Companies have approached the court against various aspects of NAA, including its constitutional validity and the absence of methodology to compute profiteering.
Some petitions say NAA does not have a judicial member despite being a quasi-judicial body. The chairman is bureaucrat, while one of the two members is a bureaucrat and the other the revenue officer. As far as methodology is concerned, according to Section 171 of the Central Goods and Services Tax (CGST) Act, 2017, which deals with anti-profiteering measures, companies have to give consumers “commensurate” reduction in prices following the rate cuts in GST or input tax credit (ITC) benefits. Rule 126 of the CGST Act merely says the authority may determine the methodology and procedure in this regard.
“The moot point is not on the constitutional validity of NAA but on the constitutional validity of the anti-profiteering provisions, especially in the light of the absence of methodology to determine the quantum of profiteering and usage of certain vague terms such as commensurate reduction in prices,” said Abhishek Rastogi, partner at Khaitan & Co.
Rastogi, who is arguing a dozen anti-profiteering writs in the Delhi HC, said while businesses are not shying away from passing the benefits of GST reduction and ITC, the dispute is generally on the quantum of profiteering.
Pratik Jain, partner at PwC, said there are many aspects that are subject matters of appeals under anti-profiteering, including the lack of precise methodology to determine the amount alleged to be “profiteered”.
“For example, whether the profiteering should be computed at product level, portfolio level or at entity level is one critical issue. Pricing is an amalgamation of complex commercial and economic considerations in addition to tax and it will be interesting to see how the court will look at the matter,” Jain said.
Kapil Rana, founder and chairman of HostBooks, said the provisions on NAA can be considered violative of Articles 14 and 19 of the Constitution. “The principle of equality has been breached with the uncontrolled choice of the executive and unguided discretion, which is arbitrary in nature. Article 19 (1) (g) is being violated because the inherent profit motive of the traders is undermined. Reasonable restrictions for interests of the general public are also not visible,” he said.
Consumer group’s arguments
Pradeep S Mehta, secretary general of CUTS International, termed the petitions filed by companies as unfair. He expressed concern over the benefits of tax rate reduction not being passed on to consumers through reduction in price of goods or services.
Learning from the VAT experience, he said, legal heft was provided in GST law by incorporating anti-profiteering provisions. Mehta cited a report released in 2010 by the Comptroller and Auditor General of India (CAG) that said dealers did not pass benefits of tax reduction to consumers after implementation of state-level VAT.
“Anti-profiteering provisions are a positive step towards protecting consumer interests and rein in unjust enrichment, so that GST does not add to inflation in the economy”, said Mehta.
When asked if there is no clear-cut methodology to compute profiteering, Mehta said there may be some defects in methodology and “commensurate” reduction in prices may be subjective, but the broad processes are defined. On a case-to-case basis, investigation has to look into specifics that are not there in broad processes.
Mehta also said many don’t understand the nuances of profiteering. “One has to understand the distinction between profit and profiteering. Profiteering is when you are not passing the benefits of ITC and GST reduction to consumers. Profit making and profiteering are not synonymous,” he said.