Incomplete provisions: Anti-Profiteering Measures in India under the CGST 2017

Incomplete provisions: Anti-Profiteering Measures in India under the CGST 2017

Prankul Boobana


Due to rising inflation and the results of a single tax regime, the Indian government introduced Anti-Profiteering measures through the Central Goods and Services Act 2017 (the CGST).[1]The purpose of this scheme was to ensure that consumers receive beneficial reductions in taxes on the supply of goods or services or through input tax credit.[2]Yet, as some of these Antiprofiteering  measures are inherently inconsistent, they have been subject to criticism by legal practitioners and the businessmen.[3]This post identifies these problematic aspects, arguing that they have been caused by the recent rulings of the National Anti-Profiteering Authority (the NAA).

  1. Relevant rules

The primary cause for difficulties facing sellers and manufactures is the lack of clarity regarding the definition of ‘commensurate reduction in prices’. It is worth noting that both CGST and Anti-Profiteering rules do not define what commensurate reduction means, nor do they prescribe a procedure to be followed for computation of the same (‘Computation Methodology’). In 2018, the NAA issued guidelinesunder the Goods & Services Tax Methodology and Procedure.[4]Yet, these guidelines detail procedure that concern filing complaints and do not specify Computation Methodology.

This omission has affected the industry and dragged it into litigation despite many companies having acted in good faith.[5]Consequently, a serious concern has been how one may determine the permissible time limit for raising the ‘base price’. Where there is a tax rate reduction, the manufacturer is required to transfer this benefit of rate reduction to the consumer. But a manufacturer might want to raise the base price for reasons other than tax, such an increase in cost of raw materials.[6]Even under these circumstances, a rise in base price could be treated as ‘profiteering’, and the approach the NAA would take regarding such exceptions is unclear.

In one of its earlier orders issued in 2018,[7]the NAA stated that an increase in the base price by the seller does not amount to profiteering. This case was caused by an increase in the cost of one of the major raw materials (for instance, paddy here), and imposition of tax on the product due to the newly introduced Goods and Services Tax (GST) regime. Despite this, the NAA did not take the same view in subsequent cases. For instance, a few months later in 2018, the NAA held Pyramid Infratech, a real estate developer, liable for profiteering.[8]Here, they did not take into account rising cost of one of the major raw materials when calculating the profiteered amount. The NAA instead argued that price fluctuations would have been accommodated for when the maximum price was offered by the developer.[9]However, in later proceedings, the Delhi High Court suspended the need to enforce this order.[10]The NAA took a similar position with regards to McDonald’s franchise, holding it liable under the premise that conditions such as market factors are not relevant to calculating the profiteered amount.[11]In short, these cases demonstrate the NAA’s inconsistent position regarding raising prices for reasons apart from tax.

Similar concerns were raised regarding methods that could be adopted for passing on the ‘commensurate benefit to consumers’, through a reduction in the price or other methods. In a recent case, Ankit Kumar Bajoria & Ors. vs. M/s Hindustan Unilever Ltd [2018], the NAA assumed two inconsistent positions. The respondent, Hindustan Unilever Limited (HUL), argued that due consideration should be given to passing on of the benefit of rate reduction through increasing the quantity of the product without increasing the cost correspondingly.[12]

Emphasising the intention behind the provision, the NAA argued that Section 171 of the CGST needs to be interpreted in light of the purpose of each measure, and that due regard must be given to prevalent trade practices. Passing on benefits to recipients could then be achieved through delivering a larger quantity for the same price. Accordingly, the NAA allowed deductions to HUL in determining the liability owing to increase in quantity. This ruling was tempered by a caveat: deduction was allowed to ensure the incorporation of anti-profiteering measures into tax legislation for the first time. The NAA went on to specify that in subsequent cases, a reduction in prices would be considered passing on the commensurate benefit, thereby restricting the precedent value.[13]Thus, the NAA does not seem to have followed its own initial observation regarding how the provision ought to be interpreted.

  1. Problematic Implementation

The NAA’s position has become even more problematic recently due to tax rates changing overnight,[14]which have caused a great deal of concern for businesses.[15]The case of Fast-Moving Consumer Goods (FMCG) is worth nothing. Although re-stickering or re-packaging may be an option, this would be cumbersome and expensive, particularly if implemented immediately. Hence, rate reduction indirectly causes financial loss.[16]The NAA also held that the benefit has to be passed on at each stock-keeping unit. But, in practice, common raw material is used for the production of various kinds of goods, so determining the ‘effect of benefit’ for each unit of a product is difficult and impractical.[17]Indeed, when the effect corresponding to a single unit is too small, passing on such benefit is nearly impossible.[18]

Overall, the NAA has not responded sufficiently to the fact that businesses are affected by various factors apart from tax. Anti-Profiteering measures should not be implemented in a manner that would prevent companies from making reasonable amounts of profits. The Delhi High Court in Indraprastha Gas Ltd Petroleum and Natural Gas observed that:

Prices are generally governed/regulated by market forces. Price fixation/regulation/control is essentially a clog on the freedom of trade and commerce conferred the status of a fundamental right. However, wherever the circumstances so justify, the same has been treated as a reasonable restriction.[19]

Market factors such as raw material costs also have a crucial impact on the cost of goods and services, which need to be given due consideration for the purposes of calculating anti-profiteering. If this is not taken into account, the NAA would be denying manufacturers the opportunity to make a reasonable margin of profit.[20]Due to the fact that businesses follow different practices of calculating profit margins, there is a lack of uniformity amongst methods of calculating the amount of profiteering. This is also due to the NAA’s failure to produce clear guidelines for determining the amount of profiteering. If set guidelines were to be issued, industries and business would not be plagued with such uncertainty. 

