THE INSTITUTE OF

COST ACCOUNTANTS OF INDIA

Anti Profiteering in GST

Compiled by CMA Dr. Sanjay R. Bhargave
 TAX Reforms

• GST has replaced the tax system.

• Profit is fine, profiteering is not.

• Unique provision for anti-profiteering under GST Act to pass on the

benefits arising out of GST to consumers and prevent undue profit
to industry.

Compiled by Dr. Sanjay R. Bhargave 2

 Major defects in
earlier structure of indirect taxes
• India did not have a national market due to invisible barriers of
Central Sales Tax, Entry Tax and State Vat and visible barriers of
check posts.
• Central Sales Tax (CST) was payable @ 2% for every movement of
goods from one State to other.
• Stock transfers or branch transfers were taxable, however set off was
not available fully.
• Cascading effect of taxes could not be avoided due to CST and Entry
Tax.
• State Vat was payable on Central Excise element also.
• Movement of goods from one State to other was not tax free due to
entry tax.

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 Major defects in
earlier structure of indirect taxes
• Millions of man-hours and truck hours were lost at check posts.
Besides, huge corruption is involved.
• Central Government could not impose tax on goods beyond
manufacturing level.
• State Government could not impose Service Tax.
• Conflict between goods or services- Twice levy of taxes on same
transaction.
• Same transaction was taxed both by Central and State Government
which created confusion, litigation and double taxation in many
cases.
• Variations in VAT rates, forms and procedures among the states.

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 Anti Profiteering measure.
Sec. 171 of the CGST Act, 2017 –
Section 171 of the Central Goods and Services Tax Act, 2017
provides for Anti Profiteering measure. As per Sub Section 1 of Sec
171 of CGST ACT, 2017 , “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.”

It makes mandatory for every taxpayer to pass on the benefits

arising out of following to the recipient of the goods or services or
goods and services.
• Reduction of rate of tax on any supply of goods or services.
• Benefit of input tax credit.

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 Taxes to be subsumed
Central Taxes
 Central Excise Duty,
 Additional Excise Duties on Goods of special importance, Textile
 CVD, SAD
 Excise Duty levied under the Medicinal and Toilet preparations
(Excise Duties) Act, 1955.
 Service Tax,
 Central Surcharges and Cesses on Excise/Service tax

States Taxes
 State VAT/Sales Tax, Purchase Tax
 Entertainment tax (unless it is levied by the local bodies), Central
Sales tax (levied by Centre and collected by States)
 Octroi and Entry Tax, Luxury Tax, Taxes on lottery, betting and
gambling.
 State Surcharges and Cesses
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 Cesses Abolished under GST
1. Education Cess on taxable services 01.06.2015
2. Secondary & Higher Education Cess 01.06.2015
3. Education Cess on excisable goods 01.07.2017
4. Secondary & Higher Education Cess 01.07.2017
5. The Mica Mines Labour Welfare Fund 21.05.2016
Act, 2016.
6. The Salt Cess Act, 1953 21.05.2016
7. The Merchant Shipping Act, 1958 21.05.2016
8. The Limestone and Dolomite Mines
Labour Welfare Funds Act, 1972 [2 Cesses] 21.05.2016
9. The Tobacco Cess Act, 1975 21.05.2016
10. The Iron Ore Mines, Manganese Ore Mines
and Chrome Ore Mines Labour Welfare
Cess Act, 1976 [3 Cesses] 21.05.2016
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 Cesses Abolished under GST
11. The Textile Committee Act, 1963 21.05.2016
12. The Cine-workers Welfare Cess Act, 1981 21.05.2016
13. Cess on cement [by notification] 01.07.2017
14. Cess on strawboard [by notification] 01.07.2017
15. Research & Development Cess 01.04.2017
16. The Rubber Act, 1947 – Cess on Rubber 01.07.2017
17. The Industries (Development and Regulation).
Act, 1951, Cess on Automobile 01.07.2017
18. The Tea Act, 1953 – Cess on Tea 01.07.2017
19. The Coal Mines (Conservation and Development)
Act, 1974 – Cess on Coal 01.07.2017
20. The Bidi Workers’ Welfare Cess Act, 1976 –
Cess on Bidis 01.07.2017

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 Cesses Abolished under GST
21. The Water (Prevention and Control of Pollution)
Cess Act, 1977 – Cess levied on water Consumed
by certain industries and by Local authorities. 01.07.2017
22. The Sugar Cess Act, 1982, Cess on Sugar
The Sugar Development Fund Act, 1982– 01.07.2017
23. The Jute Manufacturers Cess Act, 1983 –
Cess on jute goods manufactured 01.07.2017
or produced wholly or in part of jute
24. The Finance Act, 2010 – Clean Energy Cess 01.07.2017
25. The Finance Act, 2015 – Swachh Bharat Cess 01.07.2017
26. The Finance Act, 2016 – Infrastructure Cess
and Krishi Kalyan Cess 01.07.2017

