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29 Int'l Tax Rev. 16 (2018-2019)
Anti-Profiteering and India's GST: A Double-Edged Sword

handle is hein.journals/intaxr29 and id is 202 raw text is: Og MIA_ 51 1AE, - ', P... 'W e NOW 309'T Anti-profiteering and India's GST: A double-edged sword Bela Sheth Mao and Parul Anand of Deloitte India explore the anti-profiteering provisions in India's GST law and make suggestions as to how businesses should deal with its effects. pecific anti-profiteering provisions have been legislated for in the goods and services tax (GST) law which came into effect on July 1 2017. This in itself is not a surprise because as a concept, anti-profi- teering is not new. There is substantial international precedence, notably in Australia and Malaysia, and domestic precedence in the form of unjust enrichment provisions in previous indirect tax laws. The need and benefit of having anti -profiteering legislation is also commonly understood and accepted. In the Indian context, the two key drivers ensure that benefits are passed on to consumers and to protect them from unjustified price increases and manage any undue inflationary impact of GST on the economy. Ten months since the introduction of the GST the processes to lodge complaints, review, monitor, and enforce compliance are operational. However, there remains significant concern and uncertainty for industry. This is primarily due to the absence of clear guidance on how businesses should implement the provi- sions. This is a critical gap. The early indications are that non-compliance will be pursued and penalised by the tax authorities. The levels of unease amongst The National Anti-Profiteering Authority has the power to penalise or compensate and order a reduction in price. businesses is likely to increase over the next few months as the out- comes of the first investigations are notified and negative orders issued. In the absence of clear rules on implementation, these ini- tial orders will be critical in providing some insight into how the legal obligation is to be met in practice. It is therefore time critical that businesses understand the requirements of the anti-profiteering provision and plan for action that needs to be taken now. Doing nothing is not an option. To ensure that businesses move forward with more confidence and reduce their risk of investigation and litigation, they should at the very least undertake an anti -profiteering analysis to assess the impli- cations and work plan for remedial action. For those that have adjusted prices, the question that arises is how well prepared is the business to respond to an investigation. Key requirements in India S171 of the Central GST Act (CGST Act) deals with anti-profiteer- ing and states that any reduction in the rate of tax on the supply of goods or services, or the benefit of input tax credit, shall be passed on to the recipient by ray of a commensurate reduction in prices. S171 is accompanied by the Anti -Profiteering Rules 2017 (the Rules), which focus on the setup, governance and powers of the review and investigation bodies. Under the Rules, the National Anti- Profiteering Authority (the NAA) and state-level screening committees have been established to review complaints, with the director general of safeguards (DGS) being made responsible for the detailed inves- tigation of cases. The three-stage review process starts with the state screening committees reviewing cases of alleged anti -profiteering and mak- ing recommendations to the relevant standing committee to examine the accuracy of the evidence and determine whether to refer such cases to the DGS. The DGS then has a three-month period (extendable by another three months) to investigate and report to the NAA. The NAA has the power to punish or compensate and order: A reduction in prices; The return of sums not passed on to consumers. Where this is not possible the sums would be deposited in a welfare fund (in both cases with interest of 18%); Impose a penalty; and The cancellation of registration of any business. Early cases under investigation, including the cases of a Honda dealer and Hindustan Unilever, point to a lengthy investigation process taking a minimum of four to seven months. Notably the rules do provide that the NAA may determine the methodology for assessing whether pricing has breached the obli- gations. It is this critical power that the NAA has not yet exercised in the form of issuing guidance and rules that taxpayers can adopt in a proactive manner. In fact, the chairman of the NAA, BN Sharma, has stated in public forums that his organisation is unlikely to issue any further guidance or rules for the implementation of the provisions. Businesses may be able to get some idea on the direc- tion in which this will progress through decisions and orders that are being issued following the completion of the first few investi- gations. If this proves to be the case, however helpful those deci- sions are in setting out the methodology, it is likely to mean that taxpayers will be responding to expectations that have retrospective application, as the provision is applicable from July 1 2017. What else do we know? While we wait for the specifics to emerge, a number of answers to key questions can be inferred from the limited legislation: The rules apply to both goods and services - this is a departure from the Malaysian experience, where the rules have been focused on fast-moving consumer goods; Both maximum retail price (MRP) and non-MRP based prod- ucts are xithin scope; The rules apply to all parties in the supply chain (manufacturer, brand owner, distributors and retailers); Sectors attracting early focus include fast-moving consumer goods, auto, real estate and restaurants; The legislation is evergreen as there is no end date for it; and The obligation is dynamic and ongoing. It is not a one-time activity. This is because GST rates will continue to undergo ratio- nalisation (as seen in November 2017, when the rates for more WWW.INTERNATIONALTAXREVIEW.COM 16 May 2018

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