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First Case On Anti-Profiteering Provisions In GST
May, 09th 2018

The provisions on anti-profiteering are contained in the GST law as per following provisions:

CGST Act, 2017

Section 171 on Anti-profiteering measures.

IGST Act, 2017

Section 20 which stipulate that provisions of the GST Act, 2017 shall apply mutatis mutandis to IGST Act.

UTGST Act, 2017

Section 21 which stipulate that provisions of GST Act, 2017 shall apply mutatis mutandis to UTGST Act.

SGST Act, 2017

Section 171 on Anti-profiteering measures.

The Rules for Anti Profiteering are contained in Chapter XV (Rule Nos. 122 to 137) of the Central Goods and Services Tax Rules, 2017.

The GST law contains a provision on anti-profiteering measure as a deterrent for trade and industry to enjoy unjust enrichment in terms of profit arising out of implementation of Goods and Services Tax in India, i.e., anti-profiteering measure would obligate the businesses to pass on the cost benefit arising out of GST implementation to their customers.

Statutory Provisions

Section 171 provides that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices.

As per rule 127, Anti­Profiteering Authority (APA)  shall be duty bound to:

  • determine whether any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit has been passed on to the recipient by way of commensurate reduction in prices.
  • identify the registered person who has not passed on the benefit of reduction in rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices.
  • pass an appropriate order.

The powers to take action are also listed as duties whereby it can order price reduction, refund of profit, recovery, penalty or even cancellation of GST registration.

The authority constituted by Central Government will have powers to impose a penalty in case it finds that the price being charged has not been reduced consequent to reduction in rate of tax or allowance of input tax credit.

During the two years of initial transition into GST regime, Anti-Profiteering Authority (APA) will step in and may ask businesses that have not passed on full benefits of reduced tax burden to consumers to make up for such benefit, with interest.

Judicial Pronouncement

There provisions have been subjected to judicial scrutiny by the National Anti-Profiteering Authority (NAA) set up under the CGST Act, 2017 recently in Dinesh Mohan Bharadwaj v. M/s Vrandavaneshwree Automotive Pvt. Ltd [ 2018 (4) TMI 1377 - THE NATIONAL ANTI-PROFITEERING AUTHORITY ] vide Order dated 27.03.2018 [Case No. 1/2018 instituted on 27.02.2018]

Important Dates

01.11.2017

Application filed before Standing Committee [Rule 123 (1)]

28.04.2017

Vehicle booked

11.07.2017

Vehicle delivered & invoice issued with GST

29.11.2017

Referred / received by Director General of Safeguards (DGSG) u/r 129 (1)

15.12.2017

Show cause notice to respondent

26.12.2017

Respondent’s reply filed

28.01.2018

Documents submitted by respondent

16.02.2018

Complainant being satisfied with reply seeks closure

27.02.2018

Institution of complaint by NAA

01.03.2018

NAA Considers DGSG report

15 /16.03.2018

Personal hearings accorded but not availed, written reply submitted

27.03.2018

Issuance of Order by NAA

Gist of Order

In its first order on anti-profiteering under Goods and Services Tax (GST), the National Anti­Profiteering Authority (NAA) has dismissed the complaint against the supplier of goods, Vrandavaneshwree Automotive Pvt Ltd (Respondent), a Bareilly-based Honda car dealer, by concluding that it did not contravene the anti-profiteering provisions of the Central GST Act, 2017.The order, dated March 27, states that the Honda car dealer had passed on the benefit of the reduction in tax rate after GST to the applicant by way of reduction in the price of the car by 10,550.

"We find that the respondent (Honda car dealer) has given details of all the basic components of the price of the car purchased by the applicant ... and benefit of 10,550 on account of reduction of tax by about 2 per cent viz. from 31.254 percent (pre GST) to 29 percent (post GST) has already been passed on to the applicant and the amount of 10,550 is inclusive of the ITC (input tax credit) ... therefore, no additional benefit on account of ITC is required to be paid by the respondent”.

It was thus held that the respondent (Honda car dealer) has not contravened the provisions of Section 171 of the CGST Act, 2017, and accordingly, there was no merit in the application of  Dinesh Mohan Bhardwaj  (complainant or applicant), which was filed under Rule 128 of the CGST Tax Rules, 2017 and the same was dismissed.

Details of Complaint

The complainant had alleged that he was not given benefit of reduced rate of tax which amounted to profiteering by the respondent and hence action should be taken against him. His  main contention was that the respondent Honda car dealer was supposed to reduce the excise duty (35%), CGST (2%) and VAT (14%), all adding upto 51% from the price and then charging 14%  SGST, 14% CGST and 1% cess totaling to 29% on the reduced price.

In its submissions, the car dealer had justified the price charged by him from the applicant and maintained that the contention of the applicant that the pre-GST duties and taxes on such cars amounted to 51% was wrong and in fact, the total pre-GST tax incidence was 29.175% only and hence, there was a very negligible difference in the incidence of tax. It had also submitted that it had reduced the dealer's margin from 33,736/- to Rs.  25,826/- and the price of the car by 4,000/- on account of the change in the colour of the car from Orchid White (premium colour) to Alabaster Silver (base colour), as per the applicant's request. It was also put on record that on GST being implemented w.e.f. 1.7.2017, ex-showroom price was subsequently changed which was charged from the customer.

The car dealer also submitted the following documents to substantiate its stand:

  • Audited Balance Sheet & Profit & Loss account for the FY 2016-17,
  • Copies of purchase invoices from April to September, 2017,
  • Copies of retail invoices from April to September, 2017,
  • Copies of returns filed with the Commercial Taxes Department from April to June, 2017,
  • Price Lists (pre-GST & post-GST), and
  • Copies of Service Tax returns from April to September, 2017.
  • DGSG Stand

    Director General of Safeguards (DGSG) investigated the complaint on the following two grounds:

    1. Whether there was substantial reduction in the rate of tax, and
    2. Whether the benefit of reduction in tax rate had been passed on to the applicant.

