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2016

Anti Profiteering Incorporated in Revised Model GST Act, 2016 - Its Impact and Litigation

  • Finally, anti profiteering will become a reality in lieu of Section 163 incorporated under the Revised Model GST Act, 2016. It must be known that the GST Council secretariat has issued the revised model GST Act,2016 through CBEC on 25.11.2016.

Section 163. Anti-profiteering Measure

(1) The Central Government may by law constitute an Authority, or entrust an existing Authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.
(2) The Authority referred to in sub-section (1) shall exercise such functions and have such powers, including those for imposition of penalty, as may be prescribed in cases where it finds that the price being charged has not been reduced as aforesaid.

Why Anti Profiteering Measure?

  • The existing rate structure results in higher taxes on various products. Whereas, after GST , various products will see reduction in prices upto 10%.
  • Hence, the Central Government wants to ensure that traders do not take advantage by using GST as an excuse to raise the price of goods for the purpose of making excessive profits.
  • Rather, such reduction of cost should be passed over to the consumer.

What Finance Minister Hinted In Past?

  • Oflate, the Finance Minister had hinted that anti profiteering clause shall be incorporated in GST Act.
    "Companies should be able to save on logistics, protect themselves better from imports and optimize operations, all of which should lead to reduced prices. In the long run, the tax rate will come down and with that, the price of many goods".
    "Currently, what the taxpayers are paying is phenomenally much higher. For almost 60-70% of the commodities on a weighted average, you are paying 27% plus a large number of other small taxes".
    (Source Economic Times)
  • With the given background he has also aired that such reduced prices should be passed over to the consumer.

Anti Profiteering in Malaysia

  • The concept of anti profiteering already exists in Malaysia. There is Price Control and Anti-Profiteering Act 2011, in Malaysia which is enforced by way of National Price Council.
  • It releases Shopper's Guide and also results to fix a benchmark prices i.e. it acts as price setter.
  • They have inbuilt provision for imposition of heavier fines and penalties for those traders which fail to comply such requirement of price.

How is the government going to control prices with anti profiteering clause?

a. It will be validated by way of enactment of separate Act as well as constitution of a specific administrative authority to implement such a law.
b. Enactment of laws at par with Price Control and Anti-Profiteering Act 2011 of Malaysia.
c. Setting up of ministries like the Ministry of Domestic Trade, Cooperatives as well as Consumerism to monitor, control and take action on any price increase due to excessive profiteering.
d. The Government will undertake various measures to ensure savings by the businesses is ultimately passed on to the consumers.
e. creation of Shoppers' Guide, as well as making the hypermarkets act as price setters.
f. incorporating provision for heavier fines and penalties for the traders who fail to follow such provisions.
g. Hypermarkets and Supermarkets like Big Bazaar, Reliance Retail etc will play a big role as price setters of various goods.

Conclusion

  • This will result into various unforeseen litigation and cost auditing cannot be ruled out for various products.
  • Companies should cautiously revisit their costing strategy so that unwanted disputes can be prevented.
  • Since, hypermarkets and supermarkets will play an eminent role for setting price benchmark so the organized sector will see various considerations as well.
Financial Management