  1. Lessons from abroad?

On an international scale, Malaysia and Australia have successfully introduced anti-profiteering measures with considerable ease. Both these cases are useful models that the NAA in India could learn from. Malaysia implemented a system of ‘net profit margin’ [21]and Australia a ‘one-dollar rules’ regime.[22] Under the Australian model,[23]the ‘dollar margin rule’ ensures that price changes are affected through changes in the tax rate, but that these do not rise beyond 10%. These regimes also take into account both input tax credit claims, as well as a potential increase in the cost of raw materials. In both cases, during the transition period for GST implementation, the relevant authorities were tasked a number of important responsibilities, including: framing guidelines for what constituted price exploitation, conducting surveys analysing the effects on prices, and consulting businesses about understanding price changes. The monitoring authorities responsible for these integral tasks were the ‘Department of Consumer Affairs’[24]and the ‘Australian Competition and Consumer Commission’[25]in Malaysia and Australia respectively. Thus, in both cases, the relevant authorities were well equipped to understand the market dynamic (unlike the NAA at present). This enabled an easy transition, and effective response in both countries to profiteering measures.


Anti-profiteering measures aimed at protecting consumers in India have, undoubtedly, been quite problematic for industries. Due to these measures and the inconsistent interpretation of Anti-Profiteering provisions by the NAA, businesses continue to be plagued by uncertainty. These measures have hardly been an efficient manner of preventing profiteering by businesses. Both factors have led to a great deal of confusion. To prevent unnecessary litigation, the NAA should publish detailed guidelines defining ‘profiteering’, exemptions to this definition and ‘commensurate benefit’. The NAA should also establish specific procedures to ascertain the amount of profiteering and the commensurate benefit that is to be passed on. In addition, the methods adopted for such calculations ought to be re-formulated incorporating market conditions and other relevant factors. A smooth transition into a strict but fair anti-profiteering regime was achieved by several countries like Australia; it is high time an effective, smooth transition is achieved in India too.




[1]Comptroller and Auditor General of India (CAG), Implementation of Value added tax in India – Lessons for transition to Goods and Services Tax – A Study Report(June 2010).

[2]The Central Goods and Services Act 2017, s 171.

[3] Gireesh C Prasad, ‘Gaps in anti-profiteering policy put businesses in spot of bother’ The Livemint (5 March 2019) <> accessed 25 March 2019.

[4]National Anti-Profiteering Authority under the Goods & Services Tax Methodology and Procedure, 2018.

[5]M S Mani, ‘Opinion: What’s behind spurt in anti-profiteering litigation under GST’ The Livemint (5 March 2019) <>accessed 25 March 2019.

[6]Saurav Agarwala, ‘Anti-Profiteering Provision: A Toothless Provision or a Dangerous Weapon’ (2018)5(1) NLUJ  Law Review <> accessed 30 March 2018.

[7]Kumar Gandharv v KRBL Ltd(NAA, 4 May 2018).

[8]Shri Sukhbir Rohilla & Others v M/s Pyramid Infratech Pvt Ltd(NAA, 18 September 2018).


[10]The constitutionality validity of the provision has been brought in question.

[11]Shri Ravi Charaya & Others v M/s Hardcastle Restaurants Pvt Ltd (NAA, 16 November 2018).

[12]Ankit Kumar Bajoria & Ors v M/s Hindustan Unilever Ltd (NAA, 24 December 2018).


[14]Updated schedule of CGST rates on Goods (NAA, 15 November 2017). <;jsessionid=279068790AA61249B846051B93A7EAE1>.

[15]Venkatesh Ganesh, ‘GST glitches: Infosys blames frequent rate changes’ The Business Line(November 2 2017) <> accessed 5 June 2019.

[16]‘GST – Analysis and Opinions’ Clear Tax (31 January 2019) <> accessed 5 June 2019.

[17]Miss Neeru Varshney and Director General Anti-Profiteering v M/s Lifestyle International Pvt. Ltd. (NAA, 25 September 2018).


[19]Indraprastha Gas Ltd v Petroleum and Natural Gas, 2012 SCC OnLine Del 3215.


[21]Price Control and Anti-Profiteering Regulations (Mechanism to Determine Unreasonably High Profit for Consumer Goods) (Net Profit Margins) 2014.

[22]Allan Fels,‘The ACCC’s role in preventing price exploitation in relation to New Tax System changes’ (Australian Competition and Consumer Commission) <> accessed 16 April 2019.

[23]‘Why Malaysia has scrapped the GST that accounted for 18% of govt’s revenue’ Business Today (India, 17 May 2018) 16 April 2019.

[24]Price Control and Anti-Profiteering Act 201, s 2.

[25]Trade Practices Act 1974, sch 4 s 75AU.