Will anti-profiteering authority established under GST cease to exist?
The National Anti-Profiteering Authority (NAA) is a statutory body established under the GST law to regulate registered suppliers' unfair profiteering practices. The Authority's principal mission is to ensure that the benefits of the GST Council's reductions in GST rates on goods and services, as well as the input tax credit, are passed on to receivers via corresponding price reductions by suppliers. The NAA was established in response to a rate cut on a wide range of products at the GST Committee's 22nd meeting in Guwahati. The committee decreased the prices on more than 200 articles, including goods and services, during the meeting. This resulted in a significant price decrease, and consumers could profit only if providers registered with the goods and services tax instantly drop the cost of related products.
Any reduction in the tax rate on any supply of goods or services, as well as the advantage of an input tax credit, should be passed on to the recipient via a price reduction. On the other side, many countries discovered that when they imposed GST, inflation and commodities prices soared. This occurred despite the availability of a tax credit from the point of production to the site of final consumption, which should have resulted in a lower final price. This occurred as a result of suppliers failing to distribute benefits proportionately to consumers, resulting in illicit profiteering. As a result, the Central Government formed the National Anti-Profiteering Authority (NAA) to assess whether greater input tax credits or a reduction in the tax rate achieved by any registered person resulted in a commensurate decrease in prices to beneficiaries.
Original tenure of the NAA was for two years only. That came to end in November 2019. The Goods and Services Tax Council, chaired by Finance Minister Nirmala Sitharaman, decided in its 35th meeting to extend the tenure of the anti-profiteering body by two years, until November 30, 2021. Even though NAA's tenure is set to expire, no mention of the NAA was made in the press release issued after the 45th Goods and Services Tax Council Meeting, implying that no further extension of the NAA's tenure may be provided. With the NAA's duration initially prescribed at two years and the additional extension period provided, the GST law substantially settled, many experts are of the view that pricing shall be left to market forces and the GST law's anti-profiteering provision be repealed with prospective effect.
The anti-profiteering regulations have caused widespread uncertainty across industries, resulting in a flood of complaints, perhaps even more so now that "any individual" can file one.
Almost every contractor is renegotiating contract prices, especially Engineering Procuring and Constructions contracts, using the change in legislation clause. Due to the ambiguity of the requirements and the methodology for determining the "proportionate reduction," the negotiation process becomes strained, resulting in delays in the completion of ongoing projects.
Challenges Faced
Compliance with anti-profiteering regulations is extremely challenging in practice. The supply chain for retail is frequently lengthy. Typically, between one and two months' worth of goods is on hand. As a result, it would be desirable to provide a time period in law/guidelines to allow for corrective action in response to rate adjustments. Numerous retail industries are also required to conform with the Legal Metrology Act and its implementing regulations, which establish the standard sizes for specific recognized FMCG products. This may jeopardize the requirement to distribute benefits via an increase in supply.
The Anti-profiteering authority defies due process in the conduct of proceedings by violating the principles of natural justice since the affected party is denied the opportunity to submit a complete defense due to a lack of awareness of the authorities' rationale for acting. Additionally, it has resulted in arbitrariness and contradictions, as various standards and indexes have been applied inconsistently from case to case.
Due to a lack of consistency in the conduct of proceedings, they have become discriminatory. Additionally, the absence of a methodology precludes a corporation from mounting an effective counter-attack. More importantly, the writ courts that are now dealing with such difficulties lack support and guidance on how to approach such a sophisticated economic and accounting matter.
Additionally, the law contains numerous other fundamental flaws, such as a lack of definitions for the terms "commensurate reduction" and "commensurate reduction" as used in Section 171 of the Act. It is uncertain whether this reduction must be absolute or can include a reduction within a range that functions as an acceptable de minimis range. The NAA used a range in the Subway case but sought an absolute figure in other instances. These are the critical deficiencies that must be addressed immediately, even more so now that the NAA's prolonged tenure is about to end.
Concerning anti-profiteering, there is no provision for appealing NAA orders to an appellate authority such as the Goods and Services Tax Appellate Tribunal. In terms of anti-profiteering, obtaining relief from an NAA order currently entails petitioning a writ court pursuant to Article 226 of the Constitution and requesting the court's writ jurisdiction. Given the paucity of methodology, the volume of evidence in such processes, and the absence of a universal standard of review for the NAA, it would appear to be an extremely unjust imposition on our high courts by legislators to expect them to operate as a court of appeal in anti-profiteering cases.
Ideally speaking, GST Council should have included provisions for a statutory appeal to an appropriate tribunal in all anti-profiteering matters when amending India's anti-profiteering rules. Additionally, imposing a 10% penalty for failure to deposit the money in question within 30 days would appear inequitable, given the lacuna in the anti-profiteering law
The Federation of Indian Chambers of Commerce and Industry has also urged for the repeal of the GST law's anti-profiteering clauses, allowing market forces to determine the prices of products and services. The appeal was made in a series of Pre-Budget recommendations given by the federation to the Finance Ministry for consideration in the FY22 Budget. The proposals come at a time when the National Anti-Profiteering Authority (NAA) has begun to prosecute corporations for violating anti-profiteering statutes that prevent a company from maintaining higher prices for products and services even after GST rates have decreased. The NAA had previously charged corporations like Samsung, P&G, and McDonald's with failing to reduce the cost of their products despite the fact that GST rates were decreased.
Conclusion
In 2020, the NAA heard hundreds of cases, but by 2021, only one ruling had been issued. This indicates that NAA is nearing the end of its existence. Winding up NAA would be a mixed bag of emotions for taxpayers because pricing would be left to market forces, but it would also leave them with several unanswered questions. Some of the questions would include What would happen to cases that are with DGAP for collection of data? Who would hear the cases that were already pending with NAA, and what would happen to the cases in which NAA had already issued the orders, which are yet to be implemented?
However, with GST rates still in flux and the GST Council still to agree on rates to abolish inverted duty structures in a number of products, it seems unlikely that NAA would be phased out this early. In any case, a decision to terminate NAA will require unanimity among states and will be subject to approval by the GST Council. The absence of standards on the matter only adds to the industry's ambiguity in enforcing anti-profiteering provisions, validating its case for their repeal.
The author is Senior Partner in Chartered Accountancy firm AMRG & associates