Hello and welcome to PwC's Tax Academy. You may have heard the term anti-profiteering in the context of GST on various occasions. That brings us to the question, what is anti-profiteering? Anti-profiteering, as the name suggests, means that one cannot profiteer from GST. When GST was introduced in 2017, that tax incidence on supply of goods or services could have undergone a change. The tax incidence could have increased or decreased, depending on two factors. The tax rate on the good or service and availability of input tax credit, commonly known as ITC. In case of reduction of tax incidence, the government surmised that businesses may not be keen to pass on the benefit of such reduction to the consumers. Therefore, the government introduced provisions in the GST legislation that any reduction in tax incidence should be passed on to the consumer through a commensurate reduction in prices. The government also constituted National Anti-profiteering Authority to check cases of anti-profiteering. This measure of the government is commonly known as anti-profiteering. You will note that the term profiteering is different from the term profiting. The government allows businesses to earn profits as any prudent business source strives, however, discourages businesses from profiteering under GST. The objectives of anti-profiteering therefore, are as follows, ensuring the eradication of extra profits by businesses on account of changes attributable to taxes and reducing the overall tax burden on the consumer. Under the GST law, the term profiteering means the amount determined on account of not passing the benefit of reduction in rate of tax on the supply of goods or services or both, or the benefit of input tax credit to the recipient by way of commensurate reduction in price of the goods or service or both. The GST regime automatically created opportunities for profiteering. Imagine that the effective rate of tax on your product was 18% before GST, but the rate shifted to 5% after GST. If you kept your prices the same, your profit margin would increase. The main goal of anti-profiteering clause is to prevent businesses from taking such benefits under the GST regime. When similar tax systems have been implemented in other countries, prices have risen temporarily. When Australia shifted to a GST system in 2000, the organization for economic co-operation and development found that the prices of many goods and services got higher. As a result, the economy slowed down. Although these changes did not last, it affected Australian consumers. India tried to avoid this situation with anti-profiteering provisions. Section 171 of the CGST Act, 2017 has laid down the legal framework of anti-profiteering provisions in India. Importantly, the anti-profiteering provisions have been giving liberty to the authorities to have their own methodology for computing the amount of anti-profiteering. There are no prescribed formulas in law to quantify the amount of profiteering done by a business. Section 171(1) of the CGST Act,2017 casts responsibility to pass on the benefit of GST to the recipient for the following two aspects. Reduction of tax rate, benefit of input tax credit. To control cases of anti-profiteering, the government constituted National Anti-Profiteering Authority or NAA to examine whether benefits to a registered person in terms of increased input tax credit or reduced tax rates have actually been passed on in a commensurate manner in price of goods or services supplied by them. The NAA is a statutory authority which can recommend punitive actions against errant GST registrants, including cancellation of registration. Initially, the tenure of NAA was up to two years. However, the growing consumer complaints, the provisions have been extended to 30th November, 2022. An alternate option of merging this authority with the competition commission of India is being evaluated. The other authorities which are involved in the process of identifying and determining cases where profiteering on account of GST has occurred are as below. The Director general of anti-profiteering or DGAP Authorities. DGAP conduct investigation and collects evidence from the interested parties important to determine the profiteering. The DGAP needs to complete investigation within a period of three months or such extended period, not exceeding a further period of three months and submit a report containing findings and other records to the NAA. State level screening committee. Whenever an interested party files an application that fall under the range of a state, such applications are first examined by the state level screening committee. Which examines whether the supplier has not passed on the reduction of tax rate on goods or services supplied or ITC benefit to the recipient through reduction in prices on a prima facie basis. Standing Committee. The Standing Committee on anti-profiteering is a statutory body comprising of state and central government officers nominated by the government. The Standing Committee further refers the matter to Director General of Anti-Profiteering to undertake a detailed investigation. Whenever a complaint is filed, the following become parties to an anti-profiteering proceedings. Government authorities consisting of NAA, DGAP and State level screening committee, complainant who files the complaint, the person against whom the complaint has been filed. In this lesson, we are going to discuss the consequences of noncompliance with anti-profiteering regulations which have been adjudicated by the NAA. These include reduction in prices of the product going forward to the extent of profiteering. Return of amount not passed along with 18% interest to the recipient. Deposit of amount in the Consumer Welfare Fund if the recipient does not claim refund or is not identifiable. Imposition of penalty equivalent to 10% of the amount profiteered and cancellation of registration. However, no penalty shall be levied if the profiteer amount is deposited within 30 days of the date of passing of the order by the authority. The GST law and Rules framed thereunder provide that the following complaint redressal mechanism. The interested party may file an application in the prescribed format before the standing committee of anti-profiteering or before the state level screening committee. Thereafter, the standing committee shall refer the matter to DGAP for a detailed investigation if prima facie evidence of profiteering exists. The DGAP shall conduct the investigation and submit its report to the National Anti-Profiteering Authority constituted by the central government under section 171 of the CGST Act for taking appropriate action. As per rule 126 of the CGST Rules 2017, the NAA has been empowered to determine the methodology and procedure for determination as to whether reduction in the rate of tax or the benefit of input tax credit has been passed on by the registered person to the recipient by way of commensurate reduction in prices, and accordingly passed its order. It is to be noted that the submission of information and documentation is completely dependent upon the type of allegation mentioned in the complaint, such as rate reduction or availability of input tax credit. Typically, the investigating authorities seek the following information. Filed GST returns such as GSTR-1, GSTR-3B and GSTR-9, Invoice-wise details of outward taxable supplies in prescribed format, Price list of the product, sample invoice copies, contract copy or purchase orders, etc. Details of input tax credit availed under GST and erstwhile laws, analysis of company level or product level profitability pre and post GST to determine the reasons in case of increase of profits or decrease in loss. There are certain key points which shall be taken into consideration before determining the existence of profiteering. These are formula to determine increase in credits or savings, mechanism to pass on the benefit, such as on invoice, credit note or incentives. Whether profiteering needs to be computed at a product level or a segment level. Whether profiteering would be seen in percentage terms or absolute terms. Whether the ambit of NAA would be limited to the complaint product or all products sold by the company. Whether additional costs incurred for implementation of GST should be adjusted while computing profit between pre and post GST era. Non-GST considerations impacting pricing such as market forces and competition. The above mentioned points shall be taken into consideration while determining the profitability analysis. We hope you enjoyed this course as much as we did putting it together for you.
