Finance Facts: June 2018

KYC of All Directors

June 30, 2018

National Anti-Profiteering Authority (NAA)

June 06, 2018

The Government has approved the constitution of a National Anti-Profiteering Authority (NAA) – the institutional mechanism under the GST law to check the unfair profit-making activities by the trading community. Union Cabinet chaired by the PM decided for the appointment of a Chairman and Technical Members of the Authority.

Functions of the Authority

The relevance of the National Anti-Profiteering Authority (NAA) is simply out of the launch of the GST. The Authority’s core function is to ensure that the benefits of the reduction in GST rates on goods or services made by the GST Council is passed on to the ultimate consumers by way of a reduction in prices by traders.

Decision about the formation the NAA comes in the background of rate reduction of large number of items by the GST Council in its 22nd meeting at Guwahati. At the meeting, the Council reduced rates of more than 200 items including goods and services. This has made tremendous price reduction effect and the consumers will be benefited only if the traders are making quick reduction of the prices of respective items. There is a concern that traders are reluctant to make price cut so that they can make profit.

Utility of the authority

The Authority’s main function is to ensure that traders are not realizing unfair profit by charging high price from the consumers in the name of GST. Traders may charge high price from the consumers by naming the GST factor. Similarly, they may not make quick and corresponding price reduction when the GST Council makes tax cut. All these constitute profiteering. The responsibility of the NAA is to examine and check such profiteering activities and recommend punitive actions including cancellation of licenses.

What is profiteering?

Profiteering means unfair profit realized by traders by manipulating prices, tax rate adjustment etc. In the context of the newly launched GST, profiteering means that traders are not reducing the prices of the commodities when the GST Council reduces the tax rates of commodities and services.

Conventionally, several traders will have a strong tendency to quickly increase the price of a commodity whose tax rate has been increased. But on the opposite side, they may delay the price reduction of a commodity whose tax rate has been cut by the government. A delayed or postponed price reduction helps business firms to make higher profit. The losers here are the consumers.

Constitution of the NAA

The NAA will be headed by a senior officer of the level of Secretary to the Government of India. There will be four Technical Members from the Centre and/or the States.

The GST Act itself contains provision for anti-profiteering measures. The Act recommend for the setting up of an institutional mechanism to ensure that the full benefits of price reductant factors (i) the input tax credits and (ii) reduced GST rates on supply of goods or services, made from time to time will be passed on to the consumers.

Besides the NAA, the GST law also proposes for other institutional arrangements: a Standing Committee, Screening Committees in every State and the Directorate General of Safeguards in the Central Board of Excise & Customs (CBEC). All these bodies will work together on the anti-profiteering front.

When the NAA certify that there is anti profiteering in a specific case, it can order the supplier/business concerned to reduce its prices or return the undue benefit availed by it along with interest to the recipient of the goods or services. If the undue benefit cannot be passed on to the consumer, it can be ordered to be deposited in the Consumer Welfare Fund. In extreme cases, the NAA can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST. (With inputs from PIB)

Finance Facts

KYC of All Directors

National Anti-Profiteering Authority (NAA)

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