Anti-Profiteering Clause under GST : A Boon or A Bane

Last Updated On: Feb. 9, 2020, 2:33 p.m.

The anti-profiteering clause has been provided for in the GST Act to ensure that companies or manufacturers who fail to pass on the benefit of lower tax incidence to the consumer post July 1 are penalised.

Section 171 of the CGST Act provides that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices and it has given the Authority the power

The objective of this section is to ensure that with the introduction of GST, taxable persons are not getting excessive profits, but shall pass on the reduction in price to the consumers. The registered person is expected to reduce the price on account of availment of input tax credit or reduction in tax rates.

An authority would be notified for this purpose, who would exercise powers and discharge functions in a prescribed manner to examine whether Input tax credit availed by a taxable person have actually resulted in commensurate reduction in price of goods/services;

Under anti-profiteering rules of GST, any company or vendor whose profits jump due to the new tax regime must pass on the benefits to consumers.So, companies are adopting this temporary measure and would bring the prices back to where they were after GST. 

Infact,MCG companies are adopting different strategies to protect themselves against anti-profiteering laws:

Reducing the Weight of its products

In this case, a company might change the weight of a shampoo bottle from 180 gram to 175 gram, though its maximum retail price will remain unchanged. Companies are at liberty to launch new products and pass them as new pack sizes. But the idea is to show a higher profit in the month preceding the introduction of GST. 

Deliberate increase in Input Cost

Some companies are asking their contract manufacturers to increase their price to company, ciciting jump in input costs. 

Changing the Product Composition

Vendors have been asked to dilute some of the products, such as shampoos and body wash and the changing product composition is also aimed at reducing the cost. 

The key objective in all the strategies adopted by FMCG companies is to increase the profits in June. This is mainly because if the profits jump after July, it cannot be attributed to GST. 

Although the final shape of the anti-profiteering authority and its functioning is still not clear that is creating disputes among Industry. Moreover, Section 171 of the Central GST Act does not spell out the grounds to test whether there has been “commensurate reduction” in price after the introduction of the GST. Similarly, it does not provide any guidance on what happens if someone profiteers.


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