Above: Muslims shopping at a cloth shop ahead of Eid-ul-Fitr in Mirzapur (file photo)/Photo: UNI
Initial fears about the return of Inspector Raj have been belied as the National Anti-Profiteering Authority has acted with fairness, intervening against defaulters and determining undue profiteering in different transactions
By Sumit Dutt Majumdar
Each GST Council meeting has brought about a change for the better in the GST regime. In the 35th meeting chaired by Finance Minister Nirmala Sitharaman on June 21, there were several important issues which were discussed. The most important one related to extension of the tenure of the National Anti-Profiteering Authority which was to expire on November 30, 2019. The tenure has now been extended by two years. The Council also approved imposition of an additional penalty of up to 10 percent on entities not passing on benefits of GST rate cuts to consumers. At present, this default is punishable with a penalty of Rs 25,000. The Council also approved the use of Aadhaar for GST registration and extended the deadline for filing annual returns by two months to August 31. It also approved setting up of an appellate tribunal for north-eastern states and another one for all Union Territories.
One of the important objectives of GST was to reduce tax on goods and services by reducing their tax rates and extending the benefit of input tax credit (ITC) in the entire supply chain. This was expected to reduce prices of goods and services. But that can happen only if the benefits of reduced tax incidence are passed on to consumers. Soon after the implementation of GST on July 1, 2017, the government realised that some manufacturers, dealers and service providers were not passing on these benefits to consumers and were making additional profits. The government then thought of a mechanism through which this undue profit would be returned to the consumers. If the consumer could not be identified, this would be returned to society through the Consumer Welfare Fund. Based on this concept, the government brought in some anti-profiteering measures through Section 171 of the Central GST Act, read with 16 anti-profiteering rules.
Section 171 stipulates that any reduction in the rate of tax on any supply or any benefit of ITC will have to be passed on to consumers by way of a commensurate reduction in the price of goods or services. It further authorises setting up of an Anti-profiteering Authority to ensure this. As for the tenure of the Authority, the rules stipulate that “the Authority will cease to exist after the expiry of two years from the date on which the Chairman enters upon his office unless the Council recommends otherwise”. The Authority came into existence on November 30, 2017 with the assumption of charge by its first chairman, BN Sharma. Its tenure will be over on November 30, 2019 and hence the urgency to move for its extension.
This raises the basic question of whether the Authority served its purpose and whether its tenure has been rightly extended. The rules do not specify the grounds on which the tenure can be extended. It has been left entirely to the Council as rules say that unless the Council recommends otherwise, the tenure will be limited to two years.
As of now, the Authority has passed 67 orders in respect of allegations of undue profit. Some orders show how some assessees were making undue profits, necessitating intervention by the Authority. One of the orders pertained to builders M/s Pyramid Infratech Pvt Ltd which failed to pass on GST reduction benefits such as availment of ITC to 2,476 flat owners. The order said that the company had unduly profiteered—Rs 8.22 crore up to February 28, 2018. Thus, there was a violation of the provisions of Section 171 of the CGST Act.
In another case of a Jaipur-based stockist of Hindustan Unilever Ltd (HUL), the Authority found it guilty of undue profiteering by not passing the benefit of GST reduction on a skincare product to consumers. While the GST rate was reduced from 28 percent to 18 percent, the stockist increased the base price of the product in order to keep the selling price the same as before. The Authority observed that HUL was legally bound not to charge the enhanced base price, resulting in negation of the effect of reduction in the rate of tax.
There have also been orders in favour of assessees. In the case of Schindlers India, the applicant had paid an advance for purchase of a lift and was charged service tax which could be levied at the time of issue of the invoice on June 28, 2017, a pre-GST period. Hence, the Authority held that there was no case of “profiteering”.
In a recent case of Bharti Telemedia, the complaint was that the assessee, who was in the direct-to-home satellite business, had not reduced the prices of its offerings despite a reduction in GST rate. But the Authority, while dismissing the complaint, observed that actually the tax rate had gone up in the GST regime from the earlier pre-GST rate of 15 percent.
Thus, there are many cases where the Authority has intervened justifiably against defaulters, even as it has been fair about determining “undue profiteering” in different types of transactions and passed orders in favour of assessees in deserving cases. Initial apprehensions about the return of Inspector Raj through the route of anti-profiteering investigations have been belied by the experience of the past one-and-a-half years.
The Authority reportedly continues to receive actionable complaints of undue profiteering by companies. Besides, a good number of past cases are also pending completion of investigation. Therefore, the Authority had requested extension of its tenure by two years. Seeing the above cases, the Authority did serve its purpose and its tenure has been rightly extended by two years.
On the issue of setting up additional GST Appellate Tribunals, it may be recalled that Sections 107 to 121 of the Central GST Act read with nine rules deal with dispute resolution through appeal procedures. Section109 of the Act deals with the constitution of a national bench of the GST Appellate Tribunal in Delhi. It also empowers setting up of state benches or area benches for an individual state or a group of states. The national bench has already been set up. In respect of 18 states, approval has been given, although these have not yet been operationalised. The proposal for setting up state benches for Delhi, Odisha and Telangana will soon be discussed.
The issue of includability of extra neutral alcohol (ENA) within the ambit of GST is also an important one. Given that GST revenues have not been doing very well, the government is looking for additional sources of revenue. According to Article 366 (12A): “Alcoholic liquor for human consumption” has been kept out of GST and levy on it is continuing in the jurisdiction of states in the form of state excise and state VAT. On the other hand, in the pre-GST era, central excise was levied on industrial alcohol which is not for human consumption. Now it is under GST. Therefore, the most critical question would be whether ENA is an industrial alcohol or ‘alcohol for human consumption’. There is no dispute that ENA is used for manufacturing alcoholic liquor for human consumption and that it’s not fit to be directly consumed. Therefore, there should not be any difficulty in bringing in ENA under GST, and no amendment of the Constitution is required for that. Reportedly, on a previous reference by the Council, the attorney general had also opined that it can be included in GST as ENA is not being consumed directly by people. Once included in GST, this will be an additional source of GST revenue to be shared between the centre and states.
Hopefully, these measures will lead to further improvements in GST.
—The author is former Chairman, Central Board of Excise & Customs, and author of three books on GST—the latest one, GST-Explained For Common Man
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