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Anti-Profiteering Measures Under Model Goods And Services Tax Law

Posted on September 30 2020


The Revised Model Goods and Service Tax Law (MGL) has been released in November 2016 after taking into the account various representation made by the stake-holders. Changes made which include capping of the tax rates, simplification of Job-work related procedure, excluding of the Government subsidies from the definition of consideration etc.
The revised MGL do have something for the consumers as well. The Revised MGL introduced the anti-profiteering measures under the section 163 to make sure that the following advantage on the account of implementation of GST is passed on to the consumers:
– Advantage on the account of input tax credits, which will be available on almost all the goods/services used as inputs.
– Advantage on the account of reduction in the rate of taxes.
Above efficiently means that the reduction in the price of goods/service should proportionate with the reduction in tax cost on the account of introduction of GST. Further the transition provision of the revised MGL (section 169) recommends allowing the credit of duties and taxes in the respect of inputs held in stock liable to the condition of passing the advantage to the consumer.
Need for Anti-profiteering Measures:
Many countries have witnessed the increase in the inflation after the implementation of GST. The increase in prices was mainly associated to the unwillingness on the part of supply chain participants to pass on the advantage as well as anticipated uncertainty on the account of new tax regime. Learning from the experience of these countries India decided to the implement anti-profiteering measures to make sure that benefits of an efficient tax system are passed on the consumers.
Indian authorities are looking extra vigilant as approximately 50% of the items in the Consumer Price Index (CPI) are scheduled to be exempted for scheduled GST and most of the balance items are scheduled to be taxed at the lower rate.
Anti-profiteering laws were also executed in the other countries.
How will it operate?
The authority created was entitled to plan the price surveillance, monitoring and enquiry to make sure that the price reduction is justified.
The existing law was revised to check the net profit margin earned on various goods/services pre and post GST. In case of the increase then the supplier is called upon to justify such kind of change.
The revised MGL administers that the Central Government will allocate an Authority to examine whether or not the advantage of the additional ITC or reduction in the tax rate or both have actually resulted in a proportionate the reduction in the price of the goods/services. The functions and powers of the authority which include the power to levy the penalty will be described.
Only time will tell, how much practical will it be for businesses to have one-to-one interaction between the acquisition and the supply of goods/services particularly with respect to the common input services for the big conglomerate?
What is expected from the supplier (seller)?
  • A supplier is under an agreement to determine the reduction in the cost of goods/service due to the availability of ITC and reduction in the tax rates in GST regime and accordingly the price of the goods/service should be regulated to pass the benefit to the consumer.
  • Reduction in the cost due to additional ITC will generally be on account of following:
  • Availability of the credit on the capital goods installed at places other than the manufacturing units.
  • Availability of the credit on the inputs (except certain inputs) whether it is used in the factory of manufacturing or not.
  • Availability of the credit on numerous inputs services (except certain input services) which were not available previously.
Above the ITC can be at different levels like manufacturing level, depot level or at the retail level.
  • Reduction in the cost due to the reduction in the tax rates will be very probable from the duty liability statement of the suppliers.
What a buyer should do?
One side of the coin was supplier’s agreement to pass on the GST advantage to the consumer and the other side is about the buyer. Whether this anti-profiteering the Law gives the buyers a legal right to renegotiate and secure the advantages supplied by the GST law? Not much is known about this based on the data available in the public and only time will tell what are the rights of the buyer.
It is expected that MGL on the anti-profiteering will trigger renegotiations with vendors to secure price concession on account of GST implementation accumulating to the vendor but whether not commencing an agreement with vendors be assumed as not taking prudent efforts by the supplier for passing on the benefit?  Let’s wait together for an answer but what generally matters is the capability to determine that a reasonable efforts has been put in to make sure that the benefits are passed on to the consumer.
In view of the anti-profiteering measures being introduced in MGL, suppliers should map all transactions to compare cost variance (goods/services wise) on account of change in tax regime which include items like ITC, output tax liability etc. Other factors such as inflation, fluctuations in the cost raw material excluding taxes, currency fluctuations etc. may also be considered. This will enable suppliers to demonstrate the reason for change in price/margins of goods/services. Suppliers should be extra cautions as anti-profiteering laws may lead to inspector raj. Further buyers should also try to renegotiate the contracts to capture the benefit on account of GST.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.


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