AUGUST 27, 2020

By Rakesh Kumar, Member (T) (Retd.), CESTAT

WHAT is Delegated Legislation?

1.1. In terms of the article 245 read with Article 246 of the Constitution of India it is only the Legislature which subject to the provisions of the Constitution, can make laws - Parliament for the whole of India or any part of the territory of India on the subjects in List I and List III of the Seventh Schedule and the Legislature of a State for the whole or any part of the State on the subjects in List II and List III of the Seventh Schedule. But very often, because of complexities of a modern administration and highly complex or technical nature of the subjects for regulation of which laws have been made and also the need for flexibility to deal with innumerable situations arising in course of implementation of the laws, the Legislature limits its functions only to laying down the broad policy in the laws enacted by it and delegates the ancillary function of laying down the details regarding implementation to the executive authority. In this regard, the Apex Court in some of its judgements has held as under:

(i) A constitutional bench of the Apex court in its judgement in the case of Hamdard Dawakhana (Wakf), Delhi and Another Vs Union of India reported ad AIR 1960 SC-554 has held that-

"… delegated legislation involves delegation of rule making power which may be exercised by the administrative agent and this means that the legislature having laid down the broad principles in the policy of its legislation can then leave the details to be supplied by the administrative authority In other words, by the delegated legislation, the delegate completes the legislation by supplying details within the limits prescribed by the statute."

(ii) In its judgement in case of State of Tamil Nadu Vs K Sabanayagam reported as AIR 1998 SC- 344= (1998) 1 SCC-318 , the Apex Court relying upon its above-mentioned judgement in case of Hamdard Dawakhana (supra) has observed that "in case of delegated legislation proper, some portion of the legislative power of the legislature is delegated to the outside authority in that, the legislature, though competent to perform both the essential and ancillary legislative functions, performs only the former and parts with the latter, i.e., the ancillary function of laying down details in favor of another for executing the policy of the statute enacted."

(iii) In its judgement in case of Agricultural Marketing Committee Vs Shalimar Chemical Works reported as AIR 1997 SC-2502= (1997) 5 SCC- 516 the Apex Court while examining the scope of delegated legislation has in para 24 of the judgement observed that-

"The power of delegation is a constituent element of the legislative power as a whole under Article 245 of the Constitution and other relative Articles and when the legislature enact laws to meet the challenge of the complex socio-economic problems, they find it convenient and necessary to delegate the subsidiary or ancillary powers to delegates of their choice for carrying out the policy laid down by the Acts as part of Administrative law. The Legislature has to lay down the legislative policy and principle to afford guidance for carrying out the said policy before it delegates its subsidiary powers in that behalf."

(iv) In the case of The Municipal Corporation of Delhi Vs Birla Cotton Spinning and Weaving Mills, Delhi and Anr reported as AIR (1968) SC-1232 also, the Apex Court has laid down the principle that the Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate Legislation necessary for implementing the purposes and objects of the Act concerned.

1.2. Thus, what can be delegated to the executive agency is only the ancillary function of making rules for efficient execution of the policy laid down by the Legislature in the law made by it. Neither the Legislature can delegate its policy making function to the executive nor the executive while exercising rule making power under delegated legislation can venture into policy making area and make rules laying down policy. The provision for delegated legislation in the parent Act is very often, a general provision providing for making of rules and/or regulations by the prescribed executive authority "for carrying out the provisions of the Act" either without mention of the specific areas for rule/ regulation making, like Sec 164 of CGST Act, 2017, or with specific mention of certain areas for making of rules/regulations. The examples of the latter are Sec 156 and 157 of the Customs Act, 1962, Sec 94 of the Chapter V of the Finance Act, 1994 and Sec 37 of the Central Excise Act, 1944.

2. What constitutes 'excessive delegation of legislative authority' or 'abdication of legislative authority'?

2.1. Since the power to make laws including the ancillary function of making rules for execution of the policy laid down in the law is vested in the Legislature and only to avoid the Legislature getting bogged down in the technical complexities of the execution of the law being made, the latter function of laying down the details is delegated to an executive agency, the executive agency cannot exercise powers in this regard independent of the Legislature and while making the rules/regulations for carrying out the purposes of the Act, cannot venture into policy making area which is the exclusive preserve of the Legislature. Therefore, the delegation of legislative power to the executive has to be with clear policy guidelines and under close supervision of the Legislature.

