Need for Anti-profiteering clause in GST law (sec 163)

By CA Ashish Vadodariya

                   

Countries like Canada, New Zealand, Australia and Malaysia have witnessed a significant increase in inflation for a very short period, after implementation of GST.

GST is a multi-stage, consumption-based value added tax which proposes to abolish the cascading effect in the present tax structure. Such change in the tax structure provides room for improved profit margin at every stage of supply chain.

Therefore, strict measures are proposed to be implemented to ensure that the benefit of an efficient tax system are passed on to consumers.

In india most of CPI basket product will be out of purview of GST or will in Lower Tax Bracket, so there may not be inflationary effect but precaution is better than cure and that’s what sec 163 of model GST law is for.

So basically this is the control mechanism on Taxable person that benefit of credit or reduction in tax rate in GST regime should be passing on to consumer and not translated to increase in net profit. Let me explain this with example.

If today trader is receiving the goods form manufacturer so he will receive the bill with excise now he is just trading so he will not be taking credit of excise and excise will be his cost, so till today his cost of sale was say 100+10=110 now he will get the credit of excise of goods lying in stock on the effective date of GST Law. so he will be getting credit of that 10 rupee and his cost remains only rupees 100. His profit will increase by say Rs. 10.

COMPARATIVE  

           

	BEFORE GST	AFTER GST COMPLYING WITH SEC 163	AFTER GST NON COMPLYING WITH SEC 163
cost	110	100	100
Profit say 10%	11	10	11
Sale Price	121	110	121

As we can clearly see in the above comparison that in ideal situation benefit should be pass on to consumer and that can be possible with sec 163.

Lets see the words of sec 163,

1) The Central Government may by law constitute an Authority, or entrust an existing Authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.

(2) The Authority referred to in sub-section (1) shall exercise such functions and have such powers, including those for imposition of penalty, as may be prescribed in cases where it finds that the price being charged has not been reduced as aforesaid.

GST Council 10th Meeting :

It was expected that in today’s meeting anti profiteering Clause would be on agenda but after completion of meeting finance Minister Arun Jately said that this clause has not been discussed in today’s meeting rather Draft Compensation Bill has been approved by the council.   

Can be Reached at : vadodariya.ashish@gmail.com