GST impact: Companies grapple with absence of anti-profiteering norms

The jury  is still out on the effectiveness of anti-profiteering provisions in the new indirect tax regime. The government is yet to come out with guidelines on computation of profiteering, leaving businesses wary of the provisions.

“Lack of clear instructions on how reduced prices are to be decided is making businesses apprehensive,” says Pratik P Jain, partner and leader, indirect tax, PwC.

The absence of any methodology to compute the benefit has given a lot of discretionary powers to taxpayers, consultants and anti-profiteering authorities, adds Pritam Mahure, a Pune-based GST trainer.

According to experts, there is lack of clarity on the granularity needed for anti-profiteering analysis done by businesses. There is confusion over whether the analysis has to be done at the aggregate company level, the product family level or at the stock keeping unit (SKU).

“There is no guideline available that describes cases fit for anti-profiteering complaints,” says Sachin Menon, partner and head, indirect tax, at KPMG in India. For instance, there is no clarity on whether a complaint for anti-profiteering can be filed if a company is incurring losses.

There are no guidelines on the treatment of common costs and how to deal with supply chain efficiencies. It is also not clear if the National Anti-profiteering Authority (NAA) has issued any internal guidelines on the process to be followed by officers while examining cases.

Deciding the pricing strategy

According to the anti-profiteering provisions, the benefit on account of any reduction in the tax rate on supply of goods and services or the benefit of input tax credit should be passed on to consumers. However, the law does not have any specific mandate that requires a manufacturer to pass on the benefit due to reduction in the price of raw materials. “Technically, it is up to the manufacturer to decide its pricing strategy relating to other cost factors, given the competitive market landscape,” says Menon.

Simplifying complaint filing

In March, the government simplified the application form for filing a complaint under anti-profiteering provisions. The number of columns in the new single-page form has been slashed to 16, of which only 12 are mandatory. Experts suggest putting in place an online filing system, along with a tracker on the application status. Currently, all applications have to be physically sent to the committee constituted under the authority.

Interaction with industry

At present, the NAA is interacting with fast-moving consumer good (FMCG) and pharma companies to understand if GST benefits were passed on to consumers. 

Till date, only two companies, Hindustan Unilever (HUL) and Nestle, have approached the quasi-judicial body.

In fact, the NAA has had hour-long meetings with executives from Reckitt Benckiser, Godrej, P&G, Nirma and Marico, at its Delhi office to understand if they had passed on the rate reduction to consumers and to what extent. More such meetings with industry players are in the offing. The authority has asked these companies to provide additional data to support their claims of passing on the GST benefits.  

“We are holding informal discussions with companies to get their feedback on GST and also to understand if they have passed on the entire benefit to consumers,” according to a government official. In case the NAA is not fully satisfied with the company’s math, it may ask GST commissioners to file an anti-profiteering complaint. The NAA is currently looking into 50 complaints and will issue the orders in the coming weeks.

Allaying the industry’s apprehensions, all three orders passed by the NAA under the GST regime have so far gone in favour of companies.  “It is encouraging to see that the NAA is applying the economic rationale and principles while arriving at complex pricing decisions, especially when there is lack of clarity on this aspect in the law,” adds Jain.

In its latest order, the five-member NAA dismissed a complaint against elevator manufacturer Schindler India on charges of profiteering filed by a Delhi company. The NAA also dismissed the charges against Basmati rice-exporting firm KRBL for not passing on price reduction benefits to consumers under the GST. Before that, it had dismissed the complaint against Vrandavaneshwaree Automotive, a Bareilly-based dealer for Honda cars, by concluding that it did not contravene the anti-profiteering provisions of the CGST Act.

Given the limited number of orders passed by the authority till date, the performance can be measured more effectively once more orders are issued, according to experts. Further, industry players point out that there is no enabling provision in the GST law to challenge the NAA order. However, legal experts say businesses have the option of filing writ petitions before high court. 

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