Anti Profiteering Rules Under GST in India – Section 171 of the CGST Act, 2017

Narendra Kumar

02 Apr, 2021

In this article, we are going to discuss the Anti Profiteering Rules under GST.

They are specified with a view to implementing the anti-profiteering measure specified under Section 171 of the CGST Act, 2017.

In the last few months, tax rates relating to the majority of goods are reduced. As the Section 171 of GST, Act 2017 clearly states, the main objective is to make sure that the benefit of such tax reduction and input tax credit shall be passed on to the end recipient of such goods or services. In many foreign nations, an increase in the prices was observed after the implementation of GST. Learning from the mistakes of such countries, it is a much-appreciated step to introduce these Anti Profiteering Rules under GST.

Check on two fronts

These rules specified as per Section 171 of GST, Act 2017 impose a check on two fronts i.e. it states that the benefits of reduction in tax rates, as well as the benefit of the input tax credit, should be finally passed on to the end-user. 

Reduction in Tax Rates

After many recommendations and objections from the various business sections, the GST council^[1] reduced the applicable tax rates of over 200 products. The main object of such reductions is to pass on the benefits to final recipients. However, there are many traders who may misuse these cuts in tax rates. They may adopt unjust profiteering policies like, just reducing the prices of slow-moving goods and no reduction in the prices of fast-moving goods, thus covering up their average turnover.

However, after the introduction of these anti-profiteering rules, it is required that the manufacturers and traders reduce the prices of such goods and services on which tax rates are reduced by the authorities.

Input tax Credit Benefit

Input Tax Credit can be claimed for the tax paid on input goods or services which contribute the output.

Under some old laws, such credit was available. However, no free flow of such credit was available, as there were any restrictions regarding the same. Introduction of Goods and Service Tax eliminated this issue and ensured the free flow of ITC. Thus eliminating the tax on a tax-related defect in the system. This may result in a reduction in the cost of various goods or services. With the introduction of the provision of reverting back of input tax credit to traders and business houses, it becomes the responsibility of such business houses and traders to make sure that this benefit of GST is passed on to the consumers in the form of reduced prices.

As one of the objects of Section 171 of CGST, Act 2017 is to pass on the benefits of such reduction in cost as a result of input tax credit to be passed on to the ultimate recipient of such goods or services.

Proposed product-specific approach

It is recommended that anti-profiteering rules should be item-specific. This will have a greater impact and more will give better results in imposing anti-profiteering rules.

As we have discussed earlier that certain business houses just reduce the prices of slow-moving goods and the prices of fast-moving goods remain unchanged. This practice can also be discouraged by adopting a product-specific approach. Under this approach, if any complaint is received by the concerned authorities, they will check the flow of input tax credit in that specific product and its effect on the actual tax liability on that specific product.

Anti-profiteering guidelines on the basis of products are simpler, and as a result of their implementation, it will become easier to map out the entire supply chain of goods or services.

Many experts are of the opinion that a certain level of flexibility is required to be built into the framework as different companies have their unique cost and margin structure, depending on their business. These different cost structures cannot be entirely ignored while deciding the maximum retail price of any goods or services.

On the forefront, anti-profiteering rules are a very appreciable step and will be very effective in safeguarding consumer interests. However, this will increase the work of businesses and government authorities by many folds due to each and every product revaluation and tax effects on the market after the rollout of the goods and service tax.

Anti-Profiteering Authorities

With a view to investigating anti-profiteering complaints from consumers and compliance of Anti Profiteering Rules under GST, a three-tier authority structure has been made.

National Anti-Profiteering Authority is set on the top of the tier. Senior bureaucrat, Mr. Badri Marian Sharma is appointed as the Chairman of the National Anti-Profiteering Authority (NAA).

State-level screening committees and a standing committee at the national level will also be set up to screen complaints.

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