In case of GST rate reduction or availment of ITC, what you should know - Anti profiteering measure
Section 171 of the CGST Act, 2017 - Antiprofiteering measure
Before initiating the discussion on anti profiteering measure, one should clearly understand the meaning of anti profiteering under GST Act.
Let's take an example- Mr. A, manufacturer of Set top Box for TV, on which GST rate has been reduced by the govt. from 28% to 18%.
When GST rate was 28%
Cost involved in manufacturing of one Set top box were as follow:-
Cost of raw material - Rs. 100 + GST@ 18% = Rs. 118
Cost of Input services -Rs. 100 + GST@18% = Rs. 118
Profit margin - Rs. 50
Hence, final price to consumer = 100+100+50 = Rs. 250 + GST@28% = Rs. 320
GST payable by manufacturer = Rs. 70 (Output tax) - ITC (Rs.36) = Rs. 34/-
Hence, net profit margin = Rs. 50- Rs.34 = Rs. 16/-
When GST rate is 18%
Cost involved in manufacturing of one Set top box were as follow:-
Cost of raw material - Rs. 100 + GST@ 18% = Rs. 118
Cost of Input services -Rs. 100 + GST@18% = Rs. 118
Profit margin - Rs. 50
Hence, final price to consumer = +100+100+50 = Rs. 250 + GST@18% = Rs. 295
GST payable by manufacturer = Rs. 45 (Output tax) - ITC (Rs.36) = Rs. 9/-
Hence, net profit margin = Rs. 50- Rs. 9 = Rs. 41
Since due to reduction in GST rate, the total outflow of manufacturer due to GST got reduced from Rs. 34 to Rs. 9, hence this advantage of reduced cost and increased net profit margin (Rs. 41-16 = Rs. 25) shall be passed on to the ultimate consumer.
If such advantage has not been passed to the consumer i.e manufacturer retains such profit margin on account of reduced GST, such act is called profiteering. (Oxford dictionary meaning - the act of taking advantage of a situation in order to make a profit, usually by charging high prices for things people need).
Anti-profiteering measures have been incorporated under GST law to provide benefit of reduction in GST rates to the consumers in terms of reduced prices and not allow more profit margins to the businessmen. The suppliers of goods and services must pass on any reduction in the rate of tax or the benefit of input tax credit to consumers by way of commensurate reduction in prices.
Section governs Anti-profiteering in GST
Section 171 of the CGST Act, 2017 and Rules 123 to 137 of the CGST Rules deals with the provision of anti-profiteering authority under GST law
Relevant Extract of Section 171
1) 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 by way of commensurate reduction in prices.
(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.
*(3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub- section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered:
Provided that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority.
Explanation.— For the purposes of this section, the expression “profiteered” shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both.
* Inserted by Finance Act 2020
Administrative framework of the Anti-Profiteering Authority
There are 3-tier structure for the investigation and adjudication of the complaints regarding profiteering:
1. 31 State Screening Committees and Standing Committee
2. Directorate General of Anti-profiteering; and
3. National Anti-profiteering Authority;
Anti Profiteering Mechanism Under GST
