Ordinance to give teeth to anti-profiteering clause

The government might bring in an ordinance to penalise those who try to make quick money under the goods and service tax (GST) regime. With the GST roll-out scheduled on July 1, the government might have to use this route to ensure a penalising provision is in place. JYOTI MUKUL reports

The government might bring in an ordinance to penalise those who try to make quick money under the goods and service tax (GST) regime. With the GST roll-out scheduled on July 1, the government might have to use this route to ensure a penalising provision is in place.

A proposed anti-profiteering body might be asked to ensure that the new tax regime is not misused, input credits are passed on and customers are not fleeced. The GST law provides such a cover but it does not specify penal action.

A legislation for penal action is required both at the Centre and state levels, though the central GST Act has been enacted at the Centre and state GST Acts have been adopted by the states. “No penalty or conviction can happen unless a law specifying these is passed by the legislature. Such a legislation will specify the upper limits for penalties and conviction,” said an official. An ordinance would be required even if there is a provision for such a body in the current GST law.

The GST Council, a coordination body of the Centre and the states, is likely to meet over the weekend to discuss issues relating to rates and the setting up of such an entity to prevent profiteering.

Under Section 171 of CGST Act, the Council can only set up a body or empower an existing one for fact-finding but that body cannot penalise, said Nihal Kothari, executive director, Khaitan & Co. “The draft GST law that came last year had a provision for an anti-profiteering body. But after realising that penal action cannot be taken without a legislative provision specifying such action, the provision was dropped,” he said.

Kothari said the body under the existing provision can only give a report, like auditors. “Liability cannot be fixed under the current provision. Penalty or prosecution needs a separate statute.”

Making rules under the existing section could be restricted to only empowering a body to analyse the quantum of profiteering. Such “subordinate legislation” (through rules) cannot penalise, said Kothari.

Policy watchers are apprehensive that industry and traders might indulge in profiteering through mechanisms such as hoarding, false labelling and billing, especially during the transition phase. GST would replace excise and value-added tax, besides service tax.

Though the effort is to keep the rates at a level that is revenue neutral and, therefore, has little impact on pricing, some amount of difference in effective tax  is likely in most products and services, said an expert. This could be used by businesses to make a quick profit during the transition phase. "Besides, even later input tax credit may not be fully passed on by profiteers," added the government official.

Business Standard, New Delhi, June 1, 2017