By Anushree Jois
The Union Cabinet has approved the constitution of the National Anti-Profiteering Authority (NAA). The NAA will ensure that the benefits of input tax credits and reduced tax rates on goods and services are passed on to the consumers under the new Goods and Services Tax (GST) regime. This has been passed due to the recent decision of the Government to reduce tax rates on a large number of goods.
Necessity of the NAA
The GST law is touted to be the largest fiscal reforms in India since independence. One of its unique features is a provision for an anti-profiteering authority. The GST law provides for either constitution of an authority, or empowering any existing authority to examine a profiteering act. The Government has chosen the former. This decision was based on the recommendations of the GST Council.
The introduction of GST in many countries was seen to have resulted in inflation and increase in prices of commodities. This occurred in spite of the availability of tax credit. It was observed that suppliers had failed to pass on tax credits to buyers and indulged in profiteering. Thus, when the GST regime was introduced, an Anti-profiteering Authority was deemed necessary to monitor arbitrary price increments. It was also established to ensure that the benefits under GST are passed onto the consumers.
The GST law clearly states that the NAA was formed for a limited purpose. This limited purpose was to examine whether the benefits of input tax credits availed by a registered person and the reduction in tax rates have resulted in a commensurate reduction in the price of goods and services. Further, the term of NAA is two years, after which it will cease to exist, unless the same is extended. The Finance Ministry expects that the NAA would bolster consumer confidence. Moreover, it expects to ensure that all stakeholders reap the intended benefits of GST.
What is the National Anti-Profiteering Authority?
The NAA is on top of the hierarchy of the anti-profiteering institutional framework as envisaged under the GST law. The Authority will consist of five members, including a Chairman and four Technical Members. The framework also includes the Director General of Safeguards in Central Board of Excise & Customs (CBEC), a Standing Committee, and Screening Committees in every State. The Anti-profiteering Rules, 2017 (the Rules) also elaborate on NAA; its powers and functions.
Where the supplier has failed to pass on benefits of input tax credits and reduced tax rates, the Screening Committee will be approached for relief. If the Committee is satisfied that the supplier has profiteered, it will forward the application to the Standing Committee.
The Standing Committee will be directly approached if the alleged profiteering has national ramifications. If the Committee finds prima facie evidence of profiteering, it will refer the case to the Directorate General of Safeguards in CBEC. The Director-General will conduct a detailed investigation and submit a report to NAA for consideration.
Upon hearing the parties, if NAA concludes that the alleged profiteering is proven, it may pass an order for a reduction in price or refund of profiteered amounts to the consumer, along with interest. When the consumers cannot be identified, the NAA may direct the defaulter to deposit the amount with the Consumer Welfare Fund. The NAA is empowered to penalize or even cancel the registration of defaulting supplier of goods or services.
The defaulting supplier has to immediately comply with the order of the National Anti-Profiteering Authority. If he fails to do that same, an action for recovery will be initiated.
Utlity of the NAA
In a recent move, GST rates on several goods falling under 178 headings were reduced. The reduction in the tax rate, in certain cases, however, did not result in the reduced price of goods and services. For instance, tax rates applicable to restaurants was reduced from 18% (A/C restaurants) and 13% (Non-A/C restaurants) to a uniform 5%.
The restaurant bills, in some cases, did not see any resultant change in price. Some restaurants increased the base price of the food item to retain their earnings as before. Some restaurants even increased their base price resulting in increased bill amounts, despite the lowered tax rates. Such restaurants have justified their inability to pass on the benefits to consumers. The reason provided is their need to increase operational costs and withdrawal facilities to avail input tax credits. Whether there is genuineness in the reasoning of such restaurants, will need further examination.
The National Anti-Profiteering Authority is empowered to carry out examinations to verify if the failure to pass on benefits of input tax credits and reduced tax rates, is genuine or simply a veil to profiteer at the cost of consumers. As the GST regime is newly introduced and the GST Council is actively taking decisions on tax rates, slabs and input tax credits, the establishment of the NAA is necessary to examine cases of alleged profiteering.
The flip side
The approval of the National Anti-Profiteering Authority has given rise to a debate on consumer interests versus business interests. This will benefit the consumers as the NAA will act as a deterrent to suppliers who indulge in profiteering. However, the business enterprises and service providers apprehend that there will be interference in their liberty to fix their prices. Hence, affecting their profit margins.
Presently, The Rules give NAA the liberty to adopt any method and procedure to determine if an act is profiteering or not. Also, there is no clarity regarding an appeal by the aggrieved registered business entity, what constitutes accepted standards of profit margins, etc. With unguided liberty and lack of information on these issues, the business enterprises and service providers are of the opinion that even genuine acts of profit-making may be considered as profiteering.
Countries where the GST regime have been implemented, have formulated a method to determine profiteering. Determination based on profits earned by a company ( a comparison between profits earned before and after the enforcement of GST regime is drawn) or on the pricing of goods and services (if the pricing is exploitative) are commonly adopted. Similarly, India could also choose a suitable method and procedure to determine profiteering. Additionally, clarifications on unclear issues need to be addressed.
The way forward
It is undoubted that the purpose and reasoning for constituting the National Anti-Profiteering Authority are novel and well -intended. The NAA will be futile if areas that are unguided and lack clarity are not defined. This will not only address the concerns of all stakeholders but also assist the NAA to function smoothly. Any imbalance in the mechanism may result in interference than governance.
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