caalley logo

The alley for Indian Chartered Accountants

Officers’ panel to decide on GST profiteering regulation

New Delhi, Nov 11, 2022

The GST Council appointed committee will assume the function from the coming month
The move may address concerns over deciding the future of the anti-profiteering regime

If the government can remove the administrative bottlenecks, a panel of officers entrusted by the GST Council to take emergency decisions, will issue orders on how goods and services tax (GST)-related profiteering will be regulated after November end, said a person familiar with the discussions in the government.

This is expected to address concerns over deciding the future of the anti-profiteering regime under GST when a GST Council meeting date is not finalized. The Council had earlier asked the Centre to explore the transfer of pending and future anti-profiteering cases to the anti-trust regulator, Competition Commission of India (CCI), after the National Anti-Profiteering Authority (NAA)’s term ends in November.

So far, the GST Council has not called a meeting before that. The officers’ panel is being considered to take urgent decisions between two meetings of the GST Council.

However, there are administrative issues that must be sorted out for merging the investigation wings of the two regulators, and transferring cases from NAA to CCI. One of these is that the regulatory architecture has to be finalized so that the mandates of the two regulators can be carried out under the same roof, the person said, requesting anonymity.

CCI ensures market forces function unhindered and corrects corporate conduct stifling competition so that consumers can benefit from well-functioning markets. It seeks to prevent practices that hinder competition to promote competitiveness and ensure freedom of trade. This will help consumers to have access, choices and price controls, but CCI does not get into price regulation. However, NAA’s mandate is to ensure businesses pass on the benefits of tax rate cuts and availability of input tax credits to consumers, including dealing with pricing and cost of production. The responsibilities are poles apart. Besides, manpower and infrastructure requirements for CCI to take additional mandate has to be sanctioned, said a second person, also seeking anonymity.

Since CCI chairman Ashok Kumar Gupta relinquished office after a four-year tenure, the regulator faces a lack of quorum with just two members at the helm, despite the law allowing a maximum of six members for adjudication.

The anti-profiteering regime sought to prevent businesses from pocketing tax benefits meant for consumers during the transition to the GST regime in 2017, but its constitutionality has been challenged in courts.

Businesses have so far returned ₹510 crore allegedly profiteered from consumers, and may have to return far larger amounts to the consumers, according to official estimates on the regulatory action under the indirect tax regime, Mint reported on 10 October.

Businesses and tax professionals argued that in the absence of guidelines for individual sectors, it is very hard to correctly estimate the quantum of benefit from tax reductions to be passed on to consumers. CCI will require experts on indirect taxation to discharge the mandate of anti-profiteering.

The government has extended the tenure of the NAA twice before. One of the key concerns of the policy makers is profiteering in the real estate sector. Since many projects are delayed, there is a concern that developers may not be passing on the benefit of input tax credits since the rules came into effect in 2017. Hence, continuing with the regulatory oversight beyond November will be important, the second person said.

An email query to the spokesperson of the finance ministry on 1 November and on Thursday seeking comments for the story remained unanswered at the time of publishing.

Given that in a free market economy, the government has little role in deciding on prices except on those items which are price controlled under the Essential Commodities Act, ensuring that businesses pass on the benefit of tax relief to consumers has some limitations.

Once the price of an item inclusive of taxes has been reduced by a business as mandated by a tax rate cut or availability of tax credits, there is no lock in period for the lowered price and businesses are free to increase the base price of the product or service thereafter.

The government is not in a position to question that. Besides, there is no ecosystem for random sample collection from the market by the authorities to check if businesses are passing on tax benefits to consumers. Consumer awareness plays a major role in enforcement of the anti-profiteering provision.


Read more on:
Don't miss an update!
Subscribe to our newsletter