Anti Profiteering explained with T shirts manufacturers in tirupur
Before we get in to anti-profiteering, Lets understand profiteering in simple words.
Goods that are manufactured or supplied go through a vast range of supply chain. For example. T shirts manufacturing goes through various stages of buying yarn to stitching the garment. which in turns has more than 8 steps to perfectly finish a garment by t shirt manufacturers. Every time, The t shirt moves from one stage to other, Taxes are being charged for the goods and services being applied on the t shirts.
So there are possibilities that a greedy seller or service provider can utilize the opportunity of making the exorbitant profit without passing tax credits & benefits to the customer which will increase the final prices to the end consumer. The act of not passing the input credit to the customer is known to be profiteering.
Indian Government is very stringent to hear complaints on profiteering issues as GST main goal was to bring uniformity & bring down the prices from the cascading tax over the consumers.
I will make you understand with a chart to describe anti-profiteering better.
Let’s say Ramsay Exports manufactures t shirts in tirupur for 200 INR and taxes at the rate of 5%. The total cost of the t shirt in tirupur would be Rs 210. So, Ten rupee is the gst paid by Ramsay Exports while selling it to the customer Mr A.
Let’s see How profiteering works!
Mr A sells it to Consumer Mr B.
Lets say Mr A sells the product at Rs 600 charging the same 5% Tax. The total selling price of the t shirt becomes Rs 630. In profiteering, Mr A doesn’t deduct the tax paid by Ramsay Exports while manufacturing the t shirt. Mr A takes the extra input credit to his own pocket which is supposed to be passed to the next customer or consumer.
Let’s see How Anti-profiteering works!
Mr A sells it to Consumer Mr B.
Lets say Mr A sells the product at Rs 600 charging the same 5% Tax. Total input tax paid by Ramsay Exports of Rs 10 is available. Mr A deducts that 10 Rs in the final selling price to the consumer. The total selling price of the t shirt becomes Rs 620. In Anti- profiteering, Mr A does deduct the tax paid by Ramsay Exports while manufacturing the t shirt and sells it Rs 10 less to the consumer.
What does the rule say with GST:
Section 171 of CGST Act, 2017 explains Anti-profiteering
(1) 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
(2) The Central Government may, on recommendations of the Council, by notification,
constitute an Authority, or empower an existing Authority constituted under any law for the
time being in force, to examine whether input tax credits availed by any registered person or
the reduction in the tax rate has actually resulted in a commensurate reduction in the price
of the goods or services or both supplied by him.
(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge
such functions as may be prescribed.
What will happen, when you indulge in Profiteering:
Rtd or existing secretary level office with four technical members (Rtd or existing commissioners of state or central tax or an officer who has equal rank) will be headed. These authorities will also be supported by a standing committee plus state level screening committees in each and every state. The screening committee will have one state officer and one central officer.
There is a total of three stages where profiteering cases would be investigated.
- The screening committee will review the case & make recommendations to the standing committee.
- Standing committee will examine the accuracy and the adequacy of the evidence provided by the screening committee. When the standing committee is satisfied with evidence & proof of profiteering being done.
- Standing committee will refer the case of Director General of Safeguards. A three months inquiry will be initiated and concluded at the end of the third month. Depending on the report, The authority may order the evader to reduce the prices or return the amount that was not passed with a penalty on or cancel the GST registration & if the consumer or aggrieved party is unidentified, Then the penalty or the excess funds would be moved to consumer welfare fund.