    DGSG found that the dealer’s margin was taken wrongly by applicant as 25826 instead of 33619 and that the contention of the applicant that the total incidence of tax on the car was reduced from 51% to 29% post-GST, was also not correct as there was a minor reduction in the tax rate in the post-GST period. Further, the tax rate had remained more or less the same. Even the rate reduction claimed was not correct. It was also revealed that while the total incidence of tax was approximately 31.254% previously, which was fixed as 29% w.e.f. 01 07.2017, thus there was reduction of just over 2%. The factual matrix of comparative costs and rates of taxes in pre-GST and post-GST period are given in following tables A and B which makes the facts simple and clear:

    Table A - Comparative Tax Rates

    Duty/Tax/Cess

    Pre-GST Rate (%)

    Post-GST Rate (%)

    Excise Duty

    (S. No. 285 of Notification No. 12/2012 dated 17.03.2012 as amended

    12.5

    -

    National Calamity Contingent Duty (NCCD)

    1

    -

    Auto Cess

    0.125

    -

    Infra Cess

    1

    -

    Total (A)

    14.625

    -

    CST(B=0.05% on A)

    0.007

    -

    Total (C= A+B)

    14,632

    -

    VAT (D) = (14.5% on C)

    16,622

    -

    GST + Cess

    -

    29

    Total tax rate (C+D)

    31,254

    29

    The pre-GST and post –GST ex-showroom prices of the car purchased by the applicant were also worked out by the DGSG as per Table ‘B’ below:

    Table B – Comparative Prices

    Particulars

    Factor

    Pre-GST

     (in Rs)

    Post-GST

    (in Rs)

    Basic price of Honda Car Model : WR WR-V.1.2VX MT (i-VTEC)

    A

    6,59,175

    6,58,718

    Excise Duty @ 12.5%

    B=A*12.5%

    82,397

    -

    NCCD @ 1%

    C=A*1%

    6,592

    -

    Auto Cess @  0.125%

    D=A*0.125%

    824

    -

    Infra Cess @1%

    E=A*1%

    6,592

    -

    Ex-factory Price

    F= Add A to E

    7,55,579

    6,58,718

    CST @ 0.05%

    G=F*05%

    378

    -

    Freight

    H

    4,452

    4,260

    Transit Insurance

    I

    121

    108

    Dealer Landed Price

    J=Add F to I

    7,60,530

    6,63,086

    Dealer Margin

    K

    33,619

    33,619

    Dealer Price

    L=J+K

    7,94,149

    6,96,705

    VAT @ 14.5%

    M=L*14.5%

    1,15,152

     

    GST+Cess @ 29%

    N=L*29%

     

    2,02,044

    Ex-showroom price of  Alabaster Silver colour car

    O=L+M/N

    9,09,300

    8,98,750

    Additional cost of Orchid White colour car

    P

    4,000

     

    Ex-showroom price of Orchid white colour car

    Q=O+P

    9,13,300

     

    Price charged from the applicant

       

    8,98,750

    Benefit passed on to the applicant (excluding 4,000/- reduced for change in colour)

       

    10,550

    The DGSG had also held in its report that provisions of Section 171(1) of the CGST Act, 2017 requiring 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" had not been contravened.

    NAA Order

    The Authority based on DGSG’s report and records, observed that it was also clear from the Table 'B' that though the car of premium colour was booked at an amount of 9,13,000/- at pre-GST tax rate but when the applicant took delivery of the 'base colour' car on 11.7.2017 in the post GST period, the respondent had charged the applicant an ex-showroom price of 8,98,750/- which correctly included basic price of the car, freight, insurance, dealer's margin etc, and GST @ 29%. Thus, the benefit of reduction in the tax rate was passed on to the applicant by way of reduction in the price of the car of base colour by an amount of 10,550/-.

    The Authority, on benefit of input tax credit, observed that the applicant has not nderstood the provisions of Section 171 of the CGST Act, 2017 and the DGSG's report in its true spirit and context. The entire scheme of GST is ITC based i.e. the recipient of the goods and services takes credit of GST paid by him on purchase of goods and services and uses such ITC while discharging GST output tax liability on supply of goods and services.

    The benefit of 10,550/- on account of reduction of tax by about 2% viz. from 31.254% (pre-GST) to 29% (post-GST), as discussed above, had already been passed on to the applicant and the amount of 10,550/- is inclusive of the ITC as has been calculated in Table 'B'  Therefore, no additional benefit on account of ITC is required to be paid by the respondent. Thus, the contention of the applicant is not valid and deserves to be rejected.

    The authority thus concluded that the provisions of Section 171 of the CGST Act, 2017 and accordingly, there was no merit in the application of complainant filed under Rule 128 of the CGST Tax Rules, 2017 and the same was dismissed.

    Author’s Comments

    Though the anti-profiteering provision is in the law to curb mal-practices and is intended to operate against the supplier of goods / services, in this first complaint which has been disposed of by way of dismissal of complaint in favour of supplier, indicates that the supplier shall not be harassed by using the cannons of section 171 of the GST law and if factual matrix proves that there is no unjust enrichment availed by the supplier, complaints are bound to be dismissed. Another important assertion which ought to be made is that adjudication under section 171 is more on facts rather than law. The statutory provision is only an enabling provision to step in, if there is a case of anti-profiteering. Once it is admitted, the facts shall be deciding factor keeping the principles of legislative intention in mind. The Authority shall have to do so based on facts without going into much of legal interpretation.

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