The Supreme Court on Monday issued notices to the Central government, the GST Council, the Central Board of Indirect Taxes and Customs, and others in a case relating to the constitutional validity of anti-profiteering provisions under the goods and services tax (GST).

A bench of Chief Justice D.Y. Chandrachud, with Justices J.B. Pardiwala and Manoj Misra, did not grant the prayer for a stay.

The SC notices were in response to a plea challenging the Delhi High Court judgement, which had upheld the validity of a provision of the Central Goods and Services Tax (CGST) Act mandating that whatever companies save in tax they must reduce in price.

The High Court had, on January 29, upheld the constitutional validity of Section 171 of the CGST Act, 2017 which mandates that whatever the companies save in tax they must reduce in price.

The High Court had said that the anti-profiteering provisions in the 2017 law and the related rules are in the nature of beneficial legislation as they promote consumer welfare. With this, orders pronounced by erstwhile National Anti-Profiteering Authority (NAA) would continue to have validity.

The order was a setback to around 100 companies including Hindustan Unilever, Nestle and Reckitt Benckiser and others, Aggrieved by the ruling, Excel Rasayan had filed a Special Leave Petition (SLP) in the Apex Court.

Section 171 of the CGST Act deals with anti-profiteering measures and prescribes that any reduction in the rate of tax on supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of a commensurate reduction in prices. Earlier, complaints were to be filed with the NAA. Now, the task is with Competition Commission of India (CCI).

A total of 107 petitions were filed in the Delhi High Court to challenge the constitutional validity of the aforementioned section and related rules, as well as legality of the notices proposing imposition or orders imposing penalty issued by the NAA. The petitioner companies span diverse businesses, ranging from hospitality and fast-moving consumer goods (FMCG) to real estate.

In its judgment, a division bench comprising Acting Chief Justice Manmohan and Justice Dinesh Kumar Sharma of the High Court said, “The constitutional validity of Section 171 of the Act, 2017, as well as Rules 122, 124, 126, 127, 129, 133, and 134 of the Rules, 2017, is upheld.”

The court said that it is possible that there may be cases of arbitrary exercise of power under the anti-profiteering mechanism. However, the remedy for the same is to set aside such orders on their merits, the bench had said.

Commenting on the rationale for the companies appealing in the Apex Court, Ankur Gupta, Practice Leader - Indirect Tax at SW India, said that the purpose behind implementing anti-profiteering provisions was to ensure that companies pass on the benefits of reduced GST rates or increased Input Tax Credit (ITC) to customers. However, over the past six years, the GST Act has evolved significantly, leading to a substantial decrease in the frequency of changes, particularly in GST rates.

According to Gupta, while NAA authorities possess specialised knowledge of GST provisions, CCI authorities lack such expertise. Consequently, the absence of standardised processes or guidelines for anti-profiteering renders the entire exercise discretionary and ambiguous. “As a result, the industry is seeking recourse in the apex court to challenge the lack of specific time limits and the absence of clear guidelines or methodologies in these special provisions,” he said.

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