Anti-Profiteering Provision of CGST Act Under SC Review

The Supreme Court has issued a notice to the Centre and the National Anti-Profiteering Authority on the constitutional validity of the anti-profiteering provision of the CGST Act. The provision requires companies to pass on the benefits of GST rate reduction or input tax credit to consumers by lowering the prices of goods and services. The notice was issued in response to a petition filed by Excel Rasayan, a manufacturer of dishwasher products, challenging the Delhi High Court order that upheld the provision. The petitioner argued that the provision is vague, arbitrary and without any methodology to determine the quantum of profiteering. The case is likely to have an industry-wide impact as more than 100 companies have filed similar petitions in the Delhi High Court.

What is the Anti-profiteering provision?

The anti-profiteering provision is Section 171 of the Central Goods and Services Tax (CGST) Act, 2017. It states 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 by way of commensurate reduction in prices. The provision aims to ensure that consumers get the benefit of GST rate reduction or input tax credit and prevent companies from increasing their profit margins by charging higher prices.

What is the National Anti-Profiteering Authority?

The National Anti-Profiteering Authority (NAA) is a statutory body established under Section 171 of the CGST Act, 2017. It is empowered to determine whether any registered person has profiteered by not passing on the benefit of GST rate reduction or input tax credit to consumers. It can also order the return of the undue benefit along with interest, impose penalty and cancel registration of such person. The NAA was set up in November 2017 for a period of two years, which was later extended till November 2024.

What is the status of the case in the Supreme Court?

The Supreme Court bench comprising Chief Justice D Y Chandrachud, Justice J B Pardiwala and Justice Manoj Misra issued a notice to the Centre, the Finance Ministry and the NAA on February 12, 2024, seeking their responses on the petition filed by Excel Rasayan. The petitioner appealed against the Delhi High Court order dated January 29, 2024, which dismissed its writ petition challenging the constitutional validity of Section 171 of the CGST Act, 2017. The Delhi High Court held that the provision is not vague or arbitrary and is in line with the legislative powers conferred by the Constitution. It also held that no fixed or mathematical formula can be laid down for determining anti-profiteering and that it depends on various factors such as cost structure, market conditions, profit margin etc. The Supreme Court has not fixed any date for hearing the matter yet.

Why is this case important?

This case is important because it will decide whether Section 171 of the CGST Act, 2017 is constitutionally valid or not. The outcome of this case will have implications for hundreds of companies that have been accused of profiteering by not passing on the GST benefits to consumers. It will also affect the consumers who are entitled to receive lower prices due to GST rate reduction or input tax credit. Moreover, it will have a bearing on the functioning and authority of the NAA, which has been investigating and penalizing cases of profiteering since its inception.

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