Recently, a government official stated that businesses could freely raise the prices of their products and services. However, they can only do so once they have passed on the benefit of tax rate cuts to consumers. They would not need to fear the anti-profiteering provisions of the CGST law.
Under the anti-profiteering provisions, the GST Council has approved of the imposition of a 10% penalty for delay in depositing the ‘profiteered’ amount by more than 30 days. The National Anti-profiteering Authority (NAA) has been established for investigating into and adjudication of profiteering cases. The purpose of the anti-profiteering law is to ensure that the benefits of reductions in tax rates or input tax credit should be passed on to the consumer. The wilful action of not passing on the benefits to the recipients in the manner prescribed is known as ‘profiteering’.
The GST council has extended the term of the NAA by 2 years up to 30 November 2021. Due to an absence of methodology in dealing with anti-profiteering issues and wide powers conferred on the NAA, businesses have been apprehensive about raising of prices of products and services.
However, this clarification comes as a relief when businesses are deeply concerned about their pricing liberty, especially, in the wake of the powers of NAA and extension of its term. The lack of clarity over the implementation of CGST’s anti-profiteering provisions has left businesses confused. There still exists some confusion about prices that need to be maintained post the tax benefits are passed to consumers. The confusion has worried companies especially those that have faced charges of ‘profiteering’ in the past. The open-ended nature of the provision indirectly results in price administration under the CGST Act.
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The clarification on the liberty to raise prices has provided much- needed relief to companies. Especially to large fast-moving consumer goods (FMCG) manufacturers who have faced charges of ‘profiteering’ under GST law.
The government official also clarified that business houses have the liberty to follow their cycle of price adjustments in line with the market requirements. There is no lock-in period for maintaining reduced prices. A company which has increased the prices of products in the past can increase the price after bringing down prices after a tax rate cut. However, companies should be cautious and should be able to defend themselves in case of a complaint to the anti-profiteering authorities.
Businesses may find it difficult to defend price increases due to a complex business environment and pricing patterns. Also, past price trends too may show movement both ways and are unlikely to justify a price increase in case of an investigation into an alleged ‘profiteering’ case.
Another ambiguity is on the increase in prices on certain products by businesses to offset losses in other products. There is an issue on whether such price increases would be acceptable by the anti-profiteering authorities as genuine and valid. Also, detailed guidelines are awaited by the industry on the calculation of benefits that is to be passed on to consumers. Additionally, they are also waiting for clarification for the duration for which reduced price is to be maintained.
Businesses are also worried about the perpetual nature of the anti-profiteering provision. The provision does not have a sunset clause. Sources have mentioned that the anti-profiteering provision may be administered in a less detailed manner after NAA’s term ends once the GST system stabilises.
I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.