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Delhi HC stays interest levy on profiteered amount under GST
December, 05th 2019

Petition also challenges the composition of National Anti-profiteering Authority
Delhi High Court on Wednesday stayed the applicability of interest levied on the profiteered amount relating to the Goods & Services Tax (GST).

The same petition had also challenged the composition of National Anti-profiteering Authority (NAA).

When a company is charged with profiteering, interest at the rate of 18 per cent can be levied on the profiteered amount. It was challenged in a matter involving a profiteering order passed by the NAA against a real estate player.

According to Abhishek A Rastogi, partner at Khaitan & Co, who is arguing a plethora of writs for builders, Section 171 of the CGST Act for anti-profiteering does not provide for applicability of interest and as a corollary interest is not payable since the Rules cannot go beyond the statutory provisions.

“Actually, both interest and penalty cannot be imposed in absence of a methodology to determine profiteering,” he said. Since the court’s orders have precedent value, it can be applicable in similar matters. Though the Court has stayed interest but there is no interest on penalty proceedings.

Curbing unfair profiteering
The NAA is the statutory mechanism under GST law to check the unfair profiteering activities by the registered suppliers.

The Authority’s core function is to ensure that the commensurate benefits of the reduction in GST rates on goods and services done by the GST Council and of the Input tax credit are passed on to the recipients by way of commensurate reduction in prices by suppliers.

The formation of the NAA comes in the background of rate-reduction on a large number of items by the GST Council in its 22nd meeting at Guwahati. At the meeting, the Council reduced rates of more than 200 items. This should result in reduced prices and consumers will be benefited only if the registered suppliers under GST law reduce prices of the respective items immediately.

NAA’s functions
The Authority’s main function is to ensure that the registered suppliers under the GST law are not profiteering by charging higher prices from recipients under the guise of GST.

The legal mandate of the NAA is to examine and check such profiteering activities and recommend punitive actions including cancellation of Registration.

The petition challenged the composition of the Authority as it does not have judicial member(s) though it is required as NAA is supposed to be the quasi judicial body or a tribunal.

Rastogi said that the Authority, constituted on recommendation of the GST Council, is composed of a Chairman and four technical members and there is a clear need for a judicial member as the matters from here go straight to High Courts. “It is hoped that the GST Council addresses this issue,” he said

Rastogi has challenged the ratio of ITC (Input Tax Credit) to the taxable turnover, specially in the absence of a clear methodology for the real estate sector. He argued before Delhi High Court that the pragmatic way to compute profiteering for a real estate sector is to analyse the procurements online for each supply and examine the impact of tax cascading in the earlier regime.

The petition also prayed that the time limit for disposing the case should strictly be adhered too. Arguments on both these points are expected during next hearing on the petition

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