Yardsticks to profiteering in GST law

A split between intent and action

With the passage of time since the advent of GST law into India, it is seen that industry is giving welcoming response and Government is also taking positive steps for GST implementation with an intent to keep the economy on the growth path. In the recent past, the Government reduced GST rates for goods and services.Efforts are also being made to pass on benefit of reduced rates to end consumer like introduction of anti-profiteering measure in GST law, formation of National Anti-Profiteering Authority, awareness campaigns etc.


Where the Government has spared no effort to ensure that the customers reap the benefits of GST, it is also imperative to provide a sound legal mechanism to enforce this concept. However, the GST law as it stands today is more a statement-of-intent and doesn’t specify any consequence of profiteering.The anti-profiteering provision under GST law provides that (a) any reduction in rate of tax on any supply of goods or services, or (b) benefit of input tax credit, shall be passed on to the recipient by way of commensurate reduction in prices. However, law is silent on how to identify commensurate reduction in prices.


Nevertheless, it is imperative for a business to identify the benefits received on account of introduction of GST and analyze the ways by which the same can be passed on to the customers. It is our continuous endeavor to advise best for such subtle situations considering the available information.


Looking at the global scenario, as per the Malaysian approach, a normal profit margin is ascertained for each product taking into account profit of, say, last three years. Any profit gained beyond the margin is to be considered unreasonably high which is an indicator of profiteering. A marginal relaxation may also be given to adjust different factors affecting profit margin.On the other hand, as per Australian approach, pre and post GST price changes pertaining to individual product were analysed to identify profiteering.


Although, both the approaches have their own peculiarities and limitations,it is for the Government to bring in the clear guidelines. Further, the guidelines must be flexible enough to be applied across industries as well as must aid the public at large to achieve lowered tax burden. It is important to understand that the anti-profiteering is not anti-profit,it is about lowering the cost borne by ultimate customer and, therefore, proposed guidelines should wave its sword on unreasonable profit rather than on capabilities of business to earn.


Mr. Abhishek Kumar

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