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GST - Why Anti-profiteering Section 171 is not Scary

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Section 171 of CGST act is the only section that quotes the word "anti-profiteering" in the CGST act. It states that any reduction in tax rate or the benefit of Input Tax Credit shall be passed on to the end consumer by the commensurate reduction in price. So any industry is bound to reduce prices as it enjoys the benefit of Input Tax Credit in GST while compared with Pre-GST laws and availment of Transitional credits. So there ought to be a reduction in price. 

But in general, we don't see prices going down the best example for this case is hotel industry. Any middle-class person who stays away from home eating in an average restaurant can definitely feel the pinch. The hotel industries have cleverly used GST to position themselves in such a way that they stand to profiteer in name of GST. The following illustration can explain rise in price.

In Pre-GST Era the billing was as follow

Cost To Industry - Rs.100
Profit (assumed @ 20%) - Rs.  20
Pre GST Taxes (VAT @14.5%) - Rs.18
(Assumed to be Non-AC Hotel so only VAT is Charged)
Invoice Value - Rs.138

When GST came into force these people have cleverly made the pre GST invoice value as their assessable value hence resulting in Abnormal Raise in price. So a hotel that was charging Rs. 138 started charging Rs.155 under GST (Rs.138 + Rs.8.3 +Rs. 8.3).

This is a clear example of profiteering in name of GST as they will be benefited by Input tax credit under GST than in pre GST scenarios.

The CGST rule 128 has said that the complaint shall be lodged by either the customer or the department itself shall take up the issue upon particular assessee who has raised prices after implementation of GST. Such Examination shall extend up to 2 months. Even then justice won't be served the authority shall take upto 3 months to order the assessee that has been found violating section 171. The punishing lines under rule 133 are just feathered touches for most of the assessees. They are as follows:

• Order them to reduce the price. (No harm)

• Return to the recipient an amount equivalent to the amount not passed by the reduction in price along with interest at the rate of 18% per annum. (Which means 1.5% per month which is not worth the effort for any common man to sue)

• Cancellation of Registration (No benefit for customer)

• Imposition of Penalty Under the act. (Since no Penalty is specifically levied for violation of Section 171 the general penalty clause under section 125 applies which is restricted to a maximum of Rs.25,000)

So on going through these law lines it seems there need to be some tougher stance against profiteering from the government side and the provisions for anti-profiteering can speak a tougher language than it speaks till now.


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