Tough task

One of the main planks on which the Modi government ushered in the Goods and Services Tax (GST) was that it would benefit consumers by way of lower prices. The GST Council has since been ensuring that rates for non-luxury items are periodically pruned to quell inflation. It is, therefore, quite logical that the Centre should follow through on anti-profiteering actions to ensure that consumer-facing firms don’t quietly pocket savings from GST. The National Anti-Profiteering Authority (NAA) was constituted in November and complaints have begun flooding in, with 169 received to date. But the experience from the initial investigations suggests that NAA may have its task cut out in proving cases of profiteering against firms.

The initial set of notices for profiteering have been issued against the franchisee of McDonald’s, Lifestyle International, a departmental store selling HUL products, and a real estate developer. Now, in each of these cases, consumers have made generic complaints about the seller not reducing his MRP exactly in proportion to recent GST rate cuts. But the firms appear to have good counters to this. Restaurants claim that even as their GST rate has been slashed from 18 to 5 per cent, input tax credit (earlier allowed) has been done away with, leading to higher costs. Consumer goods makers argue that while they have promptly revised MRPs, they cannot account for distributors further along the supply chain who hold duty-paid stock or pad up margins. Real estate developers explain that customers may end up with different pass-throughs for the same project depending on how much advance they had paid pre-GST. While the NAA’s response in all of these cases has been to ask for an identical set of documents for further investigation (latest P&L accounts, sample invoices, inward supply details, etc), making a water-tight case of profiteering will entail analysing detailed cost structures, supply sources and input price movements in each case. Given that the NAA has a limited timeline in which to wrap up an investigation and only a two-year lifespan, the question is whether these decisions will come too late to benefit consumers.

The real problem with the Indian anti-profiteering law as it stands today is that while it requires firms to pass on commensurate savings from GST cuts or input credit to consumers, it doesn’t specify how firms must determine what is ‘commensurate’. Enforcing these rules may have been somewhat simpler had India gone the way of Australia or Malaysia, to lay down a normal unit margin or net profit margin for each product, say three months ahead of the GST rollout. The task has become doubly difficult now, especially with the GST Council constantly tinkering with rates. Given the ambiguity, the NAA now needs to strike a fine balance between protecting consumer interests and ensuring that its investigations don’t place an undue compliance burden on businesses. Perhaps it can identify oligopolistic sectors more prone to profiteering and focus its energies on them.

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