All eyes on directions to be passed on Feb 8, as regards GST anti-profiteering

MUMBAI: The Delhi High Court has recently upheld the provisions concerning anti-profiteering measures and establishment of the National Anti-Profiteering Authority (NAA) under the Goods and Services (GST) laws.
However, as Manish Gadia, partner at GMJ & Co, a firm of chartered accountants points out, “The high court further ordered that the authorities should not exercise the powers by enlarging the scope of such provisions and the taxpayers should not get unjustly enriched and wherever the benefit is received the same should be passed on to the end customers.The authorities should use the powers judiciously and avoid unwarranted litigations.”
The Delhi high court was hearing writ petitions filed by nearly 100 odd companies, across various sectors. The matter is now listed before the division bench for appropriate directions on Feb 8.
Section 171 of CGST Act, 2017, provides 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.
In the initial months of implementation of VAT, it was found that the manufacturers did not reduce the MRP of the goods despite a sharp fall in the tax rate post-VAT implementation. “As a learning from the VAT experience, legal teeth was sought to be provided in GST law by incorporating anti-profiteering provisions to check profiteering by businesses when GST was being rolled out in the country,” adds Gadia.
Sunil Gabhawalla, chartered accountant and founder of a firm specializing in indirect taxes states, “At the time of introduction of GST, tax rates and input credit eligibility for almost all the taxpayers underwent a change attracting anti-profiteering provisions. In the first few years of implementation, there were frequent rate changes again resulting in a need to pass on the benefit of reduced rate if any. Of late, the tax rates have stabilized and the change in the tax rates are not so frequent. Therefore, the provisions get triggered in very few cases. In such cases, taxpayers should ensure that the benefit of reduction in tax rate is passed on to the consumer by reduction of the price and there is sufficient documentation to demonstrate the said reduction.”
That said, tax experts also admit that India Inc does face certain challenges. “Whether there is profiteering or not is very subjective and the officer should take a rational approach based on the industry parameters otherwise it will lead to huge litigation. That’s what the court has also observed and ordered accordingly,” states Gadia.
He illustrates: When the GST Act was introduced , hotel rooms having declared tariff up to Rs. 1000 per day were exempt from the levy of tax,
However, with effect from July 18, 2022, hotel rooms having declared tariff up to Rs. 1000 per day are now taxable @ 12% and are eligible to claim Input Tax Credit (ITC) of their day to day expenditure.
It is very difficult to reduce the per day tariff to be able to pass on the benefit of ITC as there is no direct correlation between income and expenditure and in the event of scrutiny it will be a challenging task to prove to the authorities that the benefit has been passed to the recipient because most of the inward supplies like security, men power supply etc are fixed cost and difficult to find out benefits per unit, explains Gadia.
Gabhawalla adds, the specific computational challenges in case of GST rate reduction are: GST is payable at each leg of the transaction in the supply chain consisting of multiple persons like distributors, dealers, retailers, etc. Therefore, passing on the benefit of rate reduction not only has an impact on the MRP but also distributor/dealer/retailer price, with consequent impact on volume discounts and other incentive payouts. Second, the treatment of inventory in the supply chain and who will bear the impact of the rate reduction for such inventory is another contentious issue. Further, there may be a need for re-labelling or recalling/replacing the inventory resulting in logistics cost and product availability challenges.