GST
Background for introduction of anti-profiteering provisions in India:
GST was introduced in India with effect from 1 July 2017, replacing plethora of taxes such as excise duty on manufacture of goods, VAT on sale of goods, service tax on provision of service, local body taxes, entry tax and various such other taxes. At the time of GST's launch, it was stated that the number of taxes in India—considering 29 States, 7 Union Territories, 7 central taxes and 8 state-level taxes—amounted to nearly 500! GST was introduced with a view to replace these taxes, remove the cascading effect of taxes and to implement harmonized provisions across the country without having separate State-wide differences.
Introduction of GST brought in significant savings in taxes. Previously, when VAT was implemented, the issue of non-passing of benefit was recognized. The Comptroller and Auditor General (CAG) had in its report1 noted that despite sharp decline in the rate of tax, the manufacturers did not reduce the maximum retail price of goods. This resulted in INR 40 crores being illegally retained by these manufacturers and dealers in the VAT chain instead of passing on to the consumers.
The GST taskforce's report released as part of the 13th Finance Commission Report dated 15th December, 2009 comprehensively dealt with minute aspects of the contemplated GST ecosystem and various elements of such switchover. It was specifically noted in the said report that the benefit to the poor from the implementation of GST would flow from two sources, first through increase in the income levels and second through reduction in prices of goods consumed by them, and went into the implications of the proposed switchover to GST on various products and sectors including prices of the goods.
Similarly, the report of the Select Committee (presented to the Rajya Sabha on 22 July 2015) dealt with the issues of transition to Goods and Services Tax, inter alia, including consumer benefit that would arise on account of the transition and related aspects.
Considering non-passing of benefit and short term spike in inflation seen during implementation of VAT in India as well as Canada (in 1986) and Malaysia (in 2015), the Government decided that there is a need for anti-profiteering provisions to ensure that the benefit of input tax credits and rate reductions is passed on to consumers. Accordingly, Section 171 was incorporated in the GST Act which empowered the Government to establish the authority for this purpose.
Section 171 of the Central Goods and Services Tax Act, 2017 ("CGST Act"):
Section 171 was part of CGST Act right from its introduction in July 2017. Sub-Section (1) of Section 171 provides that :
- Any reduction in rate of tax on any supply of goods or services or
- Benefit of input tax credit
- shall be passed on to the recipient
- by way of commensurate reduction in prices.
Further, powers are provided to the Central Government to constitute an authority or empower an existing authority to examine the benefit passed on.
During first set of rate reductions in November 2017, primarily involving reduction in rate for various products including haircare (shampoos, conditioners), homecare (detergents), restaurants (18% to 5% without ITC), it was felt that there is a need to establish anti-profiteering authority. Accordingly, while the entire mechanism for complaint and examination was already provided in the rules, the Chairman and members were appointed to form National Anti-profiteering Authority ("NAA") on 16th November 20172.
Investigations by NAA:
The NAA suo moto or on the basis of complaints initiated investigations in relation to passing of GST rate reduction / benefit of ITC. This was done for prominent industries including FMCG, real estate, restaurants, consumer electronics, e-commerce platforms, etc. Detailed discussion on investigations initiated by NAA, observations of Delhi High Court are discussed in Part 3 of the article series.
The NAA was subsequently disbanded and the anti-profiteering matters were handed over to Competition Commission of India ("CCI") in December 2022. However, not many orders came to be passed by CCI, which expressed its inability to handle anti-profiteering cases, stating that such matters were not part of its core function and should be dealt with by an appropriate GST authority. Subsequently, the matters were handed over to Principal Bench of GST Appellate Tribunal (GSTAT) in October 2024. Presently, the matters where either report was furnished by DGAP and no order was passed by NAA / CCI or where the matter has been remanded by Delhi High Court are pending before GSTAT.
Legal Metrology
Legal Metrology provisions and rules made thereunder, inter alia, provide that while it may not be permitted to affix individual stickers, it may be done to sticker revised MRP (inclusive of all taxes) where such revised MRP is lower than earlier MRP and the same shall not cover MRP declaration made on the label of the package. Further, rules also provide that in case of revision in tax payable, sales cannot be made at prices exceeding the revised prices communicated by the manufacturer. Further, it also provides for advertisement and circulation of notices to dealers and specified persons. In this regard, it shall be relevant to examine the provisions relating to rule 6 and rule 18, and the exemption from applicability of rules to formulations.
Accordingly, various orders3 were issued by Department of Consumer Affairs in 2017 in relation to stickering, both at the time of introduction of GST in July 2017 as well as post the November 2017 GST rate reduction.
Drugs and Cosmetics
Similarly, National Pharmaceutical Pricing Authority had, as recently as in February 2025, issued an office memorandum4 in relation to reduction in customs duty rate indicating that any downward change in Duties and Taxes should be reflected in the MRP and benefit should be passed on to consumers. Similar directions were also issued recently in relation to customs duty rate reduction in July 2024 and GST rate reduction in October 2024 and compliance of the same was reported5.
The DPCO deals with ceiling price fixation for scheduled formulations, and MRP is determined as a combination of ceiling price plus local taxes.
Sale of Goods Act, 1930
Section 64A of the Sale of Goods Act, 1930 provides that where a contract for sale is entered and the rate gets reduced thereafter, the buyer may deduct such decrease of tax from the contract price and he shall not be liable to be sued in respect of such deduction.
Thus, various provisions are relevant for examining and complying with the GST rate reductions. For a detailed checklist and guidelines on how to pass on benefit of rate reduction, kindly access Parts 4 to 6 of the article series.
Footnotes
1 Implementation of Value Added Tax in India – Lessons for Transition to Goods and Services Tax – A Study Report, accessible on https://cag.gov.in/uploads/StudyReports/SR-StudyReports-05de75c18e2e379-28804851.pdf
2 https://www.pib.gov.in/newsite/PrintRelease.aspx?relid=173564
3 https://consumeraffairs.gov.in/index.php/pages/gst
4 https://nppa.gov.in/uploads/tender/37cafb18f6ff81bad7675e6319dcd912.pdf
5 https://www.pib.gov.in/PressReleasePage.aspx?PRID=2081490
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