Making sure manufacturers fully pass on GST cuts

EVERY time the government cuts indirect taxes on goods, consumers are on tenterhooks, wondering whether the manufacturers will fully pass on the duty reductions in the form of reduced prices. It’s no different this time.Ever since Union Finance Minister Nirmala Sitharaman, Chair of the Goods and Services Tax (GST) Council, announced substantial tax reductions on a wide range of goods of mass consumption, there is considerable expectation, mixed with a tinge of scepticism, on the tax cuts leading to cheaper goods.The new taxes will come into effect from September 22 and there is every reason for such apprehensions in the minds of consumers. After all, for over three decades, beginning 1991, when we opened our markets and began rationalising duty structures, consumer expectations and hopes on this score have largely been belied.After unsuccessful attempts by successive finance ministers to prevent businesses from appropriating the tax benefits, the finance ministry had pointed out that there were no provisions in law to force the manufacturers to pass on the benefits or transfer the profiteered amount to the Consumer Welfare Fund, as demanded by consumers.Finally, with the introduction of the new indirect tax regime and the Central Goods and Services Tax (CGST) Act, 2017, came the safeguards that the consumers had long demanded in the form of Section 171. Its mandate is clear: “Any reduction rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.”Since it is difficult for consumers to determine whether the tax cuts have been fully passed on, Section 171 also provides for the constitution of an anti-profiteering authority to examine whether such tax reductions have resulted in a ‘commensurate’ reduction in the end price. If the authority finds any violation of Section 171, the amount profiteered by the business will have to be deposited in the Consumer Welfare Fund created for the purpose, along with interest. After all, that money belongs to consumers. The law also provides for penalty as a deterrent.Prior to 2017, proof of businesses appropriating the duty reductions was sketchy and consisted of short market surveys by consumer groups and a lone study by the Bureau of Industrial Costs and Prices that showed profiteering by pharmaceutical, textile, personal hygiene and cosmetics industries.But today, if you look at the hundreds of orders pertaining to profiteering by the industry, on the website of the Principal Bench, Goods and Services Tax Appellate Authority (Anti-profiteering division), there is ample evidence of the magnitude of the problem. In fact, all the big names in the business, from fast moving consumer goods, pharmaceuticals, personal hygiene products, electronic goods to hospitality, tourism and real estate sectors, have been found guilty of violating Section 171 and asked to pay the profiteered amount with interest to the Consumer Welfare Fund.But, unfortunately, just when the government is giving us a bonanza in the form of reduced or nil taxes on a variety of goods, including personal hygiene products, kitchenware, medical devices, farm products, lifesaving drugs and medicines, one of the biggest weapons against unjust enrichment by businesses no longer exists to protect consumer interest.The anti-profiteering authority, established on November 28, 2017, under the CGST Act, was dissolved on December 1, 2022, and at present the Principal Bench of the GST Appellate Tribunal is dealing with only anti-profiteering cases pending before it.So, there is an urgent need to revive the National Anti-profiteering Authority to investigate violations of Section 171 and protect consumer interest. Today, AI-based algorithms can help the authority detect violations and calculate the profiteering amount better, faster and in a more transparent manner.I must also mention that businesses are so against Section 171 of the CGST Act that they challenged the constitutional validity of the Section, besides various provisions in the Rules before the Delhi High Court. Fortunately for consumers, the high court, in a well-reasoned order, not only upheld the validity of 171, but also the power of the Authority to levy interest at 18 per cent and a penalty.Said the court: “To summarise, Section 171 of the Act, 2017, mandates that whatever is saved in tax must be reduced in price. Section 171 of the Act, 2017, incorporates the principle of unjust enrichment. Accordingly, it has a flavour of consumer welfare regulatory measure…” (Reckitt Benckiser India Pvt Ltd vs Union of India, January 29, 2024).Unhappy with this order, the businesses have gone to the Supreme Court. Meanwhile, the Finance Minister has assured consumers that she will personally ensure that the benefits of the revised taxes fully reach consumers. The Consumer Affairs Ministry has also asked consumers to send any complaints on the issue to their helpline number 1800-11-4000 or 1915, or on the website. The helpline operators have been specifically trained to deal with these complaints, the ministry has said.So, consumers, keep your fingers crossed!— The writer is a consumer affairs expert

Making sure manufacturers fully pass on GST cuts

Pushpa Girimaji

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