25.04.2024: Supreme Court issues notices on constitutional validity of anti-profiteering norms under GST

In yet another move by industry challenging the anti-profiteering norms under the ambit of Goods and Services Tax, the Supreme Court issued notices to the Union Finance Ministry, the Central Board of Indirect Taxes and Customs (CBIC), the Goods and Services (GST) Council and the National Anti-Profiteering Authority (Now subsumed under the Competition Commission of India) to reply on the claims of the constitutional validity of the anti-profiteering norms.

The apex court issued notices taking cognizance of petitions filed by real estate firms namely Swati Realty and Manas Developers, which have moved the top court challenging a Delhi High Court verdict, upholding the constitutional validity of anti-profiteering provisions.

According to a Special Leave Petition (SLP) by Swati Realty and Manas Developers, the High Court failed to appreciate the impugned provisions under the GST system, which the firm claims are unconstitutional.

Delhi High Court had earlier decided on the constitutional validity of the anti-profiteering provisions and had held such provisions to be constitutionally valid. The moot point before the Delhi High Court was with respect to the absence of any methodology and in such a situation, it was difficult for the businesses to determine the quantum of profiteering as the National Anti-Profiteering Authority had used different methods and mechanisms to compute Profiteering for different sectors.

Interestingly, while the Delhi High Court in January had upheld the constitutional validity of the anti-profiteering provisions, the order of the Delhi High Court was in favour of the real estate sector as the order very categorically mentioned that the methodology used by the National Anti-Profiteering Authority with respect to the input tax credit ratios for the erstwhile period and the GST period, appears to be not appropriate, keeping in mind the business of the real estate sector.

However, as far as the validity of the anti-profiteering provisions was concerned, the Delhi High Court held that in favour of the revenue. The question thereafter arises whether the quantum of profiteering would be now addressed by the Delhi High Court or by the lower authorities. In this regard, the option was given to the companies to either opt to be heard before the High Court or get the quantum decided by the lower authorities.

The matter is listed tomorrow for direction before the Delhi High Court in this regard.

In the meanwhile, FMCG and real estate players have knocked on the doors of the Supreme Court so that they are heard on the constitutional validity of the provisions. Supreme Court has issued notices to the central government and related parties such as CBIC, GST Council, and NAA (now under CCI) for several FMCG and real estate companies on the determination of the constitutional validity of these anti-profiteering provisions.

“We have been arguing before Delhi High Court and Supreme Court that the anti-profiteering provisions will have to test the constitutional validity in the absence of a specific methodology to determine the quantum of commensurate reduction in prices. Accordingly, it is imperative that the constitutional validity aspect is decided by the Supreme Court, especially for real estate players, where the findings of the Delhi High Court are tilted favourably towards the sector. This is predominantly on the methodology applied by the authorities to determine the quantum of Profiteering for the sector,” said Abhishek A Rastogi, founder of Rastogi Chambers, arguing for the petitioners in real estate and FMCG sectors.

Earlier in February, the apex court had issued a notice to the union government over the same matter in a separate petition. National Anti-Profiteering Authority has been facing several such litigations at various levels of the judiciary. The National Anti-Profiteering Authority was set up in November 2017 to ensure that companies pass on the benefits of Input Tax Credit (ITC) and GST reduction to consumers by way of reduction in prices.

Later on, NAA was subsumed under the Competition Commission of India, which has been looking into complaints of profiteering against companies since December 2022. In January, more than 100 companies, including Hindustan Unilever, Patanjali, Jubilant Foodworks, and Phillips, had filed petitions against the anti-profiteering provisions in the High Court.

The High Court had held that the provisions pertaining to a commensurate reduction in prices when GST rates are reduced or due to ITC. Hence, these provisions are in the public interest. They are in line with legislative powers given under the Constitution, it had ruled.

Source: CNBC TV 18

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