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SC notifies Centre about GST anti-profiteering provision

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Notification 13 Feb 2024 12:05 PM IST The Hindu BusinessLine

The Supreme Court notified the Central government, the GST Council, the Central Board of Indirect Taxes and Customs, and others in a dispute involving the constitutional validity of anti-profiteering measures under the goods and services tax (GST). A bench consisting of Chief Justice D.Y. Chandrachud, Justices J.B. Pardiwala, and Manoj Misra denied the stay request.

The Central Goods and Services Tax (CGST) Act stipulates that businesses must lower their prices by the amount of tax savings they generate. The Delhi High Court's ruling upholding this clause led to the SC notices in response to a plea. The High Court, on January 29, upheld the constitutional validity of Section 171 of the CGST Act, 2017, which mandates that whatever 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 like beneficial legislation as they promote consumer welfare. With this, orders pronounced by the erstwhile National Anti-Profiteering Authority (NAA) would remain valid.

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 the supply of goods or services or the benefit of the input tax credit shall be passed on to the recipient by way of a commensurate price reduction. Earlier, complaints were to be filed with the NAA. Now, the task is with the 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.

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

Commenting on the rationale for the companies appearing 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.