2.2. The Apex Court in its judgement in case of Avinder Singh Vs State of Punjab reported as [1979] 1 SCC-137 relying upon its earlier judgements in the cases of Devi Das Gopal Krishnan & Ors Vs State of Punjab - 2002-TIOL-1026-SC-CT-CB and Vasantlal Maganbhai Sanjanwala Vs State of Bombay reported as 1961SCR(1) 341 laid down the following tests for valid delegation of legislative authority:

(1) The Legislature cannot efface itself.The self- effacement happens when the Legislature delegates legislative power without any policy guidelines or the policy has been declared in vague and general terms or an arbitrary power has been conferred on the executive to change or modify the policy laid down by the Legislature.

(2) The Legislature cannot delegate the plenary or the essential legislative function. While what constitutes an ancillary legislative function cannot be delineated in detail, it certainly cannot include a change of policy. The Legislature is the master of legislative policy and if the delegate is free to switch policy, it may be usurpation of legislative power itself.

(3) The exercise of legislative function by the executive agency under delegated legislative authority must be under strict control and vigilance of the Legislature.

In this judgement the Court also observed that while it is for a Court to determine on a fair, generous and liberal construction of an impugned statute whether the Legislature has exceeded the limits delegation of legislative authority and strike down without any hesitation any arbitrary power conferred on the executive by the Legislature, the Courts should not go to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities.

2.3. With regard to the requirement of the control and vigilance of the Legislature over the delegate exercising legislative power under delegated legislation, the Apex Court in the case of A. V. Nachane Vs Union of India reported as AIR 1982 SC-1126= (1982) 1 SCC-205 has held that the Sec 48(3) of the Life Insurance Corporation Act, 1956 providing for the laying of the rules on the table of Parliament subject to a resolution of modification or annulment by the Parliament perfectly indicates that the Parliament has in no way abdicated its authority, but is keeping strict vigilance and control over its delegate. Thus, the strict control and vigilance of the Legislature over the rule/regulation making power of the executive under delegated legislative power can be ensured by the requirement in the Act providing for laying of the rules/ regulations on the table of both the houses of the Parliament/ Legislative Assembly.

2.4. In respect of the second condition for valid delegation of legislative authority that the Legislature, while delegating the ancillary function of making rules/ regulations for smooth and efficient execution of the policy laid down in the Act made by it must lay down legislative policy and purpose to provide a guideline for administrative rule-making, the view of the Courts is that the policy guidelines may be general or specific, or express or implied and can be gathered from the preamble, statement of objects and reasons, legislative history, scheme of the Act etc. Some of the important judgements of the Apex Court on this point are as under.

(i) The Apex Court in its judgment in Vasant Lal Maghanbhai Sanjanwala Vs State of Bombay reported as 1961 SCR (1) 341, which has been affirmed by the Apex Court in its judgment in the case of Devidas Gopal Krishna & Ors Vs State of Punjab & Ors reported as 1967 AIR 1895 and also in Avinder Singh Etc Vs State of Punjab & Anr (supra), while going into the question as to what constitutes abdication of legislative authority, has observed as under -

"…an overburdened legislature or one controlled by a powerful executive may unduly over-step the limits of delegation. It may not lay down any policy at all; it may declare its policy in vague & general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement of legislative power in favor of another agency either in whole or in part is beyond the permissible limits of delegation…".

(ii) In the case of Hamdard Dawakhana (Wakf) Vs Union of India (supra) decided by a Constitutional Bench of the Apex Court vide its judgment mentioned above, the constitutionality of clause (d) of Section 3 of the Drugs and Magic Remedies (Objectionable Advertisements) Act (XXI of 1954) had been challenged. Clause (d) of Section 3 of this Act provided that subject to the provisions of this Act, no person shall take any part in the publication of any advertisement referring to any drugs the terms of which suggest or are calculated to lead to the use of that drug for the diagnosis, cure, mitigation, treatment or prevention of any general disease or any other disease or condition which may be specified in the rules made under this Act. Section 16(1) of the Act empowered the Central Government to make rules for carrying out the purposes of this Act and Sub-section (2) (a) of Sec 16 specifically provided for specifying the diseases, disorders and the conditions to which the provisions of Sec 3 shall apply. The Rules made under Sec 16 have a schedule in which the diseases and the conditions to which the provisions of Sec 3(d) are applicable are mentioned. The clause (d) of Section 3 was challenged on the grounds that the power of specifying the disease and conditions as given in Section 3(d) is beyond the permissible boundaries of valid delegation as the same is without any policy guidelines. The Apex Court accepted this plea and held that the words - "or any other disease or condition which may be specified in the rules made under this Act" in clause (d) of Section 3 confer uncanalised and uncontrolled power to the executive and are therefore, ultra vires, as -

