News Excerpt:

Recently, The Delhi High Court upheld the constitutional validity of anti-profiteering provisions in the Goods and Services Tax (GST). 

Key Points:

• The court held that anti profiteering provisions pertain to commensurate reduction of prices when gst rates are reduced or due to input tax credit and hence these provisions are in public interest.
• More than 100 companies, including Hindustan Unilever, Patanjali, Jubilant Foodworks, and Phillips, filed petitions against the provisions.
• The court held that the provisions pertain to a commensurate reduction of prices when GST rates are reduced or due to input tax credit and hence these provisions are in the public interest. 
• They are in line with legislative powers given under the Constitution.
• The court, comprising a bench of acting Chief Justice Manmohan and Justice Dinesh Kumar Sharma, also provided a breather to the companies. 
• As it did not rule out the possibility of them hiking prices due to cost escalation, skewed input tax credit (ITC) and arbitrary use of power beyond jurisdiction by anti- profiteering bodies in some cases which would now be determined based on facts and numbers. 
• Companies challenged the constitutional validity of the provisions in the absence of any formulae for determining profiteering. 
• The court ruled that no fixed or mathematical formula can be laid down for determining anti-profiteering. 

Anti-profiteering measures/Provisions:

• Section 171 of the CGST Act deals with anti-profiteering measures and prescribes that any reduction in the rate of tax on supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of a commensurate reduction in prices.
• Any reduction in GST rate or benefit of input tax credit should be passed on to the end consumer and not retained by the business. 
• This is the basis of anti-profiteering provisions under GST. 
• Under anti-profiteering provisions, it is illegal for a business to not pass on benefits of GST rate benefits to the end consumer and thereby indulging in illegal profiteering.

Input Tax Credit:

• Input Tax Credit refers to the tax already paid by a person at time of purchase of goods or services and which is available as deduction from tax payable .
• Uninterrupted and seamless chain of input tax credit (hereinafter referred to as, “ITC”) is one of the key features of Goods and Services Tax.
• ITC is a mechanism to avoid cascading of taxes. 
• Cascading of taxes, in simple language, is ‘tax on tax’.