GST: Traders May Have To Pay 18% Interest On Profiteered Amount

Big penalties if benefits of GST don’t get to consumers!

3 min read
Finance Minister Arun Jaitley on Friday announced the GST rate structure agreed among all the GST Council members. (Photo: PTI)

A manufacturer or a trader will have to return the profiteered amount alongwith 18 percent interest if he or she does not pass on to consumers the benefits accrued due to the Goods and Services Tax , a senior government official told BloombergQuint.

The interest will be calculated from the day the excess amount is collected and till it is refunded. An additional penalty may also be levied, the official said, requesting anonymity.

The implementation of GST is expected to result in supply chain efficiencies and elimination of double taxation on goods and services. In some cases the the GST rate is lower than the current tax rate.

The anti-profiteering provision in the GST law requires the resulting benefits to be passed on to consumers. The task of determining whether they have been or not will fall on a proposed National Anti-Profiteering Authority, the official said.

An email to the finance ministry seeking confirmation and details did not elicit a response.

Traders, especially small businessmen, have expressed concerns over such an agency. A BloombergQuint poll of small businesses in Mumbai and Delhi found that 41 percent of respondents felt that it could lead to harassment of industry, while 33 percent said it was too early to say. The rest didn’t see it as a concern.

Interest, Penalty And Cancellation

According to the official, the proposed authority can :-

  • order a reduction in price
  • recover the profiteered amount
  • recover an 18 percent interest amount on it
  • levy a penalty
  • cancel registration of the manufacturer/trader

Sumit Lunker, partner-indirect tax at PwC, told BloombergQuint, that an 18 percent interest rate is in line with the current provisions under excise and service tax laws.

But Bipin Sapra, partner-indirect tax at EY India, said, “It will be objectively difficult to implement an anti-profiteering law with interest and penalty component, as in many cases it will be difficult to identify buyers”.

There may also be cases where a section of buyers doesn’t file complaints, but ends up paying more for the same commodity, he added.

In case of an anonymous complaint or if the person who approached the authority is not available, the interest and penalty amount will be deposited in a proposed consumer welfare fund, the official quoted above said.

‘Cumbersome Mechanism’

A Standing Committee on Anti-Profiteering will be constituted, comprising state and central government officials, who will be nominated by the GST Council.

This committee will examine a complaint filed by a consumer or a commissioner. If it finds that the complaint has adequate evidence of profiteering, it will refer the matter to the Directorate General Safeguards for a detailed investigation, the official explained.

The directorate will have to issue a notice to both the parties involved, which would include information on the product and the details of the allegation. The notice would also include the deadline for a reply.

The directorate will get three months to complete its investigation and an extension of another three months can be given if approved by the Standing Committee.

Once a report is submitted, the National Anti-Profiteering Authority will have three months to give its verdict.

This authority will comprise a chairman, a secretary and four members. The chairman will have to be a judge of any court or a member of Indian Legal Service, having held a post of additional secretary rank for three years. The secretary of the anti-profiteering agency is likely to be the Additional Director of Safeguards, the official cited above said.

PwC’s Lunker does not see the mechanism as encouraging.

The process proposed by government seems to be cumbersome and time consuming and will not be encouraging for business community. There is no time prescribed for standing committee to report the matter to Directorate of Safeguard.
Sumit Lunker, Partner (Indirect Tax), PwC

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