FEBRUARY 24, 2020

By Dr G Gokul Kishore

SECTION 171 of CGST Act deals with profiteering. Because such practice is reprehensible and needs to be curbed, it is titled 'Anti-profiteering measure'. The need for including such provision was publicised as to prevent suppliers of goods and services from pocketing the benefits arising out of tax rate cut or increased availability of input tax credit by statutorily ensuring that such benefits are passed to recipients. While the provision is used to scrutinize prices so as to check compliance with the above provision, in this 74th part, we scrutinize certain lacunae in the provisions.

No express provision to file complaint

Chapter XV of CGST Rules contains provisions relating to anti-profiteering. The proceedings of investigation as to whether a person has indulged in profiteering or not commences with a complaint. This complaint is termed as 'written application' in Rule 128. There is no separate rule which provides for who may file a complaint and the circumstances under which such application can be filed. Rule 128 deals with procedure for examination of application by Standing Committee and Screening Committee, time-limit for examination, prima facie evidence and the like. This rule does not, as such, provide for who, when and how application or complaint can be filed. Besides other procedure, it also mentions examination of 'written application' received from an 'interested party' or 'Commissioner' or 'any other person'. One may argue that these are the persons who can file and filing of written application (complaint) has been provided in Rule 128(1). But this rule is titled "Examination of application by the Standing Committee and Screening Committee' which presupposes a right to file application which can then be examined as per the powers conferred under this rule.

Anti-profiteering provisions have far-reaching ramifications. The orders saddle suppliers with huge liabilities. If the basis for casting such liability is a complaint, then the same should flow from the statute in unambiguous terms. If a person alleges that a supplier has not passed on the benefit of tax rate reduction to him by commensurate reduction of price, then there should be a specific provision empowering such person to file a complaint before the prescribed authority or officer along with evidence within the time-limit as prescribed. None of these have been provided for expressly in the CGST Rules. Overall reading of all the relevant rules [Rule 128(1) and Rule 137(c)] may indicate that any person can file a complaint but right of a person cannot be gathered from reading together different rules. The starting point of anti-profiteering investigation does not appear to be supported by any legal provision. If absence of separate provision cannot be considered as a major defect, at least, drafting of Rule 128 could have been better with separate sub-rule providing for filing of complaint followed by examination by the Standing Committee.

Complaint once filed cannot be withdrawn

One of the several lacunae in the provisions relating to anti-profiteering pertains to lack of rule providing for withdrawal of complaint. If a person has the right to do an act, he has the right to refrain from doing such act. Such refraining may be ab initio i.e. he may not exercise the right at all or after having set in motion the process of exercise, he may withdraw from the same. A right need not always be exercised and a right exercised can always be withdrawn. But, NAA has held that complaint once filed cannot be withdrawn. In the case of Paval Antony v. Shree Mahalakshmi Enterprises [NAA Order No. 58/2019 dated20-11-2019] - 2019-TIOL-58-NAA-GST it was held that Directorate General of Anti-Profiteering (DGAP) was bound to proceed with the investigation once the Standing Committee recommends the same and he had no option to terminate such investigation based on withdrawal of complaint.

The NAA has also held that the applicant appeared to have withdrawn the complaint due to undue influence exercised on him by the respondent (company). 'Undue influence' has been defined in Section 16 of the Indian Contract Act, 1872 in a comprehensive manner to cover those contracts where the relations between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Clearly, such term could not have been used in this case involving an independent flat buyer and developer.

It should be noted that anti-profiteering provision seeks to fasten civil liabilities and not criminal liabilities. Section 132 of CGST Act providing for criminal prosecution does not include contravention of anti-profiteering provision. If a person files a money suit and the parties arrive at a settlement out of court, the plaintiff can well choose to withdraw the suit. Judgments cited by the respondent have been distinguished on the ground that they were rendered under Civil Procedure Code (CPC) and the same was not applicable to anti-profiteering proceedings. If a recipient of a particular supply files a complaint that GST rate reduction has not been reflected in the price at which supplies are made to him and the supplier comes forward to compensate the recipient through commercially feasible means over which both the parties have no disagreement, then no court can intervene to say that the complaint once filed cannot be withdrawn. One may get an impression that NAA by interpreting the provisions to hold as above has become the prosecutor.

NAA is a quasi-judicial body and it is doubtful whether it can insist that the complainant or department must carry on with investigation even when the parties opt to resolve the dispute among themselves. Compromise between the parties means that the benefit has been obtained in some manner by the recipient. By insisting that investigation should be completed and by holding that benefit was not passed on and hence, should be passed on, NAA appears to unjustly enrich the recipient as he cannot be given benefit twice, one by NAA and another by the supplier through settlement. Jurisdictional Commissioners are directed to ensure that benefit as per Section 171 is passed on to other buyers in future even when the same order also notes that other buyers can seek initiation of fresh proceedings. Initiation of fresh investigation is different from issuing directions to Commissioners to implement the order in respect of non-complainants also.

In the above order, withdrawal of complaint has been held to be abetment of offence committed under Section 171(1). If the department launches prosecution for certain alleged offences and if, for some reason, complaint filed in a court of law is withdrawn, the jurisdictional Commissioner cannot be held to be abetting the alleged offence by such act of withdrawal. Such observations deprive these orders of precedential value as they are unlikely to stand judicial scrutiny. The lacunae in statutory framework may have to be addressed if the objective sought to be achieved is, in fact, achieved.

[To be continued…]

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

See Part 73 .