While in the GST council meeting held on June 21, 2019, there was again some pragmatic rate tweaking this time, the GST council had a clear vision of curbing inflation.
By Abhishek A Rastogi
Rate rationalisation has been the centre of attraction for most of the GST Council meetings. While in the GST council meeting held on June 21, 2019, there was again some pragmatic rate tweaking this time, the GST council had a clear vision of curbing inflation. This was achieved by not only extending the anti-profiteering provisions but also imposing strict penalties on non-payment of the profiteered amount within 30 days. There is no doubt that the extension of anti-profiteering provisions for further two years has been done in utmost good faith and as a measure to pass the benefit of rate reduction to the consumers. However, the announcements lead to opening of a pandora box leading to much more uncertainty.
Firstly, the provisions of section 171 of the Central Goods and Services Tax Act, 2017 (CGST Act) which deals with the anti-profiteering provisions have key important elements such as increase in the input taxes, reduction in the output taxes and commensurate reduction of prices. In the case of Pyramid Infrastructure vs UOI and others, the first writ petition on anti-profiteering, the moot point before the Delhi High Court was with respect to the lack of methodology to compute the quantum of profiteering and was argued on the principle of void for vagueness. The question which now arises is whether the two year extension will continue leading to the uncertainty. It is hoped that the GST council will quickly lay down the guidelines to compute profiteering. In absence of robust profiteering guidelines, the extension of provisions looks fatal for businesses.
Secondly, there is a difference between extension of the anti-profiteering provisions (Section 171 of the CGST act) and extension of the tenure of the relevant authority (Rule 137 of the Central Goods and Services Tax (CGST) Rules, 2017). The announcements for extension of the anti-profiteering provisions will have to be backed by proper legislative amendments to avoid any challenge to the constitutional validity for such an extension. It is also not clear whether the extension of anti-profiteering provisions will be applicable only to the new rate cuts or whether it will also be applicable to the rates at the transitional stage of GST implementation and the subsequent rate rationalisation thereafter in the first two years of GST implementation.
Lastly, there will be issues regarding the set of customers who would be eligible for the benefit of anti-profiteering provisions in the extended period. For instance, there could be a situation when the contract was signed with customer 1 in 2018 and with customer 2 in 2020 and the tax rates are reduced in 2019. In such a situation, the question arises whether both the customers will get the benefit of reduced tax rate.
As a corollary, it is inevitable that the disputes around anti-profiteering provisions will continue, perhaps on various new grounds as well. While the courts have intervened on different aspects such as quantum, jurisdiction, absence of methodology and doctrine of void for vagueness, the extended period will raise some additional fundamental issues. While the intent of the government is to curb inflationary pressure and provide a sigh of relief to the consumers, the interest of the businesses will have to be kept in mind as well; perhaps in the similar way the cooperative federalism has been maintained so far. It will be seen how the Anti-Profiteering Authorities maintain the fine balance to support the businesses and curb inflation.
The author is Partner, Khaitan & Co. The views expressed are the author’s own.