Just In: Explaining Anti Profiteering clause under GST, What is Anti Profiteering Clause

The provision regarding the anti profiteering clause are contained in Clause 171 of the CGST Bill.

The Clause says that:

171. (1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. 

(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. 

(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.

Clearly, it is apparent that Anti Profiteering measure is indeed a weapon in Union Govt arsenal. However, they expect the companies to cooperate and pass on the benefits of cost reduction to the consumers.

Check all the acts, rules, rates here

Example

Lets check in real terms:

Today, a ghee dosa at a popular restaurant in New Delhi costs Rs 160. The same dosa in the same chain in Chennai costs Rs 80. GST rates of ghee are now fixed at 12%, which is a reduction from the current 12.5% tax for ghee in Delhi but an increase from the current 5% in Chennai. But GST rates for services in an air-conditioned restaurant are 18%, down from 22% in both the states.

So, as per the government’s“expectations of cooperation”, this restaurant should now drop its price of ghee dosa in its outlets in Delhi and the quantum of this price decrease should be a precise weighted average of the GST rate reductions of half a percentage point for ghee and four percentage points for service tax. Ostensibly, an officer from the new “Anti Profiteering Authority of India” will now do this calculation and inspect the restaurant in Delhi to check if the price of ghee dosa has indeed been reduced by this amount.

Development of Anti Profiteering Clause :

The anti profiteering clause was not present in First model GST law, when revised model GST law was released this measure was incorporated which further found its place in the GST Act. This move by the Union govt has been inspired by Malaysian Govt which have implemented this in their law.

Up next:

Dr. Hasmukh Adhia, Revenue Secretary has said that it doesn't want to unleash this weapon unless the companies are willing to cooperate and agree to pass on the benefits. However, India Inc is not clear on this measure as rules and other related aspects have not been released yet.

Our Opinion:

Anti Profiteering Clause is a good measure to keep a tab on companies as well as to ensure that consumers are benefited At the same time, there should not an excessive regulatory environment for the companies to work in.

Source: CGST Act, LiveMint etc.

Learn more on GST with GST EXPLAINED.