"In our view the words impugned are vague. The Parliament has established no criteria, no standard and has not prescribed any principle on which a particular disease or condition is to be specified in the schedule. It is not stated what facts or circumstances are to be taken into consideration to include a particular condition or disease. The power of specifying diseases and conditions as given in Sec 3(d) must therefore held to be going beyond the permissible boundaries of valid delegation."

(iii) In case of St. Johns Teachers Training Institute Vs Regional Director, NCTE reported as (2003) 3 SCC-321 , the Apex Court has held that-

(a) whether a particular legislation delegates rule making power to the executive authority without policy guidelines and therefore suffers from "excessive delegation" is a question which is to be decided by the Court with reference to certain factors which may include subject matter of the Act, Scheme of the Act, provisions of the statute including preamble and the factual and the circumstantial background in which the law was enacted; and

(b) when, however, a statute is challenged on the ground of excessive delegation, there is a presumption in favour of its constitutionality and if two interpretations are possible, the one which makes the statute constitutional shall be adopted.

2.5. Thus, in case of delegation of the legislative power to an executive authority, the policy guidelines for the guidance of the delegate may be either expressly mentioned in the statute or the same may be implied and in the latter case, the same have to be ascertained from the preamble, statement of the objective of the statute, scheme of the Act, legislative history etc. and if the provision of an statute delegating the rule making power to the executive is challenged on the ground of excessive delegation, the burden of rebutting the presumption of constitutionality of the provision is on the person challenging that provision.

2.6. Another important principle of delegated legislation is that the delegate cannot sub-delegate its rule making power to some other authority unless such sub-delegation is authorised in the parent Act either expressly or by necessary implication. In the case of A.K.Roy Vs State of Punjab reported as (1986) 4 SCC-326 the Apex Court held that since the power to initiate prosecution for offences under Sec 20(i) of the Food Adulteration Act, 1954 had been given to the State Government and the Act had not authorized sub-delegation of power, Rule 3 of the Prevention of Food Adulteration Rules, 1958 sub-delegating the power of authorizing the prosecution to Food Inspector is ultra vires the parent Act.

In the case of Ganpati Singhji Vs State of Ajmer reported as AIR 1955 SC-188 the vires of Rule 1 of the Rules made by the Chief Commissioner of Ajmer for regulation of fairs in the state of Ajmer under Ajmer Laws Regulation of 1877, was challenged. Section 40 of this Regulation empowered the Chief Commissioner to make rules for the maintenance of "watch and ward and establishment of proper system of conservancy and sanitation" at fairs and other large public gatherings. Rule 1 of the Rules made in this regard by the Chief Commissioner prohibited the holding of fairs except under a permit issued by the District Magistrate, who was to satisfy himself before issuing any permit that the applicant was in a position to establish a proper system of "conservancy, sanitation and watch and ward" at the fair. The Apex Court held that while the Regulations empower the Chief Commissioner to make rules for establishment of a system of proper conservancy and sanitation and it is the Chief Commissioner who should have made rules in this regard, what he has done is to leave it to the District Magistrate to see to it that the persons desiring to hold a fair are in a position to establish proper system of conservancy, sanitation & watch and ward and it is the District Magistrate who is to determine what a proper system is while the Regulation confers this power on the Chief Commissioner and not on the District Magistrate. The Apex Court, therefore, held this sub-delegation to be unauthorized and the Rule providing for it to be ultra vires.

3. Is there excessive delegation of legislative authority or abdication of legislative authority in respect of anti-profiteering provisions?

3.1. For examining this question, first, the relevant provisions in the CGST Act would be required to be examined to ascertain whether the delegation of rule making powers is with adequate and clear policy guidelines and also whether the delegation is under strict supervision and vigilance of the Legislature.

