BackOpinion | The GST anti-profiteering law needs corrective action
The government has missed an opportunity to address a couple of serious lacunae in the law
PremiumOne of the headline issues that emerged from the 35th meeting of the Goods and Services Tax (GST) Council held recently was a two-year extension of the term of the National Anti-Profiteering Authority (NAA) up to 30 November 2021. The GST Council has also sought to impose a 10% penalty on a company if the amount quantified as “profiteered" is not deposited within 30 days. The objective of an anti-profiteering law is unexceptionable, which is that no business should profiteer (make an unfair profit) from a tax reduction at the cost of either the government or the consumer. In making the relevant amendments to the anti-profiteering law, the government appears to have missed an opportunity to address two fundamental issues; these are serious lacunae in the framework of the anti-profiteering law. First, a failure to prescribe a methodology based on which one could determine whether or not there has been profiteering by an enterprise. Second, a failure to provide a statutory appellate mechanism to deal with challenges to orders of the NAA.
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 the formulation of the ‘Procedure and Methodology’ by the NAA, there is a conspicuous absence of even a single provision mandating a methodology in relation to the determination of this critical issue. The failure to prescribe a methodology has drawn criticism on various grounds.
First, it constitutes the absence of due process in the conduct of proceedings. Second, it constitutes a breach of the principles of natural justice, as the affected party is denied an opportunity of full defence, given the absence of knowledge of the basis on which the authorities are to act. Third, it has led to arbitrariness and contradictions, as different standards and indices have been followed from one case to another, several of them internally inconsistent, and, at times, even contradictory. Fourth, the conduct of proceedings has been rendered discriminatory by a lack of consistency from entity to entity. Lastly, the lack of methodology also denies an effective opportunity for a business to mount a further challenge. More significantly, the writ courts which are currently dealing with such challenges are left with no assistance or guidance on how to deal with such a complex economic and accounting issue.
In addition, there are various other fundamental gaps in the law, including an absence of what is meant by the term “commensurate reduction" as used in Section 171 of the Act. It is not clear if this reduction needs to be an absolute figure of price reduction, or it would also cover a reduction within a range operating as a permissible de minimis range. In the matter of Subway, the NAA has adopted a range, whereas in some other matters, the authority has sought to apply an absolute number.
These are the fundamental gaps which need to be addressed urgently, more so now that the tenure of the NAA has been extended by two more years.
The country’s high courts are currently burdened with approximately 4.3 million pending cases. As a policy initiative, an alternative structure of various appellate tribunals was constituted on specific issues in a bid to alleviate the burden of the high courts. But with reference to anti-profiteering, there is no provision for challenging orders of the NAA before an appellate tribunal such as a Goods and Services Tax Appellate Tribunal.
This is in sharp contrast with all other economic fault-based statutes (such as anti-dumping duty, safeguard duty and the like), where statutory appeals can be made before tribunals equipped with the requisite domain knowledge to make an appropriate determination of the issue. Such tribunals act as a final forum for the presentation of evidence and fact.
As for anti-profiteering, getting any relief from an NAA order currently requires taking recourse to a writ court under Article 226 of the Constitution and asking for the exercise of its writ jurisdiction. Given the absence of methodology, the voluminous evidentiary record in such proceedings and the lack of a uniform basis on which the NAA must act, it would appear to be a highly unfair and onerous imposition on our high courts by lawmakers to ask them to act as a court of appeal in anti-profiteering matters. While amending India’s anti-profiteering laws, the GST Council should have introduced appropriate amendments to provide for a statutory appeal before an appropriate tribunal on all anti-profiteering issues.
It would also seem inequitable in view of the lacuna of the anti-profiteering law’s framework to impose a penalty of 10% for a failure to deposit the amount in question within 30 days. A penalty for a primary offence (of anti-profiteering) is commonplace across all statutes. However, a penalty for non-compliance with an order, one which is issued without a prescribed methodology of application, would appear to be harsh and onerous.
The GST Council has played a yeoman’s role in responding sensitively to all issues which have arisen in the country’s transition to the GST regime. It is hoped that the council will respond with the same sensitivity to address the outlined lacunae in the anti-profiteering law by supporting it with appropriate provisions to make it legal, robust and workable.
Rohan Shah is a counsel at the Supreme Court and various high courts
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