Are you passing on the GST Benefits to Customers?? NAPA is watching you...

by Legal Suvidha

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The Goods and Services Tax (GST) may change the way of dealing in the country. One particular provision, which many traders are apprehensive about, may finally do a makeover of the entire community across the sectors.

The GST law has a provision for anti-profiteering. This does not mean that traders are not to earn profit, which is the only incentive of doing business and in absence of which trading will become a social service. The clause is there to ensure GST benefits are passed on to the consumers.


The fundamental difference between the old taxation system and the GST is that the latter provides for input tax credit. This means that no tax will be paid on already paid taxes. This also means that the burden of taxation will reduce both on the traders including manufacturers and the customers. This provision is the basis of government's claim that prices of most of the commodities will fall under GST regime.

But, with this there was an apprehension in the GST Council that some of the traders may not pass the benefit - drawn from input tax credit - to the consumers. To balance this out, the provision of anti-profiteering was introduced.

Clause 171 of the GST Act says that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices. The related rules were made public on June 19 which say that if a trader does not pass on the benefit - fully or partially - to the consumers, the registration of his business entity will be cancelled.


To ensure that this provision does not bring back the inspector raj, where traders were harassed and which encouraged large scale corruption, the GST law provides for a three tiered mechanism to keep an eye on the Traders who are not passing on their GST Benefits to the Consumers.

The GST law provides for a five-member National Anti-Profiteering Authority (NAPA), which will be headed by a secretary level office of the Centre. The NAPA is authorised to examine each complaint separately and pass necessary order. The ruling could be reduction in prices commensurate with the lowering of tax incidence under GST.

The NAPA can also order return of the undue profit earned by not passing the benefits of input tax credit claimed to the consumers charging 18 per cent interest on the sum for the intervening period. The NAPA can also impose penalty and order cancellation of registration of the business entity.

But, the NAPA may not look into every single complaint. There are two screening bodies at the state and national levels. Both screening bodies will have five members each. If a complaint comes before the state level screening body, it will examine it thoroughly. If the state screening panel finds merit in the complaint, it will forward it to the national level body.

The national level screening body will again consider the complaint and examine the facts presented before it. If it is satisfied then the matter will be forwarded to the NAPA. Now, the NAPA will take a final decision.

The risk of cancellation of registration of business entity is expected to make traders tax compliant both to take benefit of input tax credit and pass on the benefit to the consumers. This basic provision is likely to change the way business is done in the country and also enhance the perception about traders, who are the backbone of Indian economy.

Click to Download the Anti Profiteering Rules 

Anti Profiteering Rules




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