3.2. Section 171 of the CGST Act 2017 regarding anti- profiteering measures is as under -

" Anti-profiteering measure --(1 ) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.

(3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub- section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered.

Provided that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority. 

Explanation - For the purposes of this section, the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both…"

3.3. The provision for making of Rules for implementation of anti-profiteering provisions is in Sec 164 of the CGST Act, sub-section (1) of which provides for making of rules by the Central Government on the recommendations of the GST council for "carrying out the provisions of this Act". Section 164 is reproduced below -

"…164. (1) The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.

(2) Without prejudice to the generality of the provisions of sub-section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

(3) The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act come into force.

(4) Any rules made under sub-section (1) or sub-section (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees…"

Thus, the responsibility for making rules for carrying on the provisions of Sec 171 of the CGST Act, 2017 is of the Central Government.

3.4. Section 165 provides for making of regulations by the Board consistent with the provisions of this Act and the rules made thereunder for carrying out the provisions of this Act.

3.5. Section 166 of the CGST Act provides for laying of every rule made by the Central Government, every regulation made by the Board and every notification issued under this Act by the Government, as soon as may be after its issue, before each house of the Parliament while it is in session for a total period of 30 days, which may be comprised in one session or in two or more successive sessions and if both the houses agree in making any modification in the rule/regulation/notification or both the houses agree that the rule/regulation/notification should not be made, the rule/regulation/notification shall thereafter have effect only in such modified form or be of no effect, as the case may be. This provision is in compliance of the requirement that the delegation of rule/regulation making power to the executive must be under supervision and vigilance of the Legislature.

3.6. The question now arises whether the delegation to the Central Government of the rule making power in respect of the anti-profiteering measures of Sec 171 is with clear policy guidelines.

3.7. Sub-section (1) of Sec 171 mandates that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. Though the term "commensurate reduction in prices" is not defined and there is no provision as to precisely what would constitute contravention of the provisions of Sub-section (1), the objectives of this provision and policy guidelines can be ascertained from the following.

(1) The objective of this provision can be ascertained from its heading -"Anti-profiteering measure". The Apex Court in the case of Commissioner of Income Tax Vs. Vadilal Lalubhai reported as AIR 1973 SC 1016 has held that the marginal notes of a section give an indication of exactly what was the mischief that was intended to be remedied. Though the term 'profiteering' has not been defined, as per various dictionaries including Black's Law Dictionary, 'profiteering' means the act of taking unfair advantage of a situation to make a large profit, usually by charging high prices for things people need or by other means which are unfair or illegal. Besides this, the definition of "profiteered amount" as given in Explanation to Sub-section (3A) also throws light on the meaning of the term "profiteering". The term 'profiteering' would, therefore, mean pocketing by a supplier of a tax benefit which is meant for the customers and it is this 'profiteering' which the Legislature intends to check.

(2)There can be several modalities to prevent a supplier from pocketing the tax benefit (reduction in rate of tax or input tax credit) meant for his customers. The modality chosen by the Legislature in this regard is by monitoring the selling price and ensuring passing on of the benefit of any reduction in rate of tax or the benefit of input tax credit "by way of commensurate reduction in prices". Though the term "commensurate reduction in prices" has not been defined, looking to the intention of the Legislature, it would mean that the selling price reflects passing on to the customers the benefit of reduction in tax and the input tax credit.

(3) Even as per the CBIC FAQ on Anti-profiteering provisions "profiteering" means wilful action of not passing on the benefit of reduction in rate of tax or the benefit of input tax credit to the recipients in the prescribed manner i.e. by way of commensurate reduction in prices.

(4) Since all the laws made by the Parliament or State Legislative Assemblies are subject to the provisions of the Constitution of India, the anti-profiteering provisions of the CGST Act are subject to Article 19(1)(g) of the Constitution which guarantees the "right to practice any profession, or to carry on any occupation, trade or business". The word "business" has been interpreted by the Courts as an activity with profit motive subject to reasonable restrictions. Prohibition on pocketing by a supplier of goods or services of some tax benefit meant for the customers is a reasonable restriction on the right to carry on any occupation, trade or business. Thus, the mischief sought to be remedied by the anti-profiteering provisions is not of earning profit per se but of earning unjustified profit by pocketing the tax benefit meant for the customers.

