The end of GST’s price watchdog: What DGAP’s exit means

The DGAP is currently assisting the GST Appellate Tribunal’s (GSTAT) principal bench in the national capital to decide the ongoing cases of GST-related profiteering by companies. New complaints are not being accepted from April this year, and the anti-profiteering regime will end with the closure of the ongoing cases.

GST Council had made the appellate tribunal the adjudicating authority for profiteering cases with effect from 1 October 2024, shifting the mandate from Competition Commission of India (CCI), which was looking into these cases from 1 December 2022.

These cases examine whether businesses passed on to consumers the benefits of GST rate cuts and input tax credits, immediately after the GST Council announced the tax relief.

India’s statutory framework to deal with GST-related profiteering had two pillars—the National Anti-profiteering Authoritiy (NAA), which adjudicated on cases, and its investigating arm, DGAP. NAA has already been wound up, and adjudication of pending cases will continue at GSTAT.

“By end of June this year, DGAP was looking into a little more than 90 cases and every month, six to seven investigations are getting completed. It may take about a year to complete all the ongoing investigations. In some cases, the tribunal may mandate the investigating agency to do additional work. Once the ongoing cases are disposed of, the government will take a call on winding up of the investigating agency," said one of the two persons cited earlier, both of whom spoke on the condition of anonymity.

Queries emailed to the finance ministry on Tuesday seeking comments for the story remained unanswered till press time.

GST enforcement

When the GST was introduced in 2017, the new tax system that integrated several central and state taxes made available additional tax credits to businesses for setting off against the final tax liability on their goods and services. Besides, the tax rate itself was reduced for several goods. To ensure that businesses pass on these benefits by commensurately reducing prices, the anti-profiteering provision was introduced in GST laws.

Real estate developers, fast food networks, and multiplexes were among the businesses that faced regulatory action for allegedly not passing on the benefits to consumers. Enforcement action led to legal disputes too.

“Having argued several anti-profiteering matters before the Delhi High Court in diverse sectors, our experience has been that the law was tilted towards assuming profiteering rather than objectively determining it," said Abhishek A. Rastogi, founder of law firm Rastogi Chambers.

The absence of a defined methodology often led to disputes on the quantum, even when businesses had intended to pass on the benefit, said Rastogi.

“In fact, only around 200 companies were investigated across the country, which itself demonstrates that in most cases, the benefit was duly passed on, and no significant concern was raised by the authorities. The intent of the industry was never to profiteer, but to comply within a framework that unfortunately lacked clarity. The winding up of the Directorate General of Anti-Profiteering is, therefore, a natural culmination of a regime that had outlived its legislative basis" said Rastogi.

The law only mandated businesses to make an immediate reduction in prices commensurate with the tax relief announced by the GST Council, and there was no holding period for the reduced prices. That was a fine balance struck by the policymakers to ensure the tax relief is passed on to consumers without affecting the pricing freedom of businesses in a free-market economy, where market forces play a role in keeping prices low.