Days after GST rate cuts, Centre to set up body to crack down on wrongdoers; analysts raise warning flags

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New Delhi | Published: November 17, 2017 6:29:17 AM

Can ask businesses to cough up undue benefits cornered, impose fine; analysts warn against intrusiveness.

GST, GST rate cuts, GST rate, goods and services tax, NAA, National Anti-profiteering Authority, GST Council, GST meetCan ask businesses to cough up undue benefits cornered, impose fine; analysts warn against intrusiveness. (Image: Reuters)

A day after the reduction in goods and services tax (GST) rates on 211 items took effect, the Cabinet on Thursday approved the creation of a National Anti-profiteering Authority (NAA) comprising a chairman and four technical members. It will have a “mandate to ensure” that businesses pass on benefits of the lower GST incidence by way of rate cuts or input tax credits or both to final consumers. The NAA, which will be in place in two to three weeks, will have the authority to order the supplier/ business concerned to reduce its prices or return the undue benefit availed by it along with interest to the recipient of the goods or services. If the undue benefit cannot be passed on to the recipient, it can be ordered to be deposited in the Consumer Welfare Fund. The NAA can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST. While an inflation-neutral GST is what the government would like, it had earlier said the anti-profiteering mechanism, though required as a deterrent to businesses tending to corner GST benefits, would be used only sparingly. GST, contrary to the policymakers’ expectations, has been inflationary thus far: Retail inflation touched a seven-month high of 3.58% in October. However, the latest rate cuts are likely to a salutary impact on retail inflation, with some analysts predicting a reduction in CPI inflation of 20-40 basis points.

While the GST rate for restaurants except those at five-star hotels was reduced to 5% (sans input tax credit or ITC) on Wednesday from 12% (non-AC) and 18% (AC) earlier, the industry is divided on whether this will reduce its tax liability. While the larger eateries that pay high rentals say the removal of ITC would pinch them, smaller outlets see scope for some price cuts. Finance minister Arun Jaitley had justified the denial of ITC to the restaurant industry saying it was most reluctant to pass on the benefit to the consumers. Several experts had called the idea of NAA fallacious — taxes are not just one of the many factors that influence prices, they noted, and said that pricing decisions are best left to market forces. In an interview to FE earlier, finance secretary Hasmukh Adhia had hinted at the redundancy of dreaded NAA, considering the nature of complaints of profiteering received and their resolution.

“Whatever (complaints) we have got are from restaurants and real estate and these too are small in nature. There are no national level complains as of now. If a state receives a complaint, it will be examined by the screening committee at its level and the complaint will come to the standing committee (at the Centre) only if the screening committee finds merit in it. The standing committee could refer the matter to the DG (safeguards) which, upon probe, could refer to the authority,” he had said. A press statement issued by the government after Thursday’s Cabinet meeting said: “The establishment of the NAA, to be headed by a senior officer of the level of Secretary to the Government of India with four Technical Members from the Centre and/or the States, is one more measure aimed at reassuring consumers that Government is fully committed to take all possible steps to ensure the benefits of implementation of GST in terms of lower prices of the goods and services reach them.”

Explaining the anti-profiteering procedures, it added: “Affected consumers who feel the benefit of commensurate reduction in prices is not being passed on when they purchase any goods or services may apply for relief to the Screening Committee in the particular State. However, in case the incident of profiteering relates to an item of mass impact with ‘All India’ ramification, the application may be directly made to the Standing Committee. After forming a prima facie view that there is an element of profiteering, the Standing Committee shall refer the matter for detailed investigation to the Director General of Safeguards, CBEC, which shall report its findings to the NAA.” Last week, the GST Council decided to move 178 items out of the total 227 goods and services in the top 28% bracket to the standard 18% rate slab. It also agreed on levying only a 5% GST on eating at restaurants, other than the five-star hotels, from November 15.

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