GST Updates

Anti-Profiteering Provisions-: Passing on the Benefit of Tax Rate Reduction to the recipient with commensurate reduction in the prices

Anti-Profiteering Provisions-: Passing on the Benefit of Tax Rate Reduction to the recipient with commensurate reduction in the prices-Part-I

                                                                                                                                                                CA Arpit Haldia

 

When one talks about litigations in GST, one provisions which has been gaining more and more mentions day by day is Section 171 of CGST Act, 2017. The bone of contention being Passing of the benefit of Input Tax Credit. All three major players in GST i.e. Consumer, Registered persons and Government find themselves at crossroads with no definite solution in sight in the very near future.

Consumers believe that due benefit of Input Tax Credit is not being passed on to them. Registered persons believe that ascertainment of the benefit of Input Tax Credit to be passed on to the customers involves pure estimation. Government wants every penny of the benefit of Input Tax Credit being passed on to the consumers and in the process goes down to tenth decimal of the percentage as if benefit of Input Tax Credit on to be passed to the consumers is something which can be identified and felt as a clearly as living object passing by another person. All three major players revolve around the provisions of Section 171 of CGST Act, 2017.

Let’s try to analyse the provisions with relevant Judicial Rulings.

 

1. Section 171 of CGST Act, 2017:-What is an Anti-Profiteering Measure

Section 171(1) 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. Therefore, provision identifies two events wherein benefit of either of them has to be passed on to the consumer i.e.

  • Any reduction in rate of tax on any supply of goods or services.
  • Benefit of input tax credit.

 

2. Benefit of any reduction of rate of tax on any supply of goods or services

The provision says that any reduction in rate of tax on any supply of goods or services has to be passed on to the recipients by way of commensurate reduction in prices. Therefore, for the provision to be applicable, there has to be reduction in rate of tax on any supply of goods or services. If there has been no reduction in rate of taxes, provisions of this section would not be applicable. Secondly, if the commensurate benefit of reduction has been passed on to the recipient, provisions of the anti-profiteering would not be applicable on the supplier.

 

3. How Impact can be calculated under the provision

Assessing the impact of anti-profiteering under this clause is much simpler than in the other clause of Input Tax Credit. Supposedly, selling price of a product happens to be say Rs 100 and it is taxable at the rate of 20%. Subsequently the tax rate was reduced to 10%. Therefore, once the tax rate is reduced from 20% to 10% and the suppliers continues charging tax @ 10% on Rs 100/-. It would be deemed that the benefit of rate reduction has been passed on to the buyer. However, if the supplier raises the base price to say 105 and then charges 10%. He would be guilty of anti- profiteering by Rs 5/- on the product.

 

4. Legal Rulings for applicability of Anti profiteering Provisions, when base price have been increased after reduction in tax rate

In the matter of R.K. Gupta v. Abbott Healthcare (P.) Ltd. [2019] 103 taxmann.com 61 (NAA), applicant filed application before Anit-Profiteering Authority alleging that respondent had not passed on benefit of reduction in rate of tax. It was held that GST rate on product was reduced from 28% to 18% w.e.f. 15-11-2017 vide Notification No. 41/2017-Central Tax (Rate), dated 14-11-2017, but respondent increased base price of product from Rs. 202.06 to Rs. 230.90 per unit which resulted in increasing of selling price amounting to denial of not passing benefit of tax reduction to customers and, therefore, respondent had indulged in profiteering and was directed to reduce price of product as per provisions of Rule 133(3)(a) of CGST Rules, 2017, by making commensurate reduction in its price

In another matter Rahul Sharma v. Cloudtail India (P.) Ltd. [2019] 103 taxmann.com 119 (NAA), applicant filed an application against respondent before Anti Profiteering Authority alleging that respondent had not passed on benefit of reduction in GST rate applicable to printing cartridges (HSN 8443) from 28 per cent to 18 per cent with effect from 15-11-2017 and had increased their base price, due to which there was no reduction in price charged from recipients. It was held that by increasing base price of said goods and also by increasing cum-tax price charged from recipients post GST rate reduction, benefit of GST rate reduction was not passed on by respondent to recipients and respondent had indulged in profiteering and, therefore, respondent was directed to reduce price of product as per provisions of Rule 133(3)(a) of CGST Rules, 2017 by making commensurate reduction in prices, keeping in view reduction in rate of tax.

