Tax officials to pose as customers to check profiteering by retailers, manufacturers

Central and state tax officials are gearing up for surprise checks at retail outlets posing as customers to check whether businesses and merchants have actually passed on the benefits of Goods and Services Tax (GST) reductions to consumers.

The National Anti-profiteering Authority (NAA) has asked field officers to use a provision in the Central GST Act to make purchases from the market, get the transaction revoked and use the cancelled invoice for investigation wherever profiteering is detected, a person informed about the development said on the condition of anonymity.

The idea is to scale up the anti-profiteering oversight on industry and trade as central and state governments have made several large tax cuts since GST was rolled out in July 2017, sacrificing their revenue. NAA is now holding workshops in different cities with field officers of central and state tax administration to improve compliance according to the anti-profiteering provision. The watchdog has already held such meetings in several cities including in Indore, Bhubaneshwar, Kolkata and Bangalore. The message to field officers is that they need not wait for a customer to come forward with a complaint to examine if prices are revised in line with the tax rate reductions.

“The CGST Act gives powers to commissioners to get an officer purchase any product or service to check the invoice and then get the price refunded on return of the item. The cancelled invoice is sufficient to initiate action if any profiteering is noticed,” said the person quoted above. “Action against profiteering need not be complaint driven,” said the person.

Profiteering has a narrow definition in the context of GST-- the practice of not passing on benefits of tax cuts or rebates for taxes paid on raw materials to consumers, on every item sold. It is not sufficient for businesses to show they have not retained any of the benefits to themselves as it could also mean prices have been reduced more than the tax cut warranted on some items and less so on some others. The idea of the anti-profiteering provision is to ensure every consumer benefits. Businesses and merchants, therefore, have to make sure price of every individual item impacted by the tax changes has been reduced immediately at the right measure.

This certainly poses some logistics and administrative challenges to businesses that have diverse product portfolio and long supply chains. “Anti-profiteering is a new, evolving law,” said a second person with direct knowledge of how the anti-profiteering ecosystem works in India. Officials concede that the law is not perfect but insist that businesses have to install systems to communicate instantly to all their partners in the value chain to ensure a quick transmission of the tax rate cut.