Goods and Service Tax

Anti-Profiteering Measures under GST: A Spirited Defense against Temporary Inflation

calendar29 May, 2020
timeReading Time: 4 Minutes
Anti Profiteering Measures under GST

The purpose behind enacting Anti-Profiteering Measures under GST was to restrict entities from earning huge profits due to Goods and Service Tax. These provisions came into force to subdue unfair profiteering and ensure consumer protection from price hikes. Anti-profiteering measures under GST hold a special place in the Goods and Service Tax regime. After the GST law got implemented, consumers, as well as businesses, have enjoyed a lot of benefits.

  • Moving back to the past, we can affirm that service tax law was there to govern the services while value-added tax and excise laws were there in order to govern the goods. With the instigation of GST in July 2017 in India, the cascading effects of indirect taxes got eliminated, and the entire cost of goods and services in the economy got reduced, eventually benefitting the end consumers.
  • GST has developed a framework of higher availability of credit for services as well as goods that a business has consumed. Furthermore, goods and service tax has simplified the compliances. In the past, many countries came up with GST or VAT, and they observed that these taxes have an inflationary effect during the beginning days. Due to this effect, benefits were not reaching up to the hands of ultimate consumers. However, the introduction of GST has brought many positive outcomes, especially for consumers.
  • Example: – Initially, the tax rate on meals in restaurants was 20.5%. After the reduction in the tax rate, it has become 18%. In other words, we can also say that the supplier of food won’t be able to sell Rs 100 worth food item for Rs 120 as earlier, and now the supplier can sell it for Rs 118 only.

Anti-Profiteering Measures under GST- An In-Depth Study

  • Ground reports over GST implementation suggest that various countries have observed an increase in the prices after the implementation of goods and service tax. For instance, in the year 1994, Singapore has introduced GST, and the nation witnessed a hike in inflation, making the path clear for profiteering. Therefore, anti-profiteering rules under GST became a must to tackle these profiteering issues.
  • At the retail level, anti-profiteering measures under GST came into the picture for providing protection to consumers from an increase in the prices.  In India, the applicability of the anti-profiteering measures under GST has stopped businesses from generating unnecessary profits from the customers.   
  • The enactment of anti-profiteering provisions has restrained the businesses from making profits by profiteering methods. Also, it has ensured the ultimate consumers that they will get goods and services at a reduced price. The provisions have made the businesses pass ahead the benefits arising on two grounds-
provisions have made the businesses pass ahead the benefits arising on two grounds
  • In order to administer the anti-profiteering provisions in an efficient manner, A National Anti-Profiteering Authority[1] got legislated. All the consumers have got the right to approach the authority against that supplier who has not passed on the defined benefit. Most importantly, consumers must maintain documentary evidence with them to approach authority.

Authorities got empowered-

  • To ascertain whether the goods and service tax benefit passed on
  • To recognize those people properly who have not passed on the benefit
  • Registration cancellation
  • To order price reduction
  • To repay the customer an unpassed amount and penalty imposed on the supplier
  • Even though this step is good in most of the ways, it has its own share of limitations as well since the concept is at an embryonic stage in India.    

Read our article:Elucidation on GST Refund Issues – Recent Updates

What are the Challenges that Business Communities face in Acting in Accordance with Anti-Profiteering Rules?

Business communities have to face numerous challenges conforming to anti-profiteering measures under GST.

  • The anti-profiteering regulations have not specified a proper method of computation of goods and service tax implementation benefits. Businesses won’t be able to prove the compliances with these anti-profiteering guidelines, and lack of adequate guidelines could lead to vagueness.
  • In most cases, Ascertaining of pricing is on the basis of market forces, and businesses are dynamic. Although the increase in regular prices doesn’t fall under the ambit of anti-profiteering measures under GST, businesses will be facing difficulties in justifying the same.
  • There is no time limit specified concerning the operations of the anti-profiteering rules have made it ambiguous for the industry as when the specified benefits would get passed, mainly in those circumstances where several economic factors would increase the entire cost.
  • Anti-profiteering provisions have many controversies associated with them, and these things often lead to disputes and conflicts.
  • As per the anti-profiteering provisions, businesses must pass on the tax reduction benefits and rise in ITC on the supply of goods or services. If an entity is involved in supplying many products or services, then the benefits would get computed for each and eventually passed on to the recipient. This process consists of a lot of complexities.

Overcoming the Challenges

  • Businesses should take up prudent measures to alleviate the harmful effects of anti-profiteering provisions.
  • Businesses should review their pricing policy for the products as well as services.
  • Businesses must evaluate the probable impact of the anti-profiteering condition.
  • Proper documentation should take place without thinking about the benefit accruing to the company.

Conclusion

Anti-profiteering measures under GST are a worthwhile step in the direction of protection of consumer interests and a controlling measure of unfair profiteering. These provisions won’t let the GST raise the level of inflation in the economy. Making compliance with the anti-profiteering provisions is crucial for one and all.

Read our article:GST on Food Services and Food Items: All that you need to Know

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