The industry has been grappling with uncertainty around anti-profiteering provisions since its introduction. While the Goods and Services Tax (GST) legislation and rules were available in the public domain long before the effective date of July 01, 2017, the rules relating to anti-profiteering were made public only on June 28, 2017.

To everyone’s disappointment these rules failed to bring transparency and clarity to the implementation of anti-profiteering provisions; they merely chalked out the administrative hierarchy and framework of the authorities dealing with anti-profiteering complaints.

Subsequently, the Finance Ministry has made various statements promising clear guidelines on the manner of computation of commensurate benefit to be passed on to customers. However, till date nothing has been notified on this front.

The continued silence of the Government on the release of rules with respect to a computation mechanism to determine the appropriate reduction in prices and other corresponding guidelines, indicates that the Government has left it to the National Anti-Profiteering Authority (NAA) to step in and fill the legislative gaps in the anti-profiteering law. It is therefore imperative to carefully monitor and analyse the first three orders of the NAA to comprehend the adjudication trends.

NAA Orders

In Dinesh Mohan Bhardwaj v. M/s Vrandavabeshwree Automobile Private Limited[1] (Honda Case), the complainant argued that the reduction in price of the car sought to be purchased, was not commensurate to the reduction in tax rate as well as higher input tax credit (ITC) available post the introduction of GST. The NAA concluded that the reduction in tax rates post the implementation of GST was only around 2%, and there was no additional ITC benefit available to the respondent to be passed. Therefore, the NAA held that the respondent had appropriately reduced the price of the car, post implementation of GST and not contravened the anti-profiteering provisions.

A review of the Honda Case suggests that the supplier therein could clearly identify and detail individual components forming the price of the car at the stock keeping unit (SKU)/product level. Additionally, the cost of various components had remained the same, post implementation of GST. The only parameter where changes took place were the tax rates.

The subsequent NAA order interestingly took into account factors, other than tax rate and ITC, in determining the commensurate benefit required to be passed on to customers.

The allegation in Kumar Gandharv v. KRBL Limited[2], was that the benefit of reduced tax on ‘India Gate Basmati Rice’ had not been passed on to customers, since the price of a 10kg packet of rice was increased from INR 540/- in August 2017 to INR 585/- in October 2017. The Directorate of Safeguards (DGS) concluded that the rate of tax on ‘Indian Gate Basmati Rice’ had actually increased post the introduction of GST and the increase in ITC was insufficient to nullify the increase in tax rate. Additionally, there was steep rise in the price of paddy, which was the chief input for the product under consideration. Therefore, the NAA’s orderbrought much needed clarity that an increase in production costs due to market forces is a valid consideration while determining profiteering.

The third order[3] of the NAA revolved around the issue of double taxation by virtue of charging GST on the value inclusive of Excise Duty. Thus, unfortunately, the NAA did not reveal any additional insights as regards factors that would be relevant for the determination of a commensurate reduction in price.

Noteworthy Issues

A review of these orders reveals several interesting points; the focal point being that while the orders concentrate on SKU-level price comparison , co-relation at a product level is not possible across all segments in the industry. For instance, for FMCG companies, particularly those that were operating in Excise free zones prior to the implementation of GST, collating the various factors that influence the price of a product is a herculean task. The number of product categories involved, various product sizes ranging from sachets to family packs and varying sales volumes make it nearly impossible for them to identify at a product level, the factors that influence the price of every product. Similarly, it is difficult to allocate exact figures to market disruptions such as sudden inflation, labour strikes etc.. Manufacturing and aviation sectors are also easily impacted by volatile factors such as increases in fuel prices, which have a direct impact on the cost of production.

The second aspect which stands out, is the mandatory intervention of the NAA, even though the DGS in all three cases found that there was no profiteering. In fact in the third case, the complainant actually withdrew its application while the investigations were underway and the NAA persisted in adjudicating on the matter. The adjudication process for anti-profiteering complaints requires the Screening Committee/Standing Committee to form a prima facie view on the authenticity of the complaint and thereafter transfer it to the DGS for detailed investigation. Once the DGS has concluded its investigation, , the matter is handed over to NAA for adjudication.

In stark contrast, in all other tax adjudication proceedings, where if the investigative wing concludes that there is no non-compliance by the assessee, the proceedings end at the investigation stage itself. Adjudication is not mandated. It is an unfortunate and unnecessary burden on the NAA to adjudicate on all matters investigated by the DGS, irrespective of the findings of the investigation undertaken.

Various reports in the public domain suggest that the DGS is currently in the process of investigating more than 60 cases. Once all these and more cases reach the NAA, the statutory timelines prescribed for resolution of such complaints is bound to get extended. In one of the cases, the Standing Committee took five months to review the complaint and forward it to the DGS. The statutory timeline prescribed in this regard is two months. It is unclear how an extension to this timeline was granted, since the law is silent on the process of such extensions.

Furthermore, since all the orders till now concern specific products, the impact of anti-profiteering provisions on the services sector continues to be a grey area. Besides, many open questions remain unanswered, such as applicability of anti-profiteering provisions to export transactions, relevance of entity level losses or profits and whether the benefit to be passed on to the consumer shall be computed on a monthly, quarterly or annual basis.

These concerns in the implementation as well as adjudication process are bound to have ramifications for future investigations and determinations.

In Conclusion

The good news presently is that the first three orders passed by the NAA bring some level of comfort to the industry that if the supplier is able to demonstrate a commensurate reduction in price in light of GST implementation, the NAA would not take any adverse action. However, it’s worth keeping a continuous look-out for orders of the NAA so as to fully understand the nuances of this law.

[1] Case No. 1/2018 dated March 27, 2018 (2018-VIL-01-NAA)

[2] Case No. 3/2018 dated May 04, 2018 (2018-VIL-02-NAA)

[3] M/s Abel Space Solutions LLP v. M/s Schindler India Private Limited, Case No. 4/2018 dated May 31, 2018 (2018-VIL-03-NAA)