More than 100 companies mostly real estate developers, fast food joints, and cinemas are facing an investigation by the Directorate General of Anti-Profiteering (DGAP) for allegedly inflating their bottom lines by not passing on the Goods and Services Tax (GST) relief to consumers, the intended beneficiary of several rounds of tax reductions since 2017.
The final investigation report on these cases would be ready in the next six to nine months for submission to the National Antiprofiteering Authority (NAA) for adjudication. In most of the 150 cases in which final orders have already been given by NAA, the findings of the profiteering investigation have been endorsed and in some cases, NAA has expanded the scope of the probe into certain other projects of the company concerned or to the pricing behavior in a different period, said a source.
“This has led to many companies now under investigation to voluntarily compute the amount profiteered in response to the investigation,” the source added. In real estate cases, where payments are staggered over a period of time, many entities under investigation are reducing the prices, said the person.
NAA’s past orders show how companies have allegedly raised the base price when the government reduced GST rate, which deprived consumers of the benefit of the tax rate cut and in some cases led to increasing in the tax outgo because of the increase in the base price. Many companies are not happy and argue there has been an increase in input costs which led to the base price increase. This argument is not accepted by the authorities as “input cost cannot rise at midnight when the tax rate cut comes into effect.”
The legislative framework of anti-profiteering—section 171 of the CGST Act that mandates businesses to pass on the benefit of tax rate cut or input tax credit to consumers– is currently under dispute. The Delhi High Court will hear about 50 petitions together on 7 December.
“The cases before Delhi HC entail challenging the constitutionality of the anti-profiteering provisions as well as the way of computing the quantum of profiteering. First, the question of the constitutional validity of the provision will be argued before the court followed by the questions on methodology,” explained Abhishek Rastogi, who is counsel for about a dozen petitioners in the case.
The ongoing investigations cover the initial period of transition to GST and the subsequent rounds of tax rate cuts. Those found guilty of profiteering have to return the profiteered amount with 18% interest to the consumer or deposit it to designated consumer welfare funds in case it is too hard to identify the individual buyers. However, since these cases pertain to the period prior to January 2020 when a penalty provision– 10% of the profiteered amount — came into force, they are likely to escape the penalty.
GST laws require businesses to pass on the benefit of the tax rate cut to consumers immediately after the tax rate comes down. Once the price is lowered, there is no lock-in period for holding the reduced price and companies are free to follow their own pricing strategy depending on market dynamics
