As we complete a year since the roll-out of the Goods and Services Tax, clarity on the ‘anti-profiteering’ provision has been at the forefront of taxpayers’ worries. Though the provision was introduced with the intent of benefiting the consumer, the question remains as to whether the intent has materialised.

Legal provisions

The Central GST Act, 2017, contains an anti-profiteering clause (Section 171) which mandates manufacturers and others in the supply chain to pass on the benefits of rate reduction and more credits being available in the GST regime, to the consumer, by way of commensurate reduction in prices.

The section also empowers the Centre to constitute an authority or entrust an existing authority to ensure compliance of the anti-profiteering provisions.

In accordance with the aforesaid provisions, the National Anti-Profiteering Authority (NAPA)was constituted.

NAPA has the authority to seek details, order price reduction and even levy penalty or cancel GST registration.

Issues in computing benefits

However, for computing anti-profiteering benefits, the Centre has made available no specific guidance, except a few press releases issued last year by the Central Board of Indirect Taxes and Customs.

These releases highlighted likely industry/product-wise benefits (for products such as cement, medicaments, etc, and two services — telecom and entertainment). Whilst they feature a few benefits arising out of the GST regime, being just a one or two pager, they end up being high-level analysis than reliable documents.

Though the guidelines to compute the benefits have not yet been made available, the taxpayer (ie manufacturer/trader/service provider) is still expected to compute the likely benefit and pass on the same. In this regard, there are practical stumbling blocks for the taxpayers.

The anti-profiteering provision categorises the benefits into two baskets: one, additional input-tax credits becoming available in the GST regime, and two, reduction in tax rates, if any. Pre-GST, the Central Sales Tax was a cost in the supply chain; under GST, there isn’t any CST. This could be construed as a benefit arising out of the transition to GST. Similarly, all additional credits which are expected to accrue to a taxpayer need to be computed and passed on to the consumer.

The inherent challenge is, how do you compute the benefits, if any, from GST rate reduction — should it be computed at the product or the organisation level? For example, what should a manufacturer of, say, soaps and shampoos do, if more credits are available for one product and lesser credits for the other? Should only the net benefits be passed on to the consumer or the product-wise benefits (without netting off)? Also, can the benefit be passed on to the consumer by giving free additional quantity of goods (say, 110 g for the price of 100 g)?

For service providers, computation of anti-profiteering benefits is a bigger challenge, as it is difficult to determine the service-level benefits and pass on the same (Unlike products, prices of services may differ customer-wise).

More questions

Another question that arises is whether businesses are expected to pass on the entire benefit which their ecosystems have gained under GST. Is the taxpayer also required to ensure that the vendors pass on the benefits by way of price reduction to the business, so that the business can pass it onwards to the consumer? Thus, even now, it’s a mystery as to whether the taxpayer is required to compute the benefits available at the vendor level and then pass on the gross benefit (ie, arising at the taxpayer level, plus the benefits passed on by the vendors) to the customer.

Further, should the benefit be computed for Tier-I vendors, Tier-II (vendor’s vendor) and Tier-III (vendor’s vendor’s vendor) as well? If so, how are the taxpayers expected to obtain cost data from vendors? The ability of the taxpayer to get data from suppliers is limited, if not missing, as the anti-profiteering provisions do not empower the taxpayers for the same.

Further, even if a few vendors share the data, how can the company verify the veracity of the details shared?

Is the taxpayer expected to carry out an audit of his/her vendors for the same or obtain a certificate from the vendor’s statutory/internal auditors?

Way forward

One of the biggest practical challenges of the anti-profiteering provision is ensuring that price reduction actually reaches the consumer. This is particularly true in case of the B2C segment.

The anti-profiteering provision has fallen short of explaining the methodology to compute the benefits, leaving everything to the imagination of taxpayers/consultants and the discretion of the authorities.

However, with the GST crossing a year, hopes are still high that the Centre would issue detailed guidelines

The writer is a Chartered Accountant.