Anti-Profiteering Rules under GST

Goods and Services Tax is an opportunity to right the wrongs.
One of the major benefits of GST is that it provides for Input tax credit. No tax will be paid on already paid taxes, which is beneficial for traders, manufacturers and the customers. The government is taking every possible step to make it certain that the common folk aren’t exploited at the hands of traders looking to make the extra buck. In this regard, the government inserted Clause 171 in the GST Law.
Clause 171
What –
Clause 171 or the Anti-profiteering Clause in the GST law provides that it is mandatory to pass on the benefit of tax or from input tax credit to the consumer by way of equal reduction in prices.
Why –
As Shakespeare said, profit is a blessing as long as one doesn’t steal it. The provision for anti-profiteering doesn’t mean traders should not earn profits – it is the motivation for doing business after all. The clause is there to ensure that the benefits of GST are passed on to the consumers as well. Related rules which were made public on June 19th state that if a trader does not pass on the benefit, either fully or partially, the registration of his business will be cancelled.
How –
Once a complaint is filed before the State Level screening body about suspected wrongdoing, it will be examined thoroughly. A meritorious complaint will be forwarded to the Standing Committee. The national level screening body will look into the facts and if the information is satisfactory, it will be passed to the National Anti-profiteering Authority (NAPA).
Who –
The GST law provides for a three tiered mechanism to find and take action against offenders who earn their profits illegally. There are two screening bodies at the national and state levels, with five members each. The NAPA is authorized to examine each complaint separately and to pass the necessary order. The Authority will exist for 2 years from the date on which the Chairman enters upon his office unless the Council recommends otherwise.
NAPA, under rule 3, will consist of:
  1. A chairman who holds or has held a post equivalent in rank to a secretary in the Government of India; and
  2. Four technical members who are or have been commissioners of the State tax or Central tax or have held an equivalent post under the existing law – to be nominated by the Council.
  3. The Additional Director General of Safeguards under the CBEC (Board) shall be the Secretary to the Authority.
If the members of NAPA differ in opinion on any point, the point shall be decided according to the opinion of the majority.
Penalties –
Even as finance minister insisted that they hoped to never impose the clause, the penalty seems rather extreme. The NAPA can order:
  • Reduction in prices proportionate with lowering of tax incidence,
  • Return the undue profit earned by not passing the tax benefits to the consumers,
  • Charge 18% interest on the sum for the intervening period which will be calculated from the date of collection of higher amount till the date of return of such amount,
  • Imposition of penalty under the Act,
  • Cancellation of registration as per the Act.
The risk of getting their registration cancelled is scary enough to make tax compliant traders pass on the benefits to the consumers. Now it remains to be seen how effective this tactic proves to be. Bakhi jisko darr nai lagta woh karega tax ki chori.