GST: Two-year sunset for anti-profiteering

The anti-profiteering body under the coming goods and services tax (GST) regime will be wound up after two years of the roll-out. The mechanism was finalised on Sunday by the GST Council. “The body is only required initially when tax rates change under the new tax regime,” said Revenue Secretary Hasmukh Adhia. The GST takes effect from July 1.

GST rules mandate businesses to pass on the benefits from lower tax incidence, arising from rate reduction and/or input tax credit, to the consumer. Companies held to have not passed on the benefit will be made to forfeit whatever is deemed to be the profiteered amount (from the time the GST takes effect). Also, to reduce their price(s) by the amount commensurate with the reduction in tax incidence. The amount paid as forfeiture  will go into a consumer welfare fund.

A three-stage anti-profiteering structure has been approved. This will comprise the nine-member standing committee of the GST Council, a director-general (safeguards) or DG (S), and a five-member Authority. All complaints will first go the standing committee. It will filter and send on the serious cases to the DG (S), which will probe and give its finding to the  (yet to be formed) five-member panel.

The latter panel will be chaired by a retired secretary to the Government of India. The other four members will be joint secretary-rank officers who have been commissioners of commercial tax or excise, from state or Centre. These members will be referred to the GST Council by a search-cum-selection panel.

The DG (S) will look into the balance sheet of companies, see if they have gained from the GST and whether the benefits have been passed on to consumers.
 

Despite a higher standard rate of 18 per cent, service providers will get input tax credit that will lower the effective incidence of the GST to around the current incidence of 15 per cent, says the government. It has already asked the services sector to reduce prices, especially telecom and banks.

“The five-member final Authority will be set up soon. It will not be needed immediately, as complaints will first go to the standing committee, which will take a month to screen. The DG(S) will take two to three months to investigate, which gives three months to set up the final authority,” said Adhia.

There was no provision under the current indirect tax laws to penalise anyone not passing on tax-related benefits to consumers.
 

Profiteering will be decided on a product basis, not on earnings at an entity level. This means that a company could also operate at a loss but be penalised if, say, it is deemed to have profiteered on even one product line out of four.

Pratik Jain of consultancy PwC India said: “It has been reiterated that the anti-profiteering provisions are meant to be used as a deterrent and would be invoked only against specific complaints.”

The Centre already has a consumer welfare fund, operated by the department of consumer affairs. Set up in 1992, it is credited with money that is not refundable to manufacturers. As of 2014, around Rs 17 crore was available in it. This amount is meant for financial assistance to promote and protect welfare of the consumer, create consumer awareness and strengthen the consumer movement.