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 Pre GST and Post GST
Factors to be considered while comparing
Major areas of benefit of input tax credit, which was not available
under the subsumed tax laws:

1. Central Sales Tax

2. Stock Transfers to Depots.
3. Entry Tax, Octroi , Local Body Tax (LBT) .
4. Savings arising from non payment of Luxury Tax , Entertainment
Tax.
5. Non reversal of proportionate Cenvat credit under Rule 6(3) of
Cenvat Credit Rules, 2004.
6. Carrying out process which does not amount to manufacture.
7. Input tax credit is available to wholesalers, retailer hotel,
restaurants, outdoor caterers etc.
8. Availability of credit on opening stock.
9. Local Body Tax on job work
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Continued…… 10
 Pre GST and Post GST
Factors to be considered while comparing
9. Purchase Tax/ URD
10. Cenvat Credit on Furniture, Storage racks, Assets used in Office
etc capitalized in books of account.
11. Admissibility of input tax credit on inputs (ED as well VAT) used
by service providers.
12. Developers, Builders, Construction contractors.
13. Price Reduction on input supplies by vendors.
14. Refund of accumulated credit on account of inverted duty
structure.
15. Duty paid on captively consumed goods.
16. Abolition of Cesses.
17. Transitional provisions

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 Pre GST and Post GST
Factors to be considered while comparing
• Adverse Impact:
 Increase in rate of goods or services where input tax credit is
not available.
 Impact on working capital due to delay in getting input tax
credit.
 Pruning of exemption list.
 Compliance cost.

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 How to determine Impact?
• The impact of the above factors for each organizations will vary.
• If the organization is having multiple units then unit wise impact
will vary.
• The impact needs to be worked out considering the provisions of
input tax credit under the erstwhile tax laws and provisions under
GST.
• A comparison of provision applicable to the respective organization
or unit can be prepared.
• The quantum can be worked out on the basis of past two- three
years actual and also considering the budgeted product mix, sales
mix , purchase mix and interstate stock transfers etc.
• The impact in terms of percentage of turnover will be more
appropriate for reducing the price of the goods or services.

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 Documents for assessing impact
Document Purpose
ER-1 Reversal under Rule 6 of CCR
Clearance of Exempt Goods..
Stock Transfers.
Duty paid on captively consumed goods.
ER-4 Discounts, Freight, Valuation.
ST-3 Service Tax under RCM.
In-admissible service tax on rent a cab,
Works contract, Repairs & Maintenance,
Employee related services etc.
Cost Audit Indirect Taxes reconciliation.
Report Impact of disallowance of Cenvat credit u/r 6
of CCR, inadmissible inputs and input services.

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 Documents for assessing impact
Document Purpose
Summary of Disallowance of set off on account of
VAT Returns Interstate stock transfers.

VAT Audit Purchase Tax, Disallowance of set off, CST payment

Report etc.
Trial Balance Payment of LBT, Octroi , Entry Tax ,
Purchase Tax. Other Taxes and Cesses
Repairs and Maintenance Cost.
Tax Audit Details of capital goods on which Cenvat Credit is
Report not availed. Furniture Fixture etc.

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 Other useful details for
assessing financial impact.
 Comparison of inputs under Cenvat Credit Rules and GST
 Comparison of input services under Cenvat Credit Rules and
GST
 Comparison of capital goods under Cenvat Credit Rules and GST
 Details of capital goods received from customers, Financial
Institutions etc.
 Standard Operating Procedures (SOP) followed by the
organization.
 Pending cases under Excise, VAT, Customs and Service Tax and
other indirect Taxes.
 Details of Warehouses, C & F Agents and stock transfers – intra
state and interstate.

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 Other useful details for
assessing financial impact.
 Details of imports.
 Inventory at Warehouses, C & F Agents outside state.
 Open contracts, Purchase Orders.
 Price Lists – pre GST and post GST
 Discount Structure and various discount schemes – pre GST
and post GST.
 Tax rates – pre GST and post GST.

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 Gist of Anti-Profiteering Rules
Duties of the Authority
• To determine whether any reduction in rate of tax on any supply of
goods or services or the benefit of the input tax credit has been
passed on to the recipient by way of commensurate reduction in
prices.

• To identify the registered person who has not passed on the benefit
of reduction in rate of tax on supply of goods or services or the
benefit of input tax credit to the recipient by way of commensurate
reduction in prices.

