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ANTI-PROFITEERING IN GST
Anti-Profiteering means making unreasonable profits. In GST a clause of anti-profiteering has been introduced by the government to protect the consumers from profiteering by the traders.
The Law provides that on supply of goods or services the benefits of lower rates or input tax credit should be passed on to the consumer by reducing prices proportionately. Under the anti-profiteering clause in GST (Section 171), the central government is authorized to examine whether input tax credits claimed by any registered taxable person result in a “commensurate reduction in the price” of goods and services sold by that person. The central government may constitute an authority to impose penalties if such price reductions are not implemented. The law is intended to protect consumers from undue exploitation.
Under GST Law every taxable person will have to find the additional benefits he may get by way of ITC, no retention and different taxes for which no set off was allowed. Savings on Input and Output tax will have to be worked out. Similarly, additional tax burden will also have to be worked out.
In addition to input credits and tax rates, there are multiple ways for companies to increase efficiency and profits under GST. For example, the free flow of goods across states, without entry tax and with lower logistics cost, will increase the profit margin post-GST implementation and should not be considered as anti-profiteering. In such a scenario, companies can also recover the cost of GST implementation and earn higher profits after the break-even.
The anti-profiteering clause is intended to guarantee that any savings resulting from the efficient input credit chain and lower taxes actually reach final consumers. The motivation behind GST will be defeated if it benefits only the companies and not the final consumer.