Despite three years of GST roll-out, a fresh confusion came to the fore on June 30, when Ahmedabad High Court in a recent ruling said that the GST anti-profiteering investigations should be conducted only on the products which are under the complaint and not the entire list of products sold by the brand/company against which the complaint has been raised. This has, in turn, put a question mark over the powers of the anti-profiteering system under the GST framework.

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The judgement in certain quarters is being read as a major relief for the industry but a sort of setback for the consumers.

The confusion started, with the observation of Ahmedabad High Court, where the court noted that "the respondents are directed not to inquire as far as products other than the complained products are concerned." This implied that the current system of anti-profiteering, where in the past, during investigations, the anti-profiteering authorities had suo-moto taken cognizance and had initiated investigation for not just the complained products but other products also which were being sold, by the same brand, as not tenable.

It now seems that the Centre will have to step in to provide clarity on whether anti-profiteering authorities have the rights to investigate all products apart from the one under the complaint sold by the same brand or company or not.

The Ahmedabad High Court was hearing a case of M/s Sapphire Foods India Pvt. Ltd. (a franchisee of Yum Brand, operating KFC & Pizza Hut stores), where it was alleged, on the basis of a complaint from a customer, that benefit of tax rate reduction from 18 percent to 5 percent had not been passed on by the franchisee on certain products.

However, during the proceedings, the authorities also brought other products offered by the franchisee under its investigation ambit. The inclusion of other products in the anti-profiteering investigation was debated by the franchisee and a Special Civil Application was filed with the Gujarat High Court.

It was submitted before the High Court that anti-profiteering authorities have no legal powers to investigate the products not complained against and the same if resorted to, would be illegal.

A reference was also given of the Delhi High Court's order in the case of M/s Reckitt Benckiser restricting the investigations to complained products, which was submitted to the Ahmedabad High court. Noting all the arguments, the Ahmedabad High Court provided interim relief to Sapphire Foods, by directing the authorities not to undertake an investigation for products other than the complained products.

Important to note here is that, one of the major provisions to keep a consumers interest in mind under GST, was the clause of profiteering, which was being guarded through a national anti-profiteering authority (NAA) and mechanism to assess time to time, whether the benefits of GST rates, rate changes have been passed on to the end consumer or not.

However, interestingly, with this observation by Ahmedabad High Court, it has lead to several eyeballs rolling with fresh questions. Off late, the fear of anti-profiteering proceedings was proving to be a major obstacle for the businesses and industry while increasing the prices of their products.

In the past 3 years, since GST was implemented, majority of industry sectors have faced action from the anti-profiteering authorities, while construction, FMCG and quick-serve restaurants are the primary sectors against which majority of profiteering complaints were seen to be registered.

An enquiry in case of anti-profiteering matters can be initiated by the consumer or by the GST authorities if they feel that the benefit of a reduction in tax rates has not been passed on the consumer by way of a price reduction. Such an enquiry is normally initiated on the basis of a particular Stock keeping unit (SKU) of a product.

The Anti-profiteering provisions are designed to verify if the benefit of a tax rate cut on a specific product has been passed on and it is not intended to be an enquiry on all the products manufactured/sold by the company.

However, the anti-profiteering authorities usually ask for the costing/pricing details of all the products sold by a manufacturer/seller and do not restrict themselves to the product against which there is a complaint/enquiry.

In this case, M/s Sapphire Foods India Pvt. Ltd, officials say that it did not seem to have considered the change made in mid-2019 in the anti-profiteering provisions which empowered the National anti-profiteering authority (NAA) to extend the investigation to other products manufactured/sold by the same person.

Hence, while this may be treated as a relief by some sections of business, it is likely to result in further litigation.

Anita Rastogi, Partner GST and Indirect Taxes at PwC said, "This is a welcome order from the Hon’ble Gujarat High Court and goes well with the intent of the law. This would result in providing a major relief to other businesses undergoing anti-profiteering investigations and should be considered as a precedent on this issue for future investigations as well."

Similarly, MS Mani, Partner at Deloitte India feels, that " businesses need to bear in mind that the ambit of anti-profiteering was widened in 2019 to cover products other than those covered in the investigation report and hence there is a need to be prepared with data across product lines once an investigation is initiated."

Rajat Mohan, Senior Partner at AMRG & Associates says, "The Industry can rejoice on the Interim orders passed by Gujarat High Court, directing the Anti-Profiteering Authority and DGAP to restrict the investigation only to the complained products. These orders give a sigh of relief, for all the business especially FMCG and real estate companies, as they are expected to approach respective high courts for a similar injunction order against DGAP. This ruling would tie the hands of DGAP & NAA forcing them to stick to the investigation for complained products only. But, central government would have to revisit all its powers given to NAA and intervene in the matter."

First Published:Jul 2, 2020 7:42 PM IST