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June 12, 2017
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June 19, 2017

GST regime: CEA suggests 9-month sunset period for anti-profit clause

GST Anti profit clause

GST Anti profit clause

There was a fear of return of a raid raj, spirit of the provision was primarily to help in the transition to the new regime

With industry flagging concerns regarding the anti-profiteering provision proposed under the Goods and Services Tax (GST) regime, Chief Economic Adviser Arvind Subramanian has moved a suggestion seeking the insertion of a sunset clause of nine months or a year in the anti-profiteering rules to limit the provision. During the discussion on the draft rules for anti-profiteering in the GST Council meeting held on June 3, Subramanian is learnt to have said that since a lot of anxiety had been expressed regarding anti-profiteering and there was a fear of return of a “raid raj,” a sunset clause would be beneficial as the spirit of the anti-profiteering provision was primarily to help in the transition to the new regime, sources said.

West Bengal supported the suggestion of having a sunset clause but added that further discussion was required. While the Centre is of the view that since anti-profiteering was part of the law, a legal exercise would be required to shorten the life of the provision. The anti-profiteering clause has been inserted in the GST-related laws to counter the possibility of manufacturers and service providers not passing on the benefits of lower prices to the final consumer after the transition to GST given the broad assumption that the rollout will bring down prices of goods and services.

The Centre also proposed to have a body under the Central Board of Excise and Customs (CBEC) to enforce the anti-profiteering provision of GST but some states also asked for an autonomous and decentralised body. Citing the possibility of getting many complaints under the anti-profiteering provision, Delhi is learnt to have proposed a decentralised body to look into the complaints while West Bengal suggested that the body should be autonomous, not under CBEC, so that it could take independent decisions, cautioning that the provision should not lead to an inspectorate structure.

Concerns were also raised by states and the Centre on whether the Council should itself take decisions related to the provision as it may give rise to several court cases and it might not be correct to expose the Council directly to litigation, sources said.

The Centre, however, was not in support of creation of an autonomous agency under the Council terming it as a time-consuming exercise that would defeat the purpose of the anti-profiteering provision, sources said. Though the Centre proposed Competition Commission of India as one of the possible authorities to conduct an investigation relating to the anti-profiteering provision, after opposition by some states, it has favoured entrusting DG, Safeguards, under CBEC, for the role given its experience in carrying out investigation in relation to the applications under the WTO Agreement on Safeguards.

States such as Kerala and Gujarat suggested making public a matrix of the tax impact before and after the transition in order to enable consumers to take an informed decision. Gujarat was also of the view that providing the existing and proposed tax incidence was not sufficient and information pertaining to benefit of input tax credit would also need to be provided to the consumer. The Centre is learnt to have supported the suggestion and stated that the government could publish such information, but only commodity-wise and not company-wise.

Telangana, however, was of the view that lists for tax incidence should be published state-wise since overall weighted average could be misleading. Telangana officials also said that since the GST Council would change tax rate many times, it would not be advisable to have a sunset clause for the anti-profiteering provision.

After discussion on the draft anti-profiteering rules in the June 3 meeting, it was decided that a standing committee, with one Central government officer and four state government officers, on receiving a complaint would decide whether an inquiry should be initiated or not. Once an inquiry is recommended by the Standing Committee, an investigation would be carried out by the authorised body and its inquiry report would be referred back to the Standing Committee, sources said. The draft rules are under further discussions between officials of the states and the Centre.

As per the draft rules, in cases where profiteering will be established, the taxpayer would be directed to reduce price; return the amount equivalent to the amount not passed to the recipient by way of commensurate reduction in prices along with 18 per cent interest; or recover the amount not returned within 30 days that shall be deposited in the Consumer Welfare Fund as provided under Section 57 of the Central GST (CGST) and State GST (SGST) Acts.

Also, members shall have the powers to summon any person considered necessary to produce document of evidence and the inquiry by the anti-profiteering authority shall be deemed to be a judicial proceeding. Section 171 of the CGST Act provides that any reduction in rate of tax on any supply of goods or services, or the benefit of input tax credit shall be passed on to the recipient (consumer) by way of a commensurate reduction in prices. On Sunday, revenue secretary Hasmukh Adhia said the detailed rules are under drafting and they are “not necessarily linked to the rollout”, but the government will expedite the process.

Adhia had earlier said that even if the machinery takes time to be ready, they will have the right to call for information of change in prices retrospectively. The industry has raised concerns saying that it is open to misuse and subjective interpretation as it is difficult to measure how much would amount to commensurate reduction in prices.

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