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Anti-profiteering in GST: Caught in litigation, extension in tenure may not be enough - GST Station

Anti-profiteering in GST: Caught in litigation, extension in tenure may not be enough

Anti-profiteering in GST: Caught in litigation, extension in tenure may not be enough

    Anti-profiteering provisions were enacted to ensure GST benefits are passed on to the consumer. However, caught in numerous litigations, not much has been achieved.

    Anti-profiteering provisions have been in force for nearly two years and at the recent GST Council meeting the tenure of the National Anti-Profiteering Authority (NAA) has been extended for two more years, till November 2021. Although the key reason given for this extension was the large pendency of complaints (around 350) which still needs to be investigated, it is fair to say that the presumption is that GST benefits are still not being passed on to consumers. But is the extension of tenure all that is required to ensure compliance with these provisions? 

    There are also reports that the GST Council, along with the extension of the tenure of the NAA, has approved a new mechanism to check profiteering. Tax officers have been empowered to conduct anti-profiteering checks in their jurisdictions. This clearly signals that complaints and investigations on profiteering will increase and the NAA will be around for much longer than the recent two-year extension. A new penalty may also may be imposed if the profiteered amount is not surrendered within a prescribed time limit. 

    Given that anti-profiteering related investigations will increase and impose heavier fiscal penalties there is an urgent need to address three key issues: 

    • Introduce an appellate mechanism, within the GST law, for appealing the orders of the NAA;
    • Broaden the membership of the NAA to include a judicial member; and
    • Define methodologies/frameworks for compliance.

    This will ensure that the core objective of ensuring that benefit of GST is passed on to consumers, is achieved in an efficient and timely manner. 

    It is worth noting that when NAA was originally constituted in November 2017 for a period of two years, it was set up primarily as a deterrent to big businesses and hence envisioned that its actions would be restricted. This is far from reality and the actions of the NAA have been far more widespread and have impacted almost all sectors and all sizes of businesses. 

    Considering that there is no appellate mechanism prescribed under the GST laws against an order of the NAA, can it be assumed that the government had not expected challenges on such orders? Whatever may have been the thinking on this aspect, the legal view adopted is that the law does not provide a statutory mandate to appeal orders of the NAA before the Tribunal, High Court or the Supreme Court. Hence, the only recourse for taxpayers is to file a writ petition in the High Court. 

    Almost all orders of the NAA where profiteering has been alleged, are being challenged in various High Courts. In most cases the courts have stayed the orders and the litigation is in progress. With most NAA orders being embroiled in litigation, the key purpose of the existence of the NAA, which is to ensure that the GST benefit is passed on to the consumer, is yet to be achieved. An alternative form of recourse is required which should assist in the faster resolution of cases. 

    Some of the writ petitions have challenged the constitutional validity of anti-profiteering provisions. While this challenge is being deliberated by the courts, the government may be able to address some of the other concerns/issues that have been raised. 

    In the absence of a statutory appellate process, the decision of the High Courts on anti-profiteering matters, will very likely be sent back to the NAA for implementation. This may create a conflict, as the authority that has passed the original order will have to review the orders based on directions of the High Court and then pass a revised order. This is likely to give rise to further litigation. One option to address could be to induct a judicial member on the NAA to ensure that a legal view is also taken into consideration while deliberating on High Court orders. Another option may be to create a body within the NAA to review and implement the orders of the High Court. There may be other options as well and the government should explore all possible alternatives to address this issue. In all such cases, the focus of the NAA should be to resolve the matter, pass on the benefit to the consumer and not litigate further. 

    As it is likely that anti-profiteering related investigations will increase going forward, there is also an urgent need to introduce an appellate mechanism, within the GST law, for challenging the orders of the NAA. This will ensure that going forward, writ jurisdiction is not the only option for challenging orders of the NAA and may also result in faster resolution of cases. 

    One key and outstanding demand of taxpayers is for a specific mechanism/methodology to calculate profiteering. This may minimise the subjectivity in the investigation process and therefore litigation. The NAA’s position has been, and remains, that a standard methodology cannot be prescribed for all sectors and hence none is being prescribed. This position needs to be revisited urgently, more so as the NAA now has the benefit of experience from over a hundred investigations. The contradictory positions being adopted in some orders has also added to the complexity of complying with the provisions. One option could be to reconstitute sector-specific committees, set up during GST implementation, which were headed by senior tax officers. These committees can provide guidance on prescribing methodology for compliance with the anti-profiteering provisions. 

    With the focus once again on initiatives for improving Ease of Doing Business in India, anti-profiteering related concerns of taxpayers do need to be addressed on a priority. The trust deficit between the business and tax administration on this subject needs to be reduced to ensure that the key purpose of the consumer benefiting by GST implementation, is served. 

    Source- Economic Times.

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