(5) The selling price of a product comprises of two components - base price and tax. The base price depends upon the cost of inputs, fixed cost, supply & demand position, competition etc. Reduction in rate of tax reduces the selling price by reduction in the tax component. The input tax credit benefit reduces the selling price by decrease in the base price on account of reduction in the cost of inputs. Investigation would be required where after reduction in the rate of tax without withdrawal of ITC benefit, the base price has been increased or in case of change in law resulting in higher quantum of ITC benefit becoming available, the base price has not been proportionately decreased. But there may be cases where despite reduction in rate of tax, the supplier may not be able to decrease the selling price as on account of increase in the cost of inputs, fixed cost or other commercial factors, he may be compelled to increase the base price. Similarly in case of change in laws resulting in availability of higher quantum of ITC, a supplier may not be able to proportionately decrease the base price on account of increase in cost of inputs, fixed costs or other commercial factors. Therefore, every case of failure to decrease the selling price following reduction in rate of tax or change in laws resulting in availment of higher quantum of input tax credit cannot be presumed to be with intention to pocket the tax benefit. Since the anti- profiteering provisions have to be construed so as to be not in conflict with the provisions of Article 19(1) (g) of the Constitution, before accusing a supplier of contravention of the provisions of Section 171(1) it has to be ruled out that the failure to reduce the price commensurately is due to some genuine reasons like increase in the cost of inputs, increase in fixed cost or other relevant commercial factors. The methodology for determining whether a person has contravened the provisions of Section 171(1), has to be in accordance with the provisions of Art 19(1) (g) of the Constitution.

(7) The sub-section (3A) of Section 171 while prescribing penalty, talks of "profiteered amount", which has been defined in the Explanation to this Section as - "… the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both…";

The "profiteered amount" has to be calculated for the period for which a person held to be guilty of contravention of the provisions of Sec 171(1) is required to keep the prices reduced on account of reduction in the rate of tax or availment of ITC benefit. Though Sec 171 is silent on the point as to what should be the period of price reduction, since the effect of reduction in rate of tax or of availability of increased quantum of input tax credit, would get neutralized after some time period on account of change in the cost of inputs, fixed cost or other factors, the period of price reduction for which the profiteered amount is to be calculated has to be only the period during which the other factors, i.e., input cost/fixed cost, supply & demand position etc., have not changed. This has to be done to avoid conflict with the provisions of Article 19(1) (g) of the Constitution.

3.7. Thus, if Section 171 is correctly construed, the policy guidelines for the rule making authority for the purpose of making rules for carrying out the provisions of this Section are evident and what has been delegated to the executive agency is the complicated task of the nitty gritty of the implementation of the policy of preventing profiteering during the transition period i. e. framing of rules providing a standard computational methodology for determining whether a registered person has contravened the provisions of Sec 171(1) by pocketing the benefit of reduction in rate of tax or input tax credit without passing on the same to the customers by the way of commensurate in prices and if a person has been held to be guilty of contravention of the provisions of Sec 171(1), how and for what period the profiteered amount would be calculated.

3.8. It cannot, therefore, be said that sub-section (1) of Section 164 delegates the authority to the Central Government to make rules for carrying out the provisions of these Sections, without any policy guidelines.

