What was the motive for introduction of anti-profiteering provisions as per Govt notification?
The anti-profiteering provisions under Section 171 of CGST Act, 2017 was introduced to ensure that any reduction in GST rate on the supply of goods or services or benefit of ITC is passed on to the consumers by way of proportionate reduction in prices.
Notification No. 10/2017- Integrated Tax dated 28th June 2017 laid down the legal framework for anti-profiteering provisions.
Key Points of the section 171
This section was intended to be consumer-protection provision designed to prevent businesses from pocketing tax benefits meant for the end-user. Two types of benefits are covered under this provision:
- If the government slashes the GST rate on a product, the must be passed on the benefit of reduced tax to the consumer via proportionate reduction in the selling price . Increasing the product’s base price to offset a fall in the tax rate, with the aim of keeping the final Maximum Retail Price (MRP) unchanged and pocketing the difference, is called profiteering and is illegal. The final price must drop.
- If consequent to an amendment in rules, the business becomes eligible to higher ITC than before, the resulting reduction in their cost of production must be passed on to the buyer.
Which are the institutions governing anti-profiteering
The institutional framework and their roles are summarized as follows:
State Level Screening Committee: Handles local complaints to determine if there is enough initial evidence ie whether a prima facie case of profiteering exists. If they find merit, the complaint is forwarded to the next stage which is Standing Committee.
Standing Committee on Anti-Profiteering: Reviews national-level complaints or cases forwarded by the State committees and decides within two months whether there is sufficient evidence to proceed. If there is sufficient grounds, then it refers the matter to the DGAP >/p>
Directorate General of Anti-Profiteering(DGAP): This is the "investigating arm." It has the power to summon persons, demand confidential cost sheets, and audit pre- and post-GST pricing data. Submits a detailed investigation report to the NAA
National Anti-profiteering Authority (NAA): It is the Final adjudicating body. Based on DGAP’s report, it can order the final course of action.
Penalties and consequences for profiteering:
The penalties and consequences vary according to specific nature of the exploitation
- Legal remedy to consumers: Authorities can order the business to
-Reduce prices: Ordered in cases where the invoice has been raised but payment has not yet been received. This order will ensure ensures the consumer pays the reduced price reflecting the tax benefit.
-Refund: If the amount has already been collected, refund the undue profit to the customer with 18% interest. If the customer cannot be identified, the amount is deposited into the Consumer Welfare Fund. - Penalty: If a person is found to have profiteered, they are liable to pay a penalty equivalent to 10% of the profiteered amount. No penalty is levied if the amount is deposited within 30 days of the order.
- Registration Cancellation: In cases of repeat offence, authorities have the power to cancel the GST registration of the business, effectively stopping all its operations.
Sunset Clause:
Anti-profiteering rules were meant to ensure that, during the early years of GST, businesses passed on benefits of tax rate reductions and input tax credits to consumers.
Once the GST system stabilizes/ matured, government intends to rely on competition law and consumer protection frameworks instead of a special anti-profiteering mechanism.
The government has notified April 1, 2025 as the sunset date (last date) for accepting new anti-profiteering complaints under Section 171 of the GST Act. This means:
--Complaints filed before this date are valid, and authorities can investigate and adjudicate them.
--Fresh complaints will be entertained after this date.
--Ongoing investigations and proceedings initiated before the sunset date will continue until disposal.