CCI To Handle GST Profiteering Cases: Computation Method Remains A Concern, Say Experts

As the CCI takes over from the NAA, the industry hopes they will revisit the existing methodology of computation for profiteering.

<div class="paragraphs"><p>The NAA was set up after GST came into effect to ensure the benefit of ITC is passed with an intent to provide relief in the transitional period. (Source: NAA website)</p></div>
The NAA was set up after GST came into effect to ensure the benefit of ITC is passed with an intent to provide relief in the transitional period. (Source: NAA website)

The Competition Commission of India will now look into anti-profiteering claims against businesses, replacing the National Anti-Profiteering Authority. But, it has also inherited the underlying challenge of coming up with a clear method for calculating profits.

The Central Board of Indirect Taxes and Customs, through a notification on Wednesday, empowered the CCI to examine profiteering under the Goods and Services Tax, from Dec. 1.

The NAA, which was established after the GST came into effect in 2017, earlier looked at profiteering claims with respect to suppliers, who do not pass on the benefit of the input tax credit to the consumer by way of a reduction in prices of the goods or services they sell.

The decision to give the powers to CCI comes at a time when the NAA is overloaded with complaints from all over the country, which has started to affect the quality of its orders due to its limited bandwidth, said Tarun Jain, an advocate in the Supreme Court.

The notification read, "The central government, on the recommendations of the Goods and Services Tax Council, hereby empowers the Competition Commission of 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."

“The National Anti-profiteering Authority is subsumed with the competition watchdog CCI w.e.f Dec. 1. Now, whether this merger would mean no new anti-profiteering notices being issued by the government, is something yet to be seen," said Abhishek Jain, partner, indirect tax, KPMG. "However, It is noteworthy that this change in the governing body will not affect the challenge posed towards the constitutional validity of the anti-profiteering provisions themselves.”

Computation Methodology Remains A Concern

Jain considers this as a positive development on multiple counts.

"CCI is manned by economists and other experts who are better equipped to examine allegations against suppliers that have not passed on input tax credit benefit. More critically, passing on ITC benefit is not a legal issue," Jain told BQ Prime.

It requires appreciation of a long list of economic, finance, tax, cost, and other variables, which will be better managed by the CCI, he said.

According to Abhishek A Rastogi, founder of Rastogi Chambers, while the move was based on the recommendation of various states, it would be interesting to see whether CCI provides a methodology for diverse sectors before progressing into a quantum of profiteering.

As the CCI takes on the adjudicating powers from the NAA, a chief concern will be revisiting the existing methodology, which is currently being challenged in court on grounds of clarity in the anti-profiteering law.

The anti-profiteering laws lack clear definitions of "profit" and "profiteering" as well as the method of computation, according to the legal experts.

"The fundamental issue of what would constitute "commensurate reduction in price" and various methods employed by companies like increasing grammage, practicing zeroing, etc., shall continue to be disputed before various high courts," said SR Patnaik, partner and head of taxation at Cyril Amarchand Mangaldas.

As a next step, all companies planning to change the pricing of their products will need to remain cautious regarding the timing and the actual price change, as the manner of computation for anti-profiteering continues to remain ambiguous and without a sunset clause for the same, he said.

The NAA was set up to ensure the benefit of input tax credit is passed with the intent to provide relief in the transitional period, Rastogi said.

"The extension of the anti-profiteering provisions beyond five years will have to test the waters of constitutionality at some stage, as the intent was to provide the anti-profiteering relief only for the transitional phase," he said.

The chairman of the NAA took charge in November 2017. Two years later, in 2019, the charge was extended until 2021 before a final extension was given until Nov. 30, 2022.

CCI will now adjudicate on the matter from Dec. 1, 2022.