Moving from different indirect taxes into one consolidated indirect taxes Goods and Services Tax (GST) was a challenging task for the Government. One of the challenges which came before them was whether introduction of GST would lead to inflation. Such apprehension was caused due to the reports that the business houses may not pass on the benefitaccrued to them to the ultimate customers and would only increase the tax to be collected from the customers. In order to address this Government introduced the concept of anti-profiteering with statutory powers to regulate.
Section 171 of the CGST Act, 2017 and the respective State GST Acts deal with anti-profiteering provisions. This Section is part of Chapter XXI (Miscellaneous) in the said Acts. In view of the paper writers, such an important provision should not have been provided in miscellaneous chapter, instead a separate Chapter should have been carved out with a complete code in GST Law itself.
Broadly this Section says the suppliers of goods and services should pass on
- The benefit of any reduction in the rate of tax or
- The benefit of input tax credit to the recipients by way of commensurate reduction in prices
The mandate of the legislative provision is reduction in rate of tax or benefit of ITC shall be passed on to customers. Chapter XV of the CGST Rules, 2017 comprising of 16 Rules (Rule 122 to Rule 137), contains the constitution of authority, qualifications, salaries, powers, procedures, duties & how the Government is to enforce this provision. All these Rules are self-explanatory.
Analysis of Anti-profiteering law.
In this Article paper writers we highlight issues & concerns which may have a potential impact on questioning of the legality of anti-profiteering provisions in GST.
1. Comparison of tax incidence under erstwhile law & Goods & Service Tax Law:
The Government had given the huge publicity that anti-profiteering provision is aimed at reduction of inflation & removal of illegal profiteering due to the introduction of GST Law. However, from the plain reading of Section it appears these provisions are applicable & aimed at GST Rate cuts, allowing of ITC only after the introduction of GST Law in India.
Comparison of tax incidence/ITC eligibility under erstwhile law to GST Law is unfounded in Section 171. Section merely specifies that any reduction in rate of tax or the benefit of ITC should be passed on to buyer. It is well settled law that no words can be added to a statute or additional words read into it.
Therefore in the view of authors Section 171 is not applicable for transitional transactions/ phase. It is applicable for GST rate cuts after implementation of GST.
2. Vague provision & Impossible to comply
Further Section 171 is vague, contains broad provision coupled with an ambiguity of valuation. The Section has not given any guidance or direction. There is no basic guideline or method of calculation, criteria on how to quantify benefits/profiteering which should be passed on to customers.
The following aspects should have been provided in Section 171 or Rules itself:-
- What is the mechanism to ascertain whether a business has indulged in profiteering?
- What is the calculation method of pre-GST and post-GST profits?
- What if profits of post-GST are due to other business reasons and not because of profiteering?
- What is meaning & scope of word ‘commensurate’
When there is no formula prescribed to quantify the benefit, the provision is ambiguous and vague trade cannot be compelled to adhere to the same. Market price is always determined by various external factors in market which are beyond the control of seller. Rules are also very silent on how to quantify the benefit especially price is market driven.
When there is no prescription as to quantification of benefit, this provision cannot be implemented. Rational given in the case of B.C. Srinivasa Setty (1981) 2 SCC60 is equally applicable in the present case.
Further it is settled position of law that law cannot ask/compel to do impossible things.
Lack of complete code/compressive architecture in quantification of benefit to be passed also results in violation of fundamental rights of a citizen under Article 19(1)(g) of the Constitution of India.
3. Provisions of anti-profiteering overrides principles of Indian Contract Act:
There are many contracts which state that the price is inclusive of all taxes, present or future. Any decrease or increase in taxes to be on account of supplier. Therefore contractually it is agreed that decrease in tax incidence will go to benefit of supplier. When it is contractually agreed, how can the GST law incorporate the provisions like anti profiteering measures for the past contracts affecting the business? If it is contractually agreed specifically or implicitly to pass on the tax reduction benefits to customer, finally when it is not passed on it is contract violation and it would become civil dispute. How can GST law interfere with it would be a matter of concern.
4. Excessive delegation & vulnerable to be struck down as unconstitutional:
The powers of the National Anti-Profiteering Authority includes adjudication & determination of illegal profiteering without prescribed the guidelines, return of amount, levy of interest, imposition of penalty, cancellation of registration, etc. flow solely from the CGST Rules and not from the CGST Act itself. Therefore the anti-profiteering provision under the CGST Act and Rules suffers from the ‘vice of excessive delegation’ and is vulnerable to be struck down as unconstitutional. Reference of the following judicial decisions will give some light.
Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills - AIR 1968 SC 1232, Union of India v. S. Srinivasan - (2012) 7 SCC 683 = 2012 (281) E.L.T. 3 (S.C.), General Officer Commanding-in-Chief v. Subhash Chandra Yadav - AIR 1988 SC 876 and Sahara India (Firm) v. Commissioner of Income Tax - (2008) 14 SCC 151 = 2008 (226) E.L.T. 22 (S.C.),
Apart from the above, inconsistency in anti-profiteering orders by N.A.P.A is cause for concern. The anti profiteering authorities comprising only of technical members this aspect also requires judicial review in light of judgment in the case of Union of India vs. R. Gandhi - 2010 (261) E.L.T. 3 (S.C.). Complete discretionary powers to bureaucracy to arrive at commensurate reduction without prescribing statutory guidelines are also cause of concern. These inconsistency & constitutional issues have to be decided exclusively by High Court & Supreme Court and not by statutory and appellate authorities constituted under GST Law as they are merely creatures of Statute. Though the objective of the provision was goods, but the manner of implementation seems to have lost sight of the businesses who are also part of the economy and difficulties they are going to face. Thereby papers writers are of the view that the matter be taken before courts to address the anomalies.
Further there is no appellate remedy prescribed for Orders (Rule 133 of GST Rules, 2017) passed by National Ant-Profiteering Authority. The order passed by Authority in terms of Rule 135 shall be complied immediately. In event of non compliance of order of authority, the recovery mechanism prescribed under GST Law will apply for recovery of amounts ordered by authority. GST officers appointed & notified under GST will take care of implementation of authority’s Order.
Even though specific right of statutory appeal is not provided, since anti-profiteering provisions are part & parcel of GST Law in our view all provisions of Act ibid, including those relating to appeals, applicable unless specifically excluded. Since there is no such specific exclusion appeals can be filed against N.A.P.A with Appellate Authority & Appellate Tribunal.
In the case of Voluntary Compliance Encouragement Scheme (VCES) under Service Tax also statutory appeal remedy was specifically not provided in Statute. However various High Courts have read down provisions and held that statutory appeal remedy is available. Same principles will apply in this case also.
Further WRIT petition may also be filed under Article 226 of Constitution of India against orders of NAPA if the substantial question of law is involved. However, under WRIT jurisdiction High Courts normally will not adjudicate/entertain issues which involves analysis of complex factual matrix or complicated question of facts. Author- CA Anil Kumar Bezawada- Contact: firstname.lastname@example.org.