[The author is an Advocate. The views expressed are strictly personal.]

See Part 62.