Nearly a year after the National Anti-profiteering Authority (NAA)
was set up, it has disposed of only eleven complaints and fined just
four companies for paltry sums so far for not passing on the benefits of
GST rate cuts or input tax credit to the consumers.
The
government was vocal at the start that NAA’s approach would be
non-intrusive and that it would take up only such cases that have a
‘mass impact’.
Nearly a year after the National Anti-profiteering Authority (NAA)
was set up, it has disposed of only eleven complaints and fined just
four companies for paltry sums so far for not passing on the benefits of
GST rate cuts or input tax credit to the consumers. The three-tier
anti-profiteering mechanism is proving unequal to the costs and labour
required to run it. While the government had set an initial two-year
lifespan for the authority, it looks increasingly clear that it won’t
get an extended term. Meanwhile, NAA’s constitutional validity is also
being challenged.
The government was vocal at the start that NAA’s approach would be
non-intrusive and that it would take up only such cases that have a
‘mass impact’.
The bureaucracy, nevertheless, is slowing setting in. The
authorities, as was clear in a Hindustan Unilever dealer case, are
insisting on cumbersome compliance models for companies that undertake
both price and grammage changes to pass on the GST benefits.
While the
Delhi High Court
has admitted a petition challenging the constitutional validity of the
anti-profiteering mechanism, experts have cautioned against the
practical difficulties faced by businesses that have no intention to
deny the consumer the benefit of tax cut.
Responding to the NAA order on Maggi noodles dealer, Pratik Jain,
partner and leader indirect tax at PwC India, said: “This is perhaps the
first NAA order which explicitly states that any benefit arising out of
GST has to be passed on at each stock keeping unit (SKU) level and the
same cannot be averaged out, which may turn out to be a painful exercise
for businesses, particularly FMCG companies, where the number of SKUs
are huge.” He added that the ruling again underlined the need to have a
proper guideline as to how the benefit has to be passed on, in terms of
the regulations.
FMCG major HUL admitted to a self-assessed profiteered amount of Rs 160
crore and Nestle conceded to have pocketed some Rs 15 crore of GST
benefits. These admissions would have been made by the firms even
without NAA.
The petition at the Delhi HC was filed by Gurgaon-based real estate
developer Pyramid Infratech, which was held guilty of profiteering by
the NAA last month. The court has posted the matter for hearing on
November 20. “This is the first case of anti-profiteering when the
constitutional validity of the provisions is challenged. The provisions
lack procedural mechanisms to determine the quantum of profiteering,”
said Abhishek A Rastogi, partner at Khaitan & Co, who is appearing
for the petitioner.
So far, the Centre has received 169 complaints of profiteering.
Additionally, the state-level screening committees have received nearly
70 complaints with Andhra Pradesh and Rajasthan topping the list with
receipts of 5 complaints each.
The anti-profiteering mechanism that comprises the NAA,
DG-anti-profiteering, a standing committee at the national level and
screening committees at states, is tasked to ensure that a reduction in
tax incidence due to rate cuts or the benefit of input tax credit has
been passed on to customers by way of commensurate reduction in prices.
If the authority confirms the necessity of applying anti-profiteering
measures, it has the power to order the business concerned to reduce its
prices or return the undue benefit availed along with interest to the
recipient of the good or service.
If the undue benefit cannot be passed on to the recipient, it can be
ordered to be deposited in the consumer welfare fund within a stipulated
time. The authority can impose a penalty on the defaulting business
entity and even order the cancellation of its registration under GST.