GST ITC: Goods and Service Tax (GST) replaced all indirect taxes levied on goods and services by the Government, both Central and States. GST is one of the biggest Tax Reforms in India since its independence.One of the Key benefits of GST is removal of the cascading tax effect.
Background: Profiteering means making unreasonable profit during regular course of business. Main aim of GST is that to levy GST appropriately at various stages of transactions and to prevent Profiteering to ensure consumer’s interest protection as well. Government has introduced Anti – Profiteering Clause under GST to ensure that there should not be any profiteering due to change in tax structure or its revision and should not create an opportunity to increase profit margin at various stages.
Need for the Anti Profiteering :
- i) To verify that input tax credit and reduction in prevailing tax rates are properly reflected in the price paid by the ultimate customer.
- ii) To monitor price trends due to inflationary conditions.
- ill) More clarity in pricing mechanism.
GST rates for 178 items slashed from 28 percent to 18 percent w.e.f 14th Nov 17. The Union Cabinet chaired by Hon. Prime Minister Narendra Modi has given its approval for the creation of the posts of chairman and technical members of the National Anti – profiteering Authority (NAA) under GST. In exercise of the powers conferred by section 164 along with section 171 of the CentralGoods and Services Tax Act, 2017(12 of 2017) the Central Government made Anti-profiteering Rules, 2017. This decision was taken due to major reduction in GST rates of a large number of consumer’s products. According to Finance Ministry Statement, “This paves the way for the immediate establishment of the National Anti-profiteering Authority (NAA), which is mandated to ensure that the benefits of the reduction inGST rates are passed on to the ultimate consumers by the way of reduction in prices’! Ref :PNS New Delhi).
“The National Anti-Profiteering Authority is an assurance to consumers of India. If any consumer feels that the benefit of tax rate cut is not being passed on, s/he can complain to the authority,” as told by Mr. Prasad ( Hon. Union Minister of Electronics & Information Technology).
Constitution of the NAA is headed by a senior officer of the level of secretary to the government of India with four technical members from Centre and/or the states.Maximum time for which the authorities will work is 2 years from the date when the chairman holds his office or until any further notification is recommended by the Council. According to the official statement issued by finance ministry (ref : India Today) “The ’anti- profiteering’ measures enshrined in the GST law provide an institutional mechanism to ensure that the full benefits of input tax credits and reduced GST rates on supply of goods or services flow to the consumers. This institutional framework comprises the NAA, a standing committee, screening committees in every state and the Directorate General of Safeguards in the Central Board of Excise and Customs (CBEC).”
Duties & Authority of the (NAA) Authority
(1) to determine whether any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit has been passed on to the recipient by way of commensurate reduction in prices; (2) to identify the registered person who has not passed on the benefit of reduction in rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices; (3) to order,
- (a) reduction in prices;
- (b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen percent from the date of collection of higher amount till the date of return of such amount or recovery of the amount not returned in case the eligible person does not claim return of the amount or is not identifiable, and depositing the same in the Fund referred to in section 57
- (c) imposition of penalty as prescribed under the Act; and
- (d) cancellation of registration under the Act.
Following are the Challenges before Anti-Profiteering:
- i) It is difficult to ascertain the unreasonable profit where changes in prices are due to demand & supply situation of products & competitive pressures in the market.
- ii) The word “Commensurate Reduction” and a manner to decide such reduction are nowhere defined in the rule. It is subjective and may vary from person to person.
- iii) It is difficult to benchmark the prices due to various factors like geographical distance and cost of manufacturing
Role of Cost Accountants : Cost Accountants can play very much important role in Anti – Profiteering under GST by
- i) Preparing Comparative Statement of Net Landed Cost of Pre & Post GST, the treatment of input tax credit dealt in proper manner to arrive at the correct landed cost and difference in the net landed cost can be easily traced& understood.
- ii) Computation of product cost for companies having multiple locations considering taxation benefits available to different locations. It will support the pricing policy of the company.
- iii) Determined distribution ratios of common services where Input Credit tax is distributed through ISD to other locations.
- iv) Calculation of Input Tax Credit and Output Tax Ratios.
Conclusion : It is mandatory to pass on the benefits of the reduced tax rate and input credit tax to customers by reducing prices.Recently, the government issued notices to burger chain’s franchisee Hard castle Restaurants Pvt. Ltd,Lifestyle India Pvt. Ltd. and a Honda car dealer, among others, for not passing on theGoods and Services Tax benefits to consumers (according to information on Director General of Safeguard’s website). India’s biggest fast-moving consumer goods (FMCG) including Hindustan Unilever, Proctor and Gamble, Marico, Dabur and Mondelez have already passed on the benefits of GST by either slashing the maximum retail price (MRP) or by increasing quantity.
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