Goods and Services Tax (GST) is an indirect tax or a consumption tax levied in India on the supply of goods and services. Goods and Services Tax (GST) is levied at each and every stage in the production process but is meant to be refunded to all parties in the various stages of production other than the final consumer. Any deviation from this is termed as anti-profiteering.
The GST Council announced its anti-profiteering rules as on 18th June 2016.
The majority tax rates on goods and services have reduced after the execution of GST. The Section 171 of GST, Act 2017 clearly states, the most important object is to make sure that the advantage of such tax reduction and input tax credit is passed on to the final recipient of such goods or services. In many overseas nations, an increase in the prices was observed after the implementation of GST. Learning from the mistakes of such countries, it is a much-appreciated step to initiate these Anti Profiteering Rules under GST.
Section 171(1) of the act casts responsibility to pass on the benefit of GST to the recipient for following aspects:
Reduction of Tax Rate in the New Tax System
For example, eating out has become cheaper under GST (mostly 18% GST as compare to previous 20.5%). This advantage must be passed on to the consumers.
Passing of advantage due to reduction of tax rate, in case of supplies exclusive of tax or for immediate services is not a big challenge. This is due to the reduction in tax rate will directly be evidenced by invoices, and the recipient will get benefit of the rate reduction. Such can be noticed now in the cases of eating out and travelling through app-based taxis (reduced by 1%).
However, in case where contract of supplies is comprehensive of taxes, this provision will cast responsibility on the supplier to decrease the price due to decrease in rate of taxes.
For example, FMCG items are usually sold on MRP basis or some other fixed prices by retailers. If there is any decrease in rate of tax it has to be passed on to the final recipient. Accordingly, there will be a need to amend MRP or other prices fixed for such supplies.
However, if GST has a negative impact on the cost, then prices can be augmented. For example: If the output supply was zero-rated in previous regime and also remains zero-rated in GST regime, the business will not get any input tax credit (ITC).
If the tax rates are augmented, tax under reverse charge imposed etc. then prices will increase.
For example, domestic LPG was exempt from tax under previous regime. Now they fall under 5% GST rate. This will cause an increase in the prices of cooking gas.
2. Benefits of Input Tax Credit (ITC)
Almost every industry will be affected with respect to passing of benefit due to improved credit chain. In the majority places, be it service sector, manufacturing, trading, or any specific industry, all are going to get benefit of better flow of input tax credit (ITC) except sectors having zero-rated output supply. So overall the expectations of anti-profiteering provisions are proportionate reduction in prices of supplies.
For instance, radio taxis before could not adjust the input VAT on office supplies with the output service tax payable. Now, input tax credit (ITC) on all inputs can be adjusted against output tax. These profits are passed on by them in the form of offers and discounts. In the same way, many big stores have GST sales and special offers to pass on the advantage.
Authority dealing with non-profiteering
The Authority includes-
(a) A Chairman
(b) 4 Technical Members (Commissioners of State or Central tax)
The Authority will decide the method and procedure for determining whether the reduction in rate or the benefit of input tax credit (ITC) has been passed on by the seller to the buyer by reducing the prices.
Duties of the Authority
- Establish whether the reduction in tax rate or the benefit of input tax credit (ITC) has been passed on by the seller to the buyer by reducing the prices.
- recognize the taxpayer who has not passed on the benefit
- The Authority will exist for 2 years commencing from the date on which the Chairman enters upon his office unless the Council recommends otherwise.
Power of the Authority
The authority after conducting the due investigation arrives at the conclusion that the benefit of reduced tax rates and availed input tax credit (ITC) is not passed down to the consumer of the goods or services, then it has the authority to pass an order of the following effects:
- Reduction of Price
- Return to the beneficiary the amount equivalent to the benefit not passed down to him, along with an interest @18%.
The said interest is to be intended from the date the benefit is not passed down and an elevated amount was collected from the recipient.
If the last recipient is not identifiable then said amount along with the amount of interest is required to be deposited in the Fund.
3. Enforce a penalty on the accountable party as specified under the Act, or
4. In some extreme cases revoke the GST Registration of the party held accountable for not passing down the said advantage.
Anti-profiteering provisions have been enacted to curb undue profiteering by businesses and ensure that the benefits by way of a reduction in the price of the goods/services are passed on to the consumer.
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