 

5. Legal Rulings for non-applicability of Anti Profiteering Provisions, when there has been no change in base price after reduction in tax rate

In the matter of [2019] 103 taxmann.com 183 (NAA) kerala State Level Screening Committee on Anti-Profiteering v. Somany Ceramics Ltd, it was held that there has been reduction in rate of tax on above stated product from 28 per cent to 18 per cent with effect from 15-11-2017 as per the Notification No. 41/2017-Central Tax (Rate) dated 14-11-2017. It is also revealed from record that respondent had not increased discounted price of above product which had remained Rs. 374.74 before and after tax reduction, as was evident from both invoices issued by him before and after tax reduction and therefore, benefit of tax reduction had duly been passed on to customers by the respondent. Hence, the allegation of profiteering was not established against respondent in terms of section 171 of the CGST Act, 2017 as there had been no change in base price of product after reduction in GST rate with effect from 15-11-2017.

In the matter of [2019] 103 taxmann.com 184 (NAA) Kerala State Screening Committee on Anti-Profiteering v. Asian Paints Ltd, it was held that where Standing Committee on Anti-profiteering alleged profiteering by respondent on supply of Paint by not passing on benefit of reduction in rate of tax of GST w.e.f. 15-11-2017, since respondent had maintained same base price post reduction in rate of tax resulting in reduction in cum-tax price and benefit of tax reduction has been passed on by respondent by commensurate reduction in his price, respondent cannot be held guilty under section 171 of the CGST Act, 2017.

In the matter of [2019] 103 taxmann.com 51 (NAA) Kerala State Screening Committee on Anti-Profiteering v. Velbon Vitrified Tiles (P.) Ltd., it was held that where applicant alleged profiteering by respondent on supply of ‘Ceramic Vitrified Tiles’ 600X600 Nano Series PRE-1 (HSN code 69072100), by not passing on benefit of reduction in rate of tax of GST from 28 per cent to 18 per cent, since base price of product had remained same even after GST rate reduction w.e.f 15.11.2017, therefore, benefit of rate reduction had passed on, anti-profiteering provisions contained in section 171(1) were not attracted

 

6. Legal Rulings for non-application of Anti Profiteering Provisions, when there has been no reduction in tax rate

In the matter of State Level Screening on Anti-Profiteering v. Ramraj Handlooms [2019] 103 taxmann.com 185 (NAA) it was held that where rate of tax on product, I.e., Little Stars Dhoti (5-6) was 2 per cent in pre-GST era (CST) which was increased to 5 per cent in post-GST era (GST) and respondent seller did not increase base price (excluding tax) of product, there was no reduction in rate of tax on product w.e.f. 1-7-2017 and that rate of tax in post-GST era had also been increased from CST at rate of 2 per cent to IGST at rate of 5 per cent and, therefore, allegation of profiteering was not sustainable in terms of section 171 of the GST Act, 2017.

In the matter of Kerala State Screening Committee on Anti-Profiteering v. Emke Silks & Garments (P.) Ltd [2019] 103 taxmann.com 28 (NAA), it was held that it was clear from perusal of facts that there was no reduction in rate of tax on above product with effect from 1-7-2017, anti-profiteering provisions were not attracted.

Similar ruling has been given in the matter of Kerala State Screening Committee on Anti-profiteering v. Sudarsans [2019] 102 taxmann.com 88 (NAA), 2019] 102 taxmann.com 89 (NAA), Kerala State Screening Committee on Anti-profiteering v. S.J. Spices Ltd.

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