Continued…………………

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 Gist of Anti-Profiteering Rules
• To order
• Reduction in prices.
• Return to recipient , an amount equivalent to the amount not
passed on by way of commensurate reduction in prices
alongwith interest at the rate of eighteen percent from the date
of collection of higher amount till the date of return of such
amount or recovery of the amount not returned in case the
eligible person does not claim return of the amount or is no
identifiable , and depositing the same in the fund referred in
sec 57 of the CGST Act.
• Imposition of penalty as prescribed under the Act ; and
• Cancellation of registration under the Act.

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 Gist of Anti-Profiteering Rules
Scrutiny of the applications and investigation :-
• Applications will be scrutinized by Standing Committee within
two months. Applications of local nature will be scrutinized by
State Level Screening Committee and then forward to Standing
Committee for further action

• The Standing Committee will scrutinize the cases. If prima facie

evidence of profiteering is found, the matter shall be referred to
Director General of Safeguards.

• The Director General of Safeguards shall conduct investigation and

collect evidence necessary to determine whether the benefit of
reduction in rate of tax on any supply of goods or services or the
benefit of the input tax credit has been passed on to the recipient
by way of commensurate reduction in prices.

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Continued……. 20
 Gist of Anti-Profiteering Rules
• Before initiation of investigation, the Director General of Safeguards
will issue notice to interested parties who may have information. He
will collect evidence within three months. He will submit his report
within three months to standing committee.

• Director General of Safeguards can take assistance of other

authorities. He has powers to summon persons to give evidence and
produce documents.

• As per Rule 130 of CGST and SGST Rules, 2017, provisions of

section 11 of RTI Act relating to disclosure of confidential
information supplied by third party will apply to information
received by Director General of Safeguards -

• On receipt of report of Director General of Safeguards, the

Authority will give opportunity of hearing to interested parties.
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 Gist of Anti-Profiteering Rules
Order of the Authority.

• After investigation and hearings, the Authority may order

– reduction in price
– return amount to recipient
– impose penalty ((which is maximum Rs 25,000)
– cancellation of registration under GST Act - Rule 133(3) of CGST
and SGST Rules, 2017

• Rule 135 of CGST and SGST Rules, 2017 provides that if the taxable
person does not comply, recovery proceedings can be initiated as
per provisions of CGST, SGST and UTGST Act .

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 Gist of Anti-Profiteering Rules
Penalty.
• Interestingly, there is no provision for penalty for imposing penalty
or recovering excess profit. Even if profiteering is discovered ,
maximum penalty that can be imposed is residual penalty of
Rs.25000/- under Sec 125 of CGST and SGST Act.

• However, Rule 21(c) of CGST and SGST Rules,2017 provides for

cancellation of registration for violation of provisions relating to anti
profiteering.

Sunset Clause :-
• As per Rule 137 of CGST and SGST Rules, 2017 , Anti profiteering
clause has sunset clause of two years.

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 Institutional Framework
Institutional Framework to ensure that the benefits of the reduction in
GST rates and various benefits arising out of GST implementation are
passed on to the ultimate customer by way of reduction in price.

 National Anti Profiteering Authority (NAA) under GST.

 Standing Committee
 Screening Committees in every state .
 Director General of Safeguards in CBE & C.

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 Application Form
• Anti Profiteering Application Form (APAF-1) to be filed before
Standing Committee / State Level Screening Committees.

• Application can be made by the recipient of goods / services,

Commissioner or any other person.

• Comparison of Pre GST Taxes and Post GST Taxes to be given by

applicant in the application.

• It is impossible for the applicant to provide information required in

the application.

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 Order of NAA
After detailed scrutiny of the application, in the event the NAA finds
that there is a necessity to apply anti profiteering measures, it has the
authority to order the following

• Order the supplier to reduce the prices or return the undue benefit
availed by the supplier, with interest to the recipient of the goods or
services.

• If the benefit cannot be passed on to the recipient , it can be ordered

to be deposited in the Consumer Welfare Fund.

• Impose a penalty on the defaulting business entity or even order the

cancellation of its registration under GST.

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 Cost Accountant-
A connecting link between Business & Tax Authorities
1. Determining the input tax credit, considering the budgeted product
mix, sales mix, purchase mix and interstate stock transfers etc.
2. Computing the reduced price thus benefiting the end seller.
3. Computing the penalty amount.
4. Fulfilling the Compliance requirements.
5. Assisting in Scrutiny of the applications and investigation .
6. Assisting the department to find out the proportionate reduction in
prices to avoid litigations & disputes.
7. Conducting voluntary audit with respect to benefits received due to
implementation of GST.
8. Assisting in special audit under Sec 66(1) of the CGST Act, supporting
decision of Authority to deregister or cancellation of registration
under Anti Profiteering provisions.
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 Thank You!
sanjaybhargave@bhargaves.com

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