3.9. The problem, however, lies in rule making by the Central Government in exercise of the delegated legislative power. Under Sec 164(1) of the CGST Act, the rules have to be made by the Central Government on the recommendations of the GST Council for carrying out the provisions of this Act. Sec 171 of the Act contains anti-profiteering measure. The core issue in the implementation of anti-profiteering measure is computational methodology for determining whether a registered person has passed on the benefit of reduction in rate of tax or the benefit of input tax credit to the recipient by way of commensurate reduction in prices and if he has not passed on the benefit how to calculate the profiteered amount and for what period. Since this is a highly complicated job which requires delving into costing, supply and demand position etc., there has to be a standard methodology in this regard prescribed in the rules and this job cannot be left to the adjudicating authority to determine on case to case basis. However, a look at Chapter XV of the CGST Rules, 2017 containing rules regarding anti- profiteering would show that this is what has been done. The anti-profiteering rules cover all the aspects of anti- profiteering viz. constitution of the National Anti-profiteering Authority (NAA) and its tenure, duties and powers of NAA, constitution of Standing Committee and Screening Committees on anti-profiteering, procedure for scrutiny of complaints by the Screening committees and the Standing Committee, investigation of complaints by DG, Anti-profiteering etc., except the computational methodology and procedure for determination as to whether the reduction in rate of tax or the benefit of ITC has been passed on by a registered person to the recipient by way of commensurate reduction in prices and if the benefit has not been passed on, how the profiteered amount shall be calculated and for what period. The only Rule dealing with this aspect is Rule 126 which gives the power to determine the methodology and procedure for determining whether a registered person has contravened the provisions of Section 171(1) or not to the National Anti- profiteering Authority and as per the NAA's interpretation of this rule, the same authorizes it to determine the procedure on case to case basis depending on the facts of each case (NAA's order dated 21.11.2019 in case of M/s Johnson & Johnson Pvt. Ltd. reported as 2019-TIOL-59-NAA-GST. Even as per the CBIC FAQ dated 15.12.2018, the methodology and procedure for identifying the cases of profiteering may vary from case to case depending upon the facts of the case and the nature of the goods or services and the power to decide methodology and procedure in this regard has been vested with the National Anti -profiteering Authority u/r 126. 3.10. Thus, the rule making authority, instead of making precise rules for determining whether reduction in rate of tax or benefit of ITC has been passed on by a registered person to the recipient by way of commensurate reduction in prices and if the benefit has not been passed on, how the profiteered amount would be calculated and for what period, has sub-delegated this power to the NAA for which there is no provision in Section 164. Sub-section (3) of Section 171 cannot be construed to include sub-delegation of any rule making power to the NAA by the Central Government, as this would amount to giving rule making powers to NAA without supervision and vigilance of the Parliament. The NAA discharges the prescribed functions and exercises the powers vested on it in accordance with the provisions of Sec 171 of the CGST Act and the rules made by the Central Government under Sec 164 of this Act for carrying out the provisions of this Section. The precise rules / computational methodology for identifying the cases of profiteering and calculation of profiteered amount, which is the core issue in anti-profiteering cases, have to be made by the Central Government in terms of delegated legislative power under Sec 164 and NAA has to identify the cases of profiteering and determine the profiteered amount on the basis of such rules. The NAA cannot be given the powers to determine the computational methodology and also decide the cases on the basis of the same. Rule 126 not only being in clear violation of the law laid down by the Apex Court in its judgement in case of Ganpati Singhji Vs State of Ajmer (supra) is an unauthorized sub-delegation of rule-making power to the very Authority which is responsible for adjudication of disputes under Sec 171, but also a case of abdication of delegated legislative function by the Central Government. Since as per the provisions of Sec 166 of the CGST Act, the CGST Rules, 2017 had been laid before both the houses of Parliament for the prescribed period and no resolution was passed by the Parliament for modification of the Rule 126, this would amount to abdication of legislative authority by the Legislature. The Rule 126, therefore, suffers from excessive delegation of legislative power and is ultra vires

4. There are some areas where the Anti- profiteering Rules made by the Central Government have gone beyond the provisions of the Act.

4.1. There is no provision in Section 171 of the Act for charging of interest @ 18% on the profiteered amount or for cancellation of the registration of the registered person held to be guilty of contravention of the provisions of Sec 171(1). However, Rule 133(3) (b) of the CGST Rules provides for return of the "profiteered amount" along with "18% interest" to the customers or, as the case may be, depositing the same in the Consumer Welfare Fund. Rule 133(3) (d) provide for cancellation of the registration of the registered person held to be guilty of contravention of the provisions of Sec 171(1). Whether in case of a registered person held to be guilty of contravention of the provisions of Sec 171(1), the "profiteered amount" should be recovered along with penal interest of 18% and whether his registration should also be cancelled, are policy issues which could not be covered by the Central Government in the Rules when there are no provisions for the same in the parent Act. The sub-rules (3) (b) & (3) (d) of Rule 133 are, therefore, ultra vires the provisions of the parent Act.

