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11 September, 2018
With the decision in Sh. Rishi Gupta v. M/s Flipkart Internet Pvt. Ltd.[1], the National Anti-profiteering Authority (NAA) has shifted the focus from the Fast Moving Consumer Goods (FMCG) sector to the e-commerce sector.
In this case, the applicant alleged that the excess amount charged at the time of placing the order should be refunded to him, given that the rate of Goods and Services Tax (GST) reduced from 28% to 18%, between the date of placing the order and the date of supply. It was further alleged that the respondent, i.e. Flipkart, was resorting to profiteering in contravention of the provisions of Section 171 of the Central Goods and Services Tax Act, 2017 (CGST Act), by not refunding the differential amount.The Director General of Anti-Profiteering (DGAP) noted that the respondent had refunded the excess amount to the applicant as per the instruction of the supplier of the product. The DGAP also concluded that while the discount of INR 500/- offered initially had been withdrawn by the supplier, while issuing the supply invoice at the time of deliverys, the same did not amount to profiteering.
Based on this, the NAA held that since the supplier had duly refunded the excess amount collected from the Applicant and correctly charged the reduced GST on the supply, there was no profiteering.
The NAA also observed that the respondent was not the supplier/manufacturer of the almirah and was only an agent who had offered his platform to the supplier to sell the product by charging commission, and was also not responsible for collection or refund of GST and hence cannot be held accountable for contravention of Section 171 of the CGST Act.
Impact of the Judgment
While the rationale of the aforementioned judgment is flawless, what raises concerns is an observation in the order that the NAA has taken note of the fact that there may be several cases in which e-platforms have collected excess GST from buyers and refunds in light of reduced GST rate effective from November 15, 2017. This is followed by a direction by the NAA to the Director General of Audit, Central Board of Indirect Taxes and Customs (CBIC) to audit the major e-platforms and submit its finding to the NAA.
Interestingly, the above direction by the NAA assumes that in all cases it is the e-commerce operator who is responsible for refunding any excess amount collected from the customer. However, the responsibility for charging and depositing GST on the supplies is usually on the supplier of the goods and not the e-commerce operator, which is merely acting as a platform. In many cases, the supplier has complete autonomy to initiate the refund through the automated mechanism put in place, which is received by the customer directly, without any intervention whatsoever of the e-commerce operator.
Another important aspect is that the e-commerce operators are pure service providers and hence their accounts may not disclose the details of the supplies made through their platform by the suppliers to the end-customers. Additionally, e-commerce operators provide a platform for not just goods but also for services; the entire domain of applicability of anti-profiteering on the service sector is currently completely unexplored. In such a scenario, burdening e-commerce operators with audits is completely uncalled for and without recourse to the actual business models.
Another major cause for concern is the continued lack of clarity on the mechanism to pass on the commensurate reduction in price. The NAA has been resorting to arguments that the manufacturers of products should ensure that the price reduction is passed on throughout the supply chain to the end-customer. Hence, the expectation from the industry (without any legal basis) is that measures should be undertaken to ensure that the benefit is passed on to the next level as well. If a similar expectation was to be imposed on the e-commerce players, where the online platforms are merely catering to the suppliers of the products and collect their commission from them, it would be impossible to achieve this.
The blanket instruction of the NAA to the CBIC to undertake audits of all major e-commerce players also raises jurisdictional concerns, as follows:
- The rules governing the powers of the NAA do not empower it to order such a widespread investigation, nor does it confer powers on the NAA to give any instructions to the CBIC.
- Under the GST regime, all assessees are divided amongst the Centre and the State through a stratified random sampling method. Accordingly, the appropriate authorities empowered to undertake audit proceedings against the relevant assessees may or may not be the Federal Government.
- This also has the potential of leading to multiple parallel proceedings against an assessee, if State level GST authorities begin requisitioning for the same information from each branch office.
Closing Remarks
The latest NAA order appears to be yet another example of the Screening/Standing Committee taking cognisance of baseless complaints and thereafter wasting governmental time and resource and harassing the company against whom the complaint has been filed.
It is a disturbing trend that the NAA’s recent actions appear to be changing the essence of the anti-profiteering provisions from being a consumer welfare measure to a price control mechanism. The media has also been adding fuel to the existing fire around the issue of anti-profiteering by creating unnecessary hype around the fact that companies are being interrogated by the NAA; in certain cases the media isn’t even refraining from passing premature verdicts about culpability.
There has also been a recent trend of filing informal complaints by consumers without following the due process of law. Moreover, it has been observed that officers of other departments, such as the Legal Metrology officers are indulging in taking action against companies alleging violation of GST provisions of anti-profiteering, without proper authority in this regard.
It is therefore high time that the implementation of the anti-profiteering provision is examined to ensure that harassment does not take place in the name of compliance.
[1] Case No. 5/2018 dated July 18, 2018 (2018-VIL-04-NAA)
For further information, please contact:
Mekhla Anand, Partner, Cyril Amarchand Mangaldas
mekhla.anand@cyrilshroff.com
