'Beneficial Legislation, Promotes Consumer Welfare': Delhi High Court Upholds Anti-Profiteering Provisions Under CGST Act And Rules

The Delhi High Court has upheld the provisions concerning anti-profiteering measure and establishment of National Anti-Profiteering Authority (NAA) under the Central Good and Services Tax Act, 2017 and its Rules, observing that they are in the nature of a beneficial legislation as they promote consumer welfare.

A division bench of Acting Chief Justice Manmohan and Justice Dinesh Kumar Sharma upheld the constitutional validity of Section 171 of the Central Good and Services Tax Act, 2017 and Rules 122, 124, 126, 127, 129, 133 and 134 of Rules of 2017.

Section 171 of the Act states that any reduction in 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.

It further adds that the Central Government may, by notification, constitute an Authority to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

“Keeping in view the aforesaid conclusions, the constitutional validity of Section 171 of Act, 2017 as well as Rules 122, 124, 126, 127, 129, 133 and 134 of the Rules, 2017 is upheld,” the court said.

It added that it is possible that there may be cases of arbitrary exercise of power under the anti-profiteering mechanism by enlarging the scope of the proceedings beyond the jurisdiction or on account of not considering the genuine basis of variations in other factors such as cost escalations on account of which the reduction stands offset, skewed input credit situations etc.

“However, the remedy for the same is to set aside such orders on merits. What will be struck down in such cases will not be the provision itself which invests such power on the concerned authority but the erroneous application of the power,” the court said.

The bench was dealing with a batch of more than 100 pleas moved by various companies which were directed to pass on the commensurate benefit of reduction in the rate of tax or the Input Tax Credit to its consumers or recipients along with interest.

The pleas challenged the constitutional validity of the anti-profiteering provisions, the legality of the notices proposing imposition or orders imposing penalty issued by NAA and the final orders passed by the Authority.

The bench ruled that the obligation of effecting or making a “commensurate” reduction in prices is relevant to the underlying objective of the Goods and Services Tax regime which is to ensure that suppliers pass on the benefits of reduction in the rate of tax and Input Tax Credit to the consumers.

It added that Section 171 of the Act is, therefore, not to be looked at as a price control measure but is to be seen to be directly connected with the objectives of the Goods and Services Tax regime.

“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 flavor of consumer welfare regulatory measure, as it seeks to achieve the primary objective behind the Goods and Services Tax regime i.e. to overcome the cascading effect of indirect taxes and to reduce the tax burden on the final consumer,” the court said.

It added: “Consequently, a robust mechanism in conformity with the constitutional requirements is in place for dealing with grievances of breach of Section 171(1) of the Act, 2017 and hence, it cannot be said that there is no judicial oversight over the decisions of NAA.”

The court further ruled that NAA is primarily a fact-finding body which is required to investigate whether suppliers have passed on the benefit to their recipients by way of reduced prices as mandated by Section 171 of the Act, 2017 and thus, performs functions that are to be discharged by domain experts.

The matters are now listed before the court on February 08 for directions on merits.

Advocate Amar Dave appeared as Amicus Curiae with Advocate Vikramaditya Bhaskar

Advocates Zoheb Hossain, Sanjeev Menon, Vivek Gurnani, Kavish Garach, Abhipriya, Vivek Gaurav, Sejal Aneja and Manisha appeared for NAA and DGAP.

Asheesh Jain, CGSC with Mr. Gaurav Kumar Advocate appeared for Union of India.

Title: RECKITT BENCKISER INDIA PRIVATE LIMITED v. UNION OF INDIA THROUGH: ITS SECRETARY & ORS.

Citation: 2024 LiveLaw (Del) 111

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