5. Consequences of abdication of legislative authority

5.1 As discussed above, the legislature in its wisdom, instead of defining term "commensurate reduction" and precisely defining as to what constitutes contravention of the provisions of sub-section (1) of Section 171 of the CGST Act, has simply laid down the policy that the benefit of any reduction in rate of tax or the benefit of input tax credit should be passed on by an assessee to his customers by way of commensurate reduction in prices and has delegated to the Central Government the job of framing Rules for implementation of this policy. Since the Act does not specify as to what constitutes failure to pass on the benefit of reduction in rate of tax or the benefit of ITC to the customers by way of commensurate reduction in prices, the precise guidelines and computational methodology in this regard should have been prescribed by the Central Government in the rules. But the Central Government instead of prescribing computational methodology and guidelines in this regard, has sub-delegated this power to the NAA for which, as discussed above, there is no provision either in Section 164 or in Section 171. This sub-delegation has given an arbitrary power to the NAA without supervision or vigilance of the Parliament. What is worse, the NAA has interpreted the sub-delegation provision of Rule 126 to be the power vested on it to decide the computational methodology on case to case basis and has not notified any rules or regulations in this regard. Thus, there is no computational methodology notified either by the Central Government or by the NAA for deciding as to how it will be determined as to whether a registered person has not passed on the benefit of reduction in rate of tax or benefit of ITC to its customers by way of commensurate reduction in prices and if he has not passed on the benefit, how the profiteered amount is to be calculated and for which period. Though the Explanation to Sub-sec (3A) of Sec 171 defines the term "profiteered" as the "amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both ", there is no rule framed by the Central Government specifying as to how this amount shall be determined and for what period. As a result of this, when an assessee is required to revise the sale price of his products on account of reduction in rate of tax or changes in laws resulting in availability of higher quantum of ITC, he doesn't know whether his price revision is in accordance with the law. A large number of cases, especially in real estate sector, are those where the assessees had passed on the benefit of higher quantum of ITC as per their calculation but according to the conclusions of DGAP and the NAA based on a different computational methodology, the quantum of benefit passed on by way of reduction in prices was not adequate.

5.2. In contrast, in Australia and Malaysia, where at the time of introduction of GST, the Anti-Profiteering provisions had also been made so that the assessees do not increase the prices during the transition period, there are precise guidelines for determining as to whether an assessee has not passed on the benefit of reduction in rate of tax or the benefit of ITC.

5.2.1. In Australia, the Australian Competition and Consumers Commission (ACCC) had been entrusted with the enforcement of Anti-Profiteering provisions of the Australian GST law during the transition period. The Anti-profiteering provisions of the Australian GST law are contained in Part VB from Section 75AT to Section 75AZ of the Trade Practices Act, 1974 of Australia pertaining to "price exploitation in relation to the new tax system" (equivalent to profiteering in GST laws). Section 75AU(2) gives a clear cut definition of what constitutes price exploitation in relation to the new tax system changes and in terms of this sub-section for determining whether a corporation is guilty of price exploitation, it is seen as to whether the price of the supply during the "transition period", as defined in the Act, is unreasonably high even after taking into account the supplier's cost, supply & demand condition and any other relevant factor. Section 75AV authorized the Commission to formulate detailed guidelines for determining whether a corporation has indulged in price exploitation referred to in Section 75 AU(2). The guidelines on price exploitation framed by the ACCC give a precise formula that if the new system changes cause tax and costs to fall by one Dollar, then the prices should also fall by one Dollar and if on account of changes, the costs of business rise by one Dollar, the prices may rise by no more than that amount and that in any case, no price rise because of new system changes shall be more than 10%.

5.2.2. The Malaysian Anti Profiteering Law [Price Control and Anti Profiteering Act, 2011 read with Price Control and Anti Profiteering Mechanism (Mechanism to determine unreasonably high profits for goods) Regulations] lay down a strict formulaic methodology wherein the net profit margins of a business during the defined transition period could not exceed the profit margin as on 01.01.2015.

5.3. Some of the consequences of not framing precise rules for determining as to when a tax assessee shall be treated as having 'profiteered' and if he is held to have profiteered, how the 'profiteered amount' shall be determined and for this purpose, how the 'period of profiteering' shall be determined and leaving all these aspects of anti-profiteering measures to the NAA for deciding on case to case basis, as discussed in detail an earlier article titled "Implementation of Anti-profiteering Provisions- Critical issues" in Taxindiaonline on January 03, 2020 as under:

(1) The Anti -profiteering measures are being implemented in blatant violation of Article 19(1) (g) as well as Article 14 of the Constitution, as -

