Industry has room to factor in costs in terms of ITC accumulation: Official

The official added that businesses should act in good faith, keeping their bona fide intent in mind. The accumulation of ITC has arisen because GST rates on final products have been cut under GST 2.0

Industry has the elbow room to factor in costs in terms of accumulation in input tax credit (ITC) arising out of rate rationalisation under goods and services tax (GST) as long as they can be justified as integral to the transaction, a senior government official said.

 

The official added businesses should act in good faith, keeping their bona fide intent in mind.

 

The accumulation of ITC has arisen because GST rates on final products have been cut while input taxes on raw materials and services remain higher.

 

Rationalisation, effective on September 22, has reduced tax rates on several items, with the rates on goods like renewable-energy products and fast-moving consumer goods cut from 12 per cent to 5 per cent.

 

Meanwhile, many products such as air conditioners, batteries, and small cars have been moved from the 28 per cent slab to 18 per cent.

 

“One big concern for dealers in the supply chain is accumulated ITC on opening stocks on September 22 due to reduction in GST rates and consequently dealers charging lower GST. Hence, it is recommended that the government should allow some cushion on lowering prices until this accumulated ITC is exhausted,” said Vivek Jalan, partner, Tax Connect Advisory Services.

 

Meanwhile, the official indicated in the absence of any anti-profiteering law, businesses had flexibility in how they passed on GST benefits to consumers.

 

“There can be many ways of passing on the benefit of price reduction,” he said, adding that companies might do so not only through lower prices but also by increasing the weight of their products in future. He said giving more quantity at the same price would be treated as equal to a price cut, provided it was bona fide and in the best interests of consumers. By stressing this, the official underlined the fact that flexibility should not be misused, and any change must benefit buyers.

 

However, he clarified that the government would not issue any formal clarification on this.

 

Abhishek A Rastogi, founder of Rastogi Chambers and counsel in anti-profiteering matters at the Delhi High Court, said the core legislative intent was to ensure that the benefit reached the consumer. He added that if such benefit was transferred in the form of additional quantities instead of a price reduction, the objective of the law would be met.

 

"The arithmetic must be shown by facts to prove the consumer received the benefit,” added Rastogi.

 

In addition, the official said the government was monitoring whether GST benefits were being passed on to the end consumer.

 

They are awaiting inputs from field formations on September 28. He added the government could not have knee-jerk reactions to fresh reforms and had to wait for them to settle.