When the Group of Ministers (GoM) suggested Covid relief measures from a GST perspective and such measures were approved in the 44th GST Council meeting, the industry, trade, public at large finally breathed a sigh of relief, and why not! The last 14 months have been nothing short of a nightmare for a country that ranks amongst the top three countries to be hit by the virus. These decisions were immediately given effect by way of amendment of rate notifications on 14 June 2021. Various items such as Covid vaccines, temperature check equipment, medical instruments suffered a GST rate slash. This gave a small cheer to the citizens amongst one of the gravest crises of human history. However, while the citizens and the public at large are contended by this decision, the trade and the pharmaceutical industry that has been more than responsive to this catastrophe is set to face the axe. This is because the National Anti-profiteering Authority (NAA) has issued an office memorandum dated 22 June 2021 directing the GST and Anti-Profiteering officers to specifically ensure that the rate cuts effected by the GST rate notifications issued on 14 June 2021 and/or Input Tax Credit, has been passed by the suppliers by reducing the prices of supplies commensurately. While Section 171 is not new, but specifically issuing a memorandum targeting a specific set of suppliers is unseen and unheard.
As a quick recap, Section 171 of the CGST Act, 2017 provides that 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. Also, Rule 126 of the Central Goods and Services Tax Rules, 2017, mandates that the anti-profiteering body must evolve a methodology to deal with anti-profiteering issues. In a situation where Section 171 is not complied with, the NAA can take up an investigation against the supplier either on its own or on receipt of complaints received from consumers. Further, the NAA now has powers to investigate products or services which are not a part of the DGAP report, if they have reasons to believe that a supplier has violated the anti-profiteering provisions.
The language used in the memorandum also deserves special attention. The Memorandum begins with ‘I have been directed….. to the recent amendments… and to state that Section 171 of the CGST Act, 2017 envisages that the benefit of the tax-rate reduction and/or Input Tax Credit should be mandatorily passed on by the suppliers to the recipients…’. In this context, I have been further directed to request you to take all possible steps envisaged under the GST laws to ensure that the legislative intent of Section 171 is complied with and to issue appropriate directions to your officers to take action as mandated under Section 171 of the CGST Act and wherever required, to utilize the powers conferred wide provisions of Section 67(12) of the CGST Act for collection of evidence…. Services’.Therefore, the memorandum, in simple dialect directs the officers to ensure that Section 171 is complied with. However, the term ‘take all possible steps and ‘take action wherever required’ gives a thwarting feeling. While NAA has been unpopular amongst the trade and business for conducting arbitrary investigations, a memorandum of this nature may give fuel to the capricious investigations.
The trade and industry have been litigating the NAA investigations for the last four years simply on the grounds that Section 171 is vague and prescribes no meaning to the term ‘commensurate reduction in prices. To add, the Constitutional vires of Section 171 are also under question. Multiple petitions have been bunched and are supposed to be heard by the Delhi HC. The Court is yet to decide on this petition and determine if Section 171 is constitutionally valid or not. Another issue that has arisen is the constitution of NAA which comprises of only Central and State officers; the lack of any judicial member has raised eyebrows all around.
There is no dispute to the fact that the reduction in GST rates for Covid supplies is meant for the ultimate consumer or the citizens at large and it should reach them. Further, there should be no reason for any supplier to pocket the difference of GST rates which is actually the entitlement of a consumer. However, the multi-dollar question that still remains is what is a commensurate reduction in prices? With the best intentions in mind the NAA has issued a memorandum to direct all reduction in prices to be passed on to consumers; however, yet again the NAA missed on specifying the exact meaning of commensurate reduction and how it is to be computed. Moreover, without clarity on the methodology, the NAA has bestowed limitless powers to officers by mentioning that all possible steps should be taken to ensure such passage of benefits. It is no secret that when arbitrary powers are bestowed to officers, it often results in abuse of power.
The Country is not yet out of the woods as far as the pandemic is concerned; also, it goes without saying that the pharmaceutical industry has played a key role during the pandemic and has helped the country in more than one ways. Though the thought behind the memorandum is noble, the timing may not be perfect. The industry is preparing for the much-touted third wave and order like the one in question may dampen the spirits. To add, the industry is overwhelmed with demands of the pandemic; at such a time, to come up with an anti-profiteering memorandum to ensure that the unexplained commensurate reduction must be passed, a non-compliance of which may trigger investigations, may not really help the cause.
Interestingly, the Anti-profiteering provisions were introduced with a sunset clause of two years which was further extended by another two years. Currently, the provisions and mechanics are valid till November 2021. With four months left in the life of anti-profiteering provisions, issuance of such memorandum raises a question of whether actually the anti-profiteering provisions would go to bed or are they here to stay. Hyped as the transitory provision, but embedded in the law, the anti-profiteering is still going strong even after four years of GST introduction; it may not come as a surprise if the provision is given a fresh span of life in the months to come.
Jigar Doshi is Founding Partner, TMS.
Nirali Gada is a Manager, TMSL.
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