Expert Speak Details


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CA Maneet Pal, Partner
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CA Deepak Suneja, Senior Manager, I.P. Pasricha & Co.


Is it the beginning of Challenges in Anti-profiteering provisions?

The indecision concerning the implementation of anti-profiteering provisions could somehow be elucidated from the recent orders of the National Anti-profiteering Authority. The said orders have given a way to an open discussion on the implementation of anti-profiteering rules and provisions. Accordingly, it is important to deduce the relevant information from such orders to interpret the provisions and the appropriate methodology to determine the commensurate reduction in prices while passing on the benefit of reduction in rate of tax and the benefit of input tax credit.

Through its orders, the National Anti-profiteering Authority has articulated the issues faced by the companies and traders and have provided feasible though disputable statements for the arguments presented by the applicants for not passing on the benefit of the reduction in tax rate and benefit of input tax credit. However, the conclusion of such orders may give rise to conflicts and contradictions for further legal actions.

Concerns of MRP labelling

The applicants who failed to pass on the benefit of reduction in tax rate have professed inconvenience in changing the MRPs of pre-packaged commodities. The Ministry of Consumer affairs, vide its circular no. WM-10(31)/2017 dated 16.11.2017 has provided the procedure for changing the MRPs after reduction of tax rates by ‘affixing an additional sticker or stamping or online printing for declaring the reduced MRP on the pre-packaged commodities’.

In the case of M/s Dev Snacks[1], the DGAP in its report stated that in case there was benefit of input tax credit or reduction in the rate of tax, there must be a commensurate deduction in prices and the ultimate price to be paid by a consumer must get reduced. The claim of the applicant in facing difficulty in altering the MRPs printed on the packets was rejected by the NAA. Since, the companies are allowed to affix an additional sticker or stamping or online printing for mentioning the reduced MRP on the pre-packaged commodities which the applicant failed to follow.

In another case of  Ankur Jain vs. M/s. Kunj Lub Marketing Pvt. Ltd.[2], NAA provided a reasonable explanation where the company argued on the issue of passing on the GST benefit on the category of the product as a whole and not individually on their different MRPs with different quantity. The DGAP contended that the same product packs with different MRPs are two different products and the benefit available to the buyer of one item could not be denied by offering more than the required benefit to the buyer of the other item. Thus, the company was held for profiteering.

What it means ‘Commensurate reduction in prices’

The determination of ‘commensurate reduction in prices’ is a debatable issue since the enactment of anti-profiteering provisions. The manner of how to determine the commensurate benefit of reduction in prices to be passed on to the recipients by the supplier could be inferred to a reasonable extent from the recent orders of the National Anti-profiteering Authority.

Where there was decrease in rate of tax and the supplier has reduced the base price after offering the discount amount. The NAA noted that it is more than the commensurate rate of reduction. It was so held in the case of Peps Industries (P.) Ltd.[3] and thus the allegation of the profiteering was accordingly dismissed.  

Further, in different case where base prices were in question was noted in the case of M/s Win Win Appliances[4]. It was observed, that though the tax rates were reduced, the applicant increased the base price of product and thus the benefit of reduction in rate of tax could not be passed on to the recipients. The NAA stated that it is extremely clear form the anti-profiteering provisions that in the event of benefit of input tax credit or reduction in the rate of tax, there must be commensurate reduction in prices and such reduction could only be in absolute terms such that the final price payable by a consumer must get reduced commensurate with the reduction in the GST tax rate.

In the case of M/s Hardcastle Restaurants Pvt. Ltd.[5], the NAA stated that there should be no issue in case of commensurate reduction which can be easily computed in absolute figures after taking into consideration the reduction in the rate of tax or benefit of input tax credit. Thus, there should be no difficulty in reducing the prices commensurately and also assessing the ‘commensurate’ change in pricing as a trend or percentage terms does not arise.

Moreover, companies who deal with distributors and intermediaries have to face more challenges in passing on the benefit which constitute commensurate reduction. As they are bound to increase the prices as if same is done by the distributor and they had no control on the fixing of the base prices as well as the MRPs. In the case of M/s Harish Bakers & Confectioners Pvt. Ltd.[6], the company argued that since the distributor had increased the basic purchase price, they were forced to increase their basic sale price though not increased the profit margin. But the DGAP was not accepting the said contention and the company is legally bound to pass on the benefit.

Furthermore, in the case of Pawan Sharma v. M/s Sharma Trading Company[7], the NAA stated that determination of commensurate reduction in price involves only the mathematical calculation of the amount by which tax has been reduced and subtraction of the same from the existing MRP.

Level of passing of the benefit

The suppliers have also argued about the unaddressed issue of at what level the price is to be reduced or the benefit to be passed on i.e. at entity level, state level, locational level, product level, category level or SKU level as each level would bring about different amount in pricing. The NAA in the case of M/s Hardcastle Restaurants Pvt. Ltd.[8] tried to clear it by stating that the benefit is to be passed on at product level as the recipient would be different in each supply of the product. Thus, denying the benefit on the ground at which level to be passed is not acceptable.

Big litigation issues

The Directorate General of Anti-Profiteering (DGAP) has charged some of the big names in the industry for GST profiteering based on its report to National Anti-profiteering Authority. P&G India being the recent company charged for profiteering for the amount of Rs.250 crore. Nestle India, Patanjali, HUL and Jubilant FoodWorks are others to name a few. These companies are also challenging the allegation of National Anti-profiteering Authority and moving to High court for the comfort.

In the case of Pyramid Infratech (P.) Ltd.[9], NAA stated that the company had denied the benefit of input tax credit to the buyers on the flats constructed by him, thus, accounted for profiteering. However, the company approached to the High court against the order of NAA and the said court has stayed the order of the National Anti-profiteering Authority giving out the relief to the real estate company.

This is just the onset of the considerable issues unfolding in GST Anti-profiteering scenario. With more number of companies reaching out to the High court against the order of National Anti-profiteering Authority, more challenges are anticipated and so is more clarifications and simplification in the Anti-profiteering regulations.

About the Authors:

CA Maneet Pal, Partner, I.P. Pasricha & Co

Maneet Pal Singh is a member of the Institute of Chartered Accountants of India. He is a partner in I. P. Pasricha & Co., New Delhi. He has experience in the field of Direct Taxation. He has extensive experience in advising clients across a range of industries in assessments/ transfer pricing assessments, returns filings, drafting opinions, preparation of Transfer Pricing Study reports.

CA Deepak Suneja, Senior Manager, I.P. Pasricha & Co

Deepak Suneja is a member of the Institute of Chartered Accountants of India. He is working as Senior Manager in I.P. Pasricha & Co., New Delhi. He has experience in the field of Taxation and Regulatory services.

 

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Disclaimer: Above expressed are the personal views of the author, and the publisher or the author disclaim all, and any liability and responsibility, to any person on any action taken on reliance of it.

 

 

 



[1]    (2019) 03 CCHGST 0199 NAA

[2]    (2018) 02 CCHGST 0290 NAA

[3]    (2019) 03 CCHGST 0139 NAA

[4]    (2019) 03 CCHGST 0162 NAA

[5]    (2018) 02 CCHGST 0418 NAA

[6]    (2018) 02 CCHGST 0460 NAA

[7]    (2018) 02 CCHGST 0286 NAA

[8]    (2018) 02 CCHGST 0418 NAA

[9] (2018) 02 CCHGST 0287 NAA