On November 16, 2017, the Union Cabinet approved setting up of a National Anti-profiteering Authority [NAA] under Goods and Services Tax [GST] so as to ensure the benefit of the tax reaches consumers. Besides, the chairman, it will include four technical members. A five-member committee, under Cabinet Secretary P K Sinha, has been entrusted to finalize the list.
If, a consumer feels that the reduction in the incidence of tax under GST dispensation is not being passed on, he/she can register a complaint with the authority. The anti-profiteering mechanism provides for setting up of ‘screening committee’ at the state-level and ‘Standing Committee’ at national level. The complaints will be first sent to ‘screening committee’/‘Standing Committee’ depending on whether it is of local nature or national respectively.
If, the complaints have merit, the respective committees would refer the cases for further investigation to the Directorate General of Safeguards [DGS]. The DGS would generally take about three months to complete the investigation and send the report to NAA.
If, the NAA finds that a company has not passed on GST benefits, it will either direct the entity to pass on the benefits to consumers along with 18 per cent interest, as also impose penalty or if the beneficiary cannot be identified, will ask the company to transfer the amount to the ‘consumer welfare fund’ within a specified timeline.
The authority will have the power to cancel registration of any entity or business if it fails to pass on to consumers the benefit. But, it would probably be the last step against any violator.
The NAA will have a sunset date of two years from the date on which the chairman assumes charge.
The trigger for setting up of the authority now is the decision in the meeting of the GST Council on November 9/10, 2017 to shift a huge 180 items from highest tax slab of 28% to 18%. There was an apprehension that the manufacturers/traders would not pass on the benefit consequent to the steep reduction in tax rates. Hence, there is urgent need for a mechanism to prevent it.
But, why did the union government have to wait that long? After all, GST was launched on July 1, 2017 and was expected to result in lower price of majority of the goods due to elimination of more than a dozen central/state level taxes, their cascading effect and high transaction cost [under the subsisting dispensation]. Therefore, compulsion to have it in place was felt from the day one.
Yet, the inexplicable delay has cost the consumers dearly. After the launch, there have been several instances of dealers taking them for a ride. Apart from the tax relief not being transmitted, in some cases, the dealers were found to be charging GST over and above maximum retail price [MRP] which includes the tax component.
Will the authority achieve the intended objective? The proposed detailed mechanism involving several layers viz. standing/screening committees, DG Safety, the authority with timelines at each layer [some specified and others un-specified] and bureaucratic red-tape inevitable in such an arrangement does not inspire confidence.
First, the process of constituting screening committees in all the states besides the standing committee at the centre by itself will be a long drawn process. This is all the more keeping in mind the snail’s pace at which the bureaucracy especially in the states moves.
Second, from the time a complaint is filed till a recommendation is made by DGS and issue of order by the authority, a time gap of 6 months at the bare minimum is unavoidable. It could be much more if investigations by DG Safety take longer than minimum 3 months and the committees make reference to the former under ‘business as usual’ scenario. It makes no sense to have an order 6 months or more after the damage is done to the consumers.
It is a daunting task if not impossible to chase millions of consumers who were not given the benefit of lower tax. This requires huge documentation at every level of supply and marketing chain, availability of digital records right up to the dealer level, insistence by all consumers on the receipts at the time of purchase and their retention for a reasonable long period.
All of these are humongous requirements and are not easy to comply. The biggest problem is at the level of consumers who are generally not prone to asking for the receipt and even if they ask for it, to expect them to retain for say 6 months [all the more when, he/she makes hundreds of purchases every month] is asking for the moon.
This position is accepted by none other the government itself when it opines “if the beneficiary cannot be identified, will ask the company to transfer the amount to the ‘consumer welfare fund’ within a specified timeline”. Transferring the money to a fund does nothing to give relief to the consumers who suffered due to the wrong committed by the manufacturer/dealer.
Such a remedy can also lead to other complications. When, a company is asked to pay back crores of rupees say, after an year [normal time taken for the process to get consummated], this will necessitate re-writing of the income-expenditure account, balance sheet and in turn, affect calculation of tax, surplus/profit and dividend distribution etc. This can boomerang on shareholders.
The threat of canceling registration of the concerned entity is substantially diluted by a caveat ‘it would probably be the last step against any violator’. Besides, it gives lot of discretion to the bureaucrat which is out of sync with Modi’s commitment to a policy driven governance free from corruption and nepotism.
Finally, giving the authority a tenure of only 2 years is indicative of a half-hearted move. By the time, it starts making an impact in terms of correcting the wrong if at all, in a couple of cases [doubtful!], it will be time to pull down the curtains.
To sum up, setting up of NAA is like an attempt to catch the horses after they have fled from the stable. For dealing with the problem at hand, the government should follow the dictum ‘prevention is better than cure’. Apart from issuing directions on the ‘dos and don’ts’ [this part is being done in ample measure], it needs to focus on random checks followed by action against violators on ‘real time’ basis.
The Ministry of Finance [MoF]/Central Board of Excise and Customs [CBEC] may deploy a huge contingent – picked up from the army of unemployed youth [on the same lines as Modi asked the Institute of Company Secretaries of India to mobilize 100,000 persons to help small businesses on GST] – for doing the job.