Section 171 of GST Act: Antiprofiteering measure

CGST Section 171(1) – Anti-Profiteering Provision

Section 171(1) of the Central Goods and Services Tax (CGST) Act, 2017 deals with anti-profiteering measures. It mandates that any reduction in the rate of tax on goods or services or any benefit of input tax credit (ITC) must be passed on to the consumers through a proportionate reduction in prices.

Key Points of Section 171(1):

1. Tax Reduction Benefit: If the government reduces GST rates on any goods or services, the seller must reduce the price accordingly so that the benefit is passed to the end consumer.
2. Input Tax Credit (ITC) Benefit: If a supplier benefits from ITC (which lowers their tax burden), they must reflect this benefit in the form of lower prices.
3. Consumer Protection: The provision ensures that businesses do not unjustly profit from tax reductions and ITC benefits.
4. Enforcement: The National Anti-Profiteering Authority (NAA) monitors compliance with this provision. Violations can result in penalties and corrective measures, including price reductions and refunds to consumers.

Example:

• Suppose the GST on a product is reduced from 18% to 12%.
• If the original price of the product was ₹1,180 (including ₹180 GST), after the tax cut, the price should be reduced accordingly (₹1,120 including ₹120 GST).
• If the seller does not reduce the price and continues selling at ₹1,180, it would be considered profiteering, violating Section 171(1).

This provision helps prevent businesses from pocketing tax benefits meant for consumers, ensuring fairness in pricing.

CGST Section 171(2) – Constitution & Empowerment of Authority for Anti-Profiteering

Section 171(2) of the Central Goods and Services Tax (CGST) Act, 2017 empowers the Central Government, based on recommendations of the GST Council, to:

1. Constitute an Authority (a new body) or
2. Empower an existing Authority under any prevailing law

This Authority is responsible for examining whether businesses have passed on the benefits of input tax credit (ITC) or GST rate reduction to consumers through proportionate price reductions.

Key Aspects of Section 171(2):

1. Authority’s Role:
   • The Authority ensures compliance with anti-profiteering provisions under Section 171(1).
   • It examines whether a registered taxpayer has genuinely reduced prices in response to lower tax rates or ITC benefits.
2. Empowerment of the Competition Commission of India (CCI) [Notification No. 23/2022]:
   • The Competition Commission of India (CCI) was designated as the anti-profiteering authority effective from December 1, 2022.
   • The CCI now examines whether tax benefits (ITC or rate reduction) are being passed on to consumers.
3. Cessation of Authority’s Functioning [Notification No. 19/2024]:
   • The Government has set April 1, 2025, as the last date for accepting complaints regarding anti-profiteering.
   • After this date, no new “requests for examination” can be filed.
4. Definition of “Request for Examination”:
   • As per the Explanation in Section 171(2), a “request for examination” refers to a written application submitted by a person, alleging that a business has failed to reduce prices despite benefiting from ITC or GST rate cuts.

Summary of Recent Notifications

1) Notification No. 23/2022 (Dated 23.11.2022)

• Empowered the CCI to handle anti-profiteering investigations from December 1, 2022.

2) Notification No. 19/2024 (Dated 30.09.2024)

• Stopped acceptance of new anti-profiteering complaints from April 1, 2025.

Implications of Section 171(2) and Notifications

• Businesses must continue to pass on tax benefits to consumers until the anti-profiteering mechanism ceases to accept complaints.
• Consumers can still file complaints with the CCI until March 31, 2025.
• After April 1, 2025, no new cases can be initiated under this provision, indicating a gradual phasing out of anti-profiteering enforcement under GST.

CGST Section 171(3) – Powers & Functions of the Anti-Profiteering Authority

Section 171(3) of the CGST Act, 2017 states that the Authority constituted or empowered under Section 171(2) shall exercise powers and functions as prescribed under GST rules and notifications.

