BUSINESS

GST laws: The main points of contention around “profiteering”

In response to an appeal against a Delhi High Court decision, the Supreme Court has sent a notice to the Center over the “anti-profiteering provisions” in the Central Goods and Services (CGST) Act and the regulations imposed. Priyansh Verma describes the purpose of the system and the controversies around it.


What are the standards against profiteering?

Because of its comprehensive nature and integrated feature that allows firms to get seamless credits for input taxes, the Goods and Services Tax (GST) was expected to have a depressing impact on pricing. The government is eager for the advantages of any tax rate and input tax credit reduction for companies to trickle down to ultimate consumers in the form of corresponding reductions in the costs of relevant products and services.

More specifically, any deliberate failure to transfer these advantages to the receivers shall be considered “profiteering,” according to Section 171 of the CGST Act. The specific process for this is outlined in Chapter XV of the CGST Rules, 2017, and the National Anti-Profiteering Authority (NAA) was established in 2017 with the responsibility of carrying it out. The NAA, on the other hand, was abolished in December 2022 due to its lack of success in retrieving the money that businesses had obtained via profiteering. Since then, cases of profiteering have been handled by the Competition Commission of India (CCI).

The Delhi High Court’s ruling

The Delhi High Court affirmed the applicable portions of the CGST Act and the anti-profiteering regulations on January 30, 2023. In particular, rules 122, 124, 126, 127, 129, 133, and 134 of the CGST Rules have been maintained, in addition to Section 171 of the CGST Act. The Supreme Court held that neither Article 19 nor Article 300A of the Constitution is violated by the anti-profiteering laws, nor are they a “price-fixing mechanism.”

More than a hundred corporations, including Hindustan Unilever, Nestle, Patanjali, Excel Rasayan, and Philips, suffered a setback as a result of the ruling. These companies had filed petitions challenging the legality of the provisions after receiving recovery notifications from the NAA. Due to the absence of a mechanism for identifying profiteering, the firms had contested the constitutionality of the anti-profiteering clauses.

However, the court ruled that there is no formula that can be used to define anti-profiteering and said that any mention of Malaysian and Australian anti-profiteering laws is “misconceived.”

Other claims made by the petitioners

THE Companies argue that since there is no technique to establish the amount of profiting, the anti-profiteering regulations are “manifestly arbitrary.” Furthermore, the profiteering laws are not subject to time constraints, which presents challenges for them since the resultant impact regulates prices for an indeterminate amount of time.

Excel Rasayan’s MD, Rakesh Upadhyaya, predicts that “businesses will be hit by anti-profiteering measures as they aim to regulate product prices.” “We passed on the utmost advantage to our customers while maintaining affordable costs. Upadhyaya said, “We did not raise the prices of the items throughout the transition to the GST system because of this philosophy.

According to Amit Maheshwari, tax partner at AKM Global, “Companies may find it difficult to identify and address profiteering if there is no clear method to determine how much is occurring.” In these circumstances, companies must evaluate their earnings, expenses, and pricing both before and after any modifications to the GST rate.

If SC maintains the standards…

The firms involved in these cases may have to refund any “excessive profits” that were gained as a result of their noncompliance with the anti-profiteering legislation if the Supreme Court approves the HC verdict.

The refund might be modified to account for changes in input costs or for the difference between the prices charged prior to and after any changes in GST rates.

According to Section 122 of the CGST Act, “the companies may also incur monetary fines, potentially reaching up to 10% of the profiteered sum,” adds Maheshwari. On the profiteered amount, which is determined from the date of collection until reimbursement is completed, interest may also be assessed. Additionally, it could make it easier for the GST authorities to investigate the activities of other companies for any wrongdoing.

According to Ankur Gupta, practice leader for indirect tax at SW India, the CCI is in charge of managing issues pertaining to price reductions brought about by tax rate reductions or ITC improvements after the dissolution of the NAA in December 2022. He claims that “CCI authorities lack such expertise, whereas NAA authorities possess specialized knowledge of GST provisions.”

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