(a) While determining whether a registered person has profiteered, neither the DGAP investigates as to whether increase in base price or non-reduction of base price during post rate reduction period is due to profiteering and not due to any genuine reasons like increase in the cost of inputs, supply and demand position etc., nor the NAA gives any finding on this issue and in cases of reduction in rate of tax, it is presumed that the increase in base price/ increase in base price beyond that required to offset withdrawal of ITC benefit during post rate reduction period is due to profiteering and similarly, in case of change in law resulting in higher quantum of ITC benefit becoming available, the non-reduction of base price is presumed to be due to profiteering, without any finding supported by evidence on this point; and

(b) Once a registered person has been held to have profiteered, the profiteered amount has to be determined only for the period till the other factors influencing the price, viz., cost of inputs, fixed costs, supply & demand position or other relevant factors have not changed, as the effect of reduction in rate of tax or higher quantum of ITC would after some time get neutralized by increase in the cost of inputs, fixed costs, etc. But ignoring these aspects, the period for which the profiteered amount is to be calculated is determined arbitrarily and profiteered amount is calculated even for the period during which the base price had been increased due to genuine commercial factors like increase in cost of inputs, fixed cost, supply & demand position etc.

(2) Determining whether a registered person has profiteered and if so, determining the profiteered amount requires comparison of base price during pre-rate reduction period/period prior to change in law resulting in higher quantum of ITC becoming available, with the base price during post rate reduction/ period when due to change in law, higher quantum of ITC has become available. But for this there are no guidelines. When a registered person has sales through different channels at widely different prices, the calculations for the purpose of determining whether the person has profiteered and if so, calculating the profiteered amount must be made separately for each channel of sale. But this is not done, resulting in defective findings and highly inflated profiteered amount.

(3) The NAA has arbitrarily decided that whenever a person is held to have profiteered, he will be required to return to the consumer or deposit in the Consumer Welfare Fund, as the case may be, not only the profiteered amount as calculated by the NAA, but also the GST on it, for which there is no absolutely no justification as the entire amount collected by the supplier as representing GST had already been paid by him to the Government. Thus, a registered person held to be guilty of contravention of the provisions of Sec 171 ends up paying GST twice on the same supply.

(4) Since in absence of a standard computational methodology, the same is decided separately for each case, investigation takes unduly long time. Very often, in case of two assessees engaged in the same type of business, different computational methodologies are adopted with different results.

6. What is the way forward?

6.1 The objective of anti- profiteering measures in the GST law was to prevent increase in the prices during the transition to the GST regime because of large scale changes in the rates of tax and changes in laws resulting in changes in the quantum of ITC available. Since by now more than three years have passed since introduction of GST and the objective of preventing price rise during the transition period has been achieved, there is absolutely no justification for continuation of anti- profiteering measures as well as for the NAA for enforcement of the same.

6.2. The anti-profiteering measures were supposed to be of temporary nature and meant to be used sparingly in the cases of blatant profiteering. Probably for this reason only there was no provision of any appellate authority. But neither they have remained temporary, as the tenure of NAA has been extended till November, 2021 and it will not be surprising if it is further increased, nor the anti-profiteering measure are used sparingly. One example of unwarranted use of anti-profiteering provisions is the anti-profiteering investigations initiated against organized chain restaurants. On the basis of the recommendations of GST Council in its 23 rd meeting, the rate of tax on restaurant service was changed from 18% adv with ITC benefit to 5% adv without ITC benefit. As per para 65.23 of the minutes of the meeting, this was done, as the Government was of the view that while the organized chain restaurants were factoring the ITC and passing on its benefit to the consumers, the standalone restaurants were not transferring the benefit of ITC to consumers and were indulging in profiteering. But anti-profiteering investigations have been initiated against organized chain restaurants and that too franchisee-wise, which, looking to the number of franchisees, cannot be completed even in the next two years.

6.3. The manner of implementation of anti- profiteering measures is, thus, doing incalculable harm to the Covid-19 pandemic hit industry by forcing it to engage in avoidable and costly litigation before High Courts, as there is no provision of appeal against the NAA's orders. It is too late in the day to amend the CGST Rules for specifying the computational procedure. It is perhaps high time the GST Council considers bidding adieu to anti-profiteering measures. The GST Council should also consider providing an appellate forum for appeals against NAA's orders. Since so far, the GST Tribunal has not materialized, an existing Tribunal-CESTAT can be empowered to hear and decide appeals against NAA's orders.

[The views expressed are strictly personal.]