Nearly a year after the National Anti-profiteering Authority (NAA) was set up, it has disposed of only eleven complaints and fined just four companies for paltry sums so far for not passing on the benefits of GST rate cuts or input tax credit to the consumers.
Nearly a year after the National Anti-profiteering Authority (NAA) was set up, it has disposed of only eleven complaints and fined just four companies for paltry sums so far for not passing on the benefits of GST rate cuts or input tax credit to the consumers. The three-tier anti-profiteering mechanism is proving unequal to the costs and labour required to run it. While the government had set an initial two-year lifespan for the authority, it looks increasingly clear that it won’t get an extended term. Meanwhile, NAA’s constitutional validity is also being challenged.
The government was vocal at the start that NAA’s approach would be non-intrusive and that it would take up only such cases that have a ‘mass impact’.
The bureaucracy, nevertheless, is slowing setting in. The authorities, as was clear in a Hindustan Unilever dealer case, are insisting on cumbersome compliance models for companies that undertake both price and grammage changes to pass on the GST benefits.
While the Delhi High Court has admitted a petition challenging the constitutional validity of the anti-profiteering mechanism, experts have cautioned against the practical difficulties faced by businesses that have no intention to deny the consumer the benefit of tax cut.
Responding to the NAA order on Maggi noodles dealer, Pratik Jain, partner and leader indirect tax at PwC India, said: “This is perhaps the first NAA order which explicitly states that any benefit arising out of GST has to be passed on at each stock keeping unit (SKU) level and the same cannot be averaged out, which may turn out to be a painful exercise for businesses, particularly FMCG companies, where the number of SKUs are huge.” He added that the ruling again underlined the need to have a proper guideline as to how the benefit has to be passed on, in terms of the regulations.
FMCG major HUL admitted to a self-assessed profiteered amount of Rs 160 crore and Nestle conceded to have pocketed some Rs 15 crore of GST benefits. These admissions would have been made by the firms even without NAA.
The petition at the Delhi HC was filed by Gurgaon-based real estate developer Pyramid Infratech, which was held guilty of profiteering by the NAA last month. The court has posted the matter for hearing on November 20. “This is the first case of anti-profiteering when the constitutional validity of the provisions is challenged. The provisions lack procedural mechanisms to determine the quantum of profiteering,” said Abhishek A Rastogi, partner at Khaitan & Co, who is appearing for the petitioner.
So far, the Centre has received 169 complaints of profiteering. Additionally, the state-level screening committees have received nearly 70 complaints with Andhra Pradesh and Rajasthan topping the list with receipts of 5 complaints each.
The anti-profiteering mechanism that comprises the NAA, DG-anti-profiteering, a standing committee at the national level and screening committees at states, is tasked to ensure that a reduction in tax incidence due to rate cuts or the benefit of input tax credit has been passed on to customers by way of commensurate reduction in prices. If the authority confirms the necessity of applying anti-profiteering measures, it has the power to order the business concerned to reduce its prices or return the undue benefit availed along with interest to the recipient of the good or service.
If the undue benefit cannot be passed on to the recipient, it can be ordered to be deposited in the consumer welfare fund within a stipulated time. The authority can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.