In the erstwhile regime, different rates were there for different supplies in different states. The launch of GST has brought uniformity in the rate across the states. Change of rates has had an indifferent impact on different kind of supplies. The government claims that it has reduced the tax rate on most of the essential supplies. Also, cross availability of Input tax credit which is under GST was not available under the erstwhile indirect tax regime. This should result in the reduction of the price of commodities to the end consumer. The government has also introduced an Anti-profiteering clause in CGST Act to ensure that the above benefit shall be passed on to the consumers. If the company fails in passing on the benefit to end customer it has to deposit the amount so calculated in consumer protection fund.
Recently Nestle India has been advised by National Anti-Profiteering Authority to provisionally deposit the sum computed by the company gained from GST rate reduction in Consumers Welfare Fund. It is to be noted that tax rates have been slashed from 28% to 18% on 178 daily use article sold by Nestle (Economics times).
What is Anti-Profiteering?
Anti-profiteering as defined under section 171 of CGST Act
(1) Any reduction in the 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.
(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.
- Passing of benefit due to the reduction of the tax rate is not a big challenge. It is easy to identify as well and can be easily evidenced by the invoices under both the regime.
Example: if a product is sold on MRP basis which was inclusive of VAT @ 18%, Under GST if the same is under 6% rate the seller has to reduce the MRP of the product in order to pass the benefit to end customer.
- Benefit accruing due to cross-availability of ITC will impact almost all the sectors. A service industry will be benefited as it was not able to claim VAT input earlier similarly a manufacturing industry will be benefited as it was not able to claim service tax input. However, actual calculation and passing of these benefits to the consumer will be difficult and subject matter of dispute.
Example: A telecom company was not able to claim sales tax input as it was engaged in the output of service. Company use to expense out or capitalize huge amount of sales tax under the erstwhile regime. Now the company will get benefited as it will get the input of tax on all its purchases be it goods or services.
Central Goods and Services Tax (CGST) Rules, 2017 as amended from time to time under chapter XV has further deliberated on the mechanism of Anti-profiteering. It has provided for constitution of a National Anti-profiteering Authority. It may upon an application from an individual customer or suo-moto can order:
- reduction in prices;
- return of the amount not passed on with interest @ 18% to the recipient; imposition of the penalty; and
- cancellation of registration of the supplier.
The main provisions of the rules have been summarized below:
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