Key Aspects of Section 171(3):

1. Authority’s Powers & Functions:
   • The Anti-Profiteering Authority (initially the National Anti-Profiteering Authority (NAA) and later the Competition Commission of India (CCI) from December 1, 2022) has been given specific powers under Rule 126 to Rule 137 of the CGST Rules, 2017.
   • These rules define how the Authority investigates, evaluates, and penalizes profiteering cases.
2. Typical Powers of the Authority:
   • Investigate Complaints: Examine whether businesses have passed on GST rate reduction or ITC benefits to consumers.
   • Summon & Examine Evidence: Call for records, invoices, financial statements, and witness testimonies.
   • Order Price Reduction & Refunds: If profiteering is found, the business can be directed to reduce prices or refund excess amounts charged to consumers.
   • Levy Penalties: Imposing fines or other penalties for violations.
   • Recommend Actions to Other Authorities: Can refer matters to the GST Council or other regulatory bodies for further action.
3. Delegation of Powers:
   • The Central Government, through notifications, defines the extent of powers and responsibilities of the Authority.
   • With Notification No. 23/2022, the Competition Commission of India (CCI) was empowered to take over these functions.
   • Notification No. 19/2024 has set April 1, 2025, as the cut-off date for accepting new anti-profiteering complaints, indicating a phase-out of these functions.

Implications of Section 171(3):

• The Authority’s decisions and actions are binding as per the rules prescribed under GST law.
• Until March 31, 2025, businesses must comply with anti-profiteering provisions, or they may face investigations, penalties, and enforcement actions.
• After April 1, 2025, new complaints will not be accepted, suggesting a potential transition in enforcement mechanisms.

CGST Section 171(3A) – Penalty for Profiteering

Section 171(3A) of the CGST Act, 2017 introduces a penalty provision for businesses that fail to pass on the benefit of GST rate reduction or Input Tax Credit (ITC) to consumers.

Key Provisions of Section 171(3A):

1. Penalty for Profiteering:
   • If the Authority (such as the Competition Commission of India (CCI), which took over anti-profiteering functions from December 1, 2022) finds that a registered person has engaged in profiteering (i.e., not passing tax benefits to consumers), they will be liable to pay a penalty of 10% of the profiteered amount.
2. Relief from Penalty (30-Day Window):
   • If the profiteering amount is voluntarily deposited within 30 days of the Authority’s order, no penalty will be levied.
   • However, the business is still required to return the excess profit to the affected consumers or deposit it into the Consumer Welfare Fund if consumers are unidentifiable.
3. Definition of “Profiteered” (Explanation-1):
   • The term “profiteered” refers to the amount a business unfairly retained by not reducing the price of goods or services despite a GST rate cut or ITC benefit.
   • The Authority determines this amount based on investigation and assessment of business pricing practices.
4. Definition of “Authority” (Explanation-2):
   • The term “Authority” includes not just the primary anti-profiteering body (such as CCI) but also the Appellate Tribunal (where appeals against anti-profiteering orders are heard).
   • This means both the initial Authority and the Tribunal can decide on profiteering cases and impose penalties.

Practical Implications of Section 171(3A):

• Deterrence Against Profiteering: The 10% penalty acts as a deterrent against businesses unfairly retaining tax benefits.
• Opportunity to Comply: Businesses can avoid penalties by voluntarily refunding profiteered amounts within 30 days.
• Enforcement Through CCI: Since December 2022, the Competition Commission of India (CCI) has been handling profiteering cases.
• Cessation of New Cases (From April 1, 2025): As per Notification No. 19/2024, after March 31, 2025, the Authority will no longer accept new profiteering complaints. However, existing cases will likely continue to be adjudicated.

Example:

• Suppose a company was selling a product for ₹1,180 (including ₹180 GST).
• If GST was reduced from 18% to 12%, the price should be lowered to ₹1,120.
• If the company continues to charge ₹1,180 despite the tax reduction, it would be considered profiteering.
• If the profiteered amount is ₹60 per unit, and the company sold 10,000 units, the total profiteered amount = ₹6,00,000.
• The company must return ₹6,00,000 to consumers (or the Consumer Welfare Fund).
• If not deposited within 30 days, the company will also have to pay a penalty of ₹60,000 (10% of ₹6,00,000).