Notice of Enquiry by Directorate of Anti-Profiteering:

Extract of Section 171 of the CGST Act, 2017

Section 171 of the Central Goods and Services Tax (CGST) Act, 2017, is not just a legal provision, but a crucial one that businesses must understand. It pertains to anti-profiteering measures, ensuring that the benefits of tax rate reduction or input tax credit (ITC) are passed on to consumers. This section establishes the legal basis for the Directorate of Anti-Profiteering to conduct enquiries and act against businesses that fail to comply. By understanding this section, businesses can be better prepared to handle any potential enquiries.

Section 171: Anti-Profiteering Measure

(1) Any reduction in the tax rate 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 price reduction. This means that the reduction in the tax rate or the benefit of input tax credit should result in a proportionate decrease in the price of goods or services.

(2) The Central Government may, on the 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 have resulted in a proportional decrease 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 prescribed.

Notice of Enquiry by Directorate of Anti-Profiteering

A Notice of Enquiry by the Directorate of Anti-Profiteering is issued to a business or individual when there is suspicion or evidence that the benefits of GST rate reductions or ITC are not being passed on to consumers. The Directorate of Anti-Profiteering, as the enforcing authority, is responsible for conducting thorough investigations into such cases. This notice is a formal communication requiring the taxpayer to provide explanations and evidence regarding their pricing practices.

Example Scenario

Suppose a business, XYZ Pvt Ltd, benefits from a reduction in the GST rate on one of its products from 18% to 12%. Instead of reducing the product’s price, XYZ Pvt Ltd continues to sell it at the same price, thereby increasing its profit margin. This is a clear violation of the anti-profiteering measures under the CGST Act. The Directorate of Anti-Profiteering, upon receiving a complaint or through its monitoring, issues a Notice of Enquiry to XYZ Pvt Ltd, asking them to justify their pricing strategy and show that they have passed on the benefits of the tax reduction to the consumers.

Legal Recourse and Proceedings

Legal Recourse

When a taxpayer receives a Notice of Enquiry from the Directorate of Anti-Profiteering, they should:

1. Review the Notice: Carefully read the notice to understand the allegations or concerns raised.
2. Prepare a Response: Gather relevant documents, such as pricing records, invoices, and cost structures, to support their case and prepare a detailed reply.
3. Submit the Response: File the response within the specified time frame, typically 15-30 days from receipt of the notice.

Legal Proceedings

If the taxpayer fails to respond adequately or if the response is not satisfactory, the Directorate of Anti-Profiteering may proceed with the following:

• Investigation: Conduct a detailed investigation into the pricing practices of the business.
• Orders: Issue orders for the reduction of prices, return of the profiteered amount along with interest to the consumers, imposition of penalties, and cancellation of registration in extreme cases.

Penalties and Prosecution

Penalties and prosecution depend on the severity and nature of the non-compliance:

• Price Reduction: The business may be ordered to reduce prices to pass on the benefit of tax reductions or ITC.
• Return of Profiteered Amount: The business may be required to return the excess amount charged to the consumers along with interest.
• Monetary Penalty: Additional penalties as specified under the GST laws.
• Prosecution: In cases of severe non-compliance or repeated offences, prosecution under GST laws may be initiated, leading to severe penalties and imprisonment. This can have serious implications for your business, including financial losses, damage to your reputation, and legal consequences.

Do’s and Don’ts on Receiving a Notice of Enquiry by Directorate of Anti-Profiteering

Do’s

1. Read Carefully: Understand the specific allegations or concerns raised in the notice.
2. Gather Evidence: Collect all necessary documents and information to support your case, including pricing records, invoices, and cost structures. These documents will help demonstrate that you have passed on the benefits of tax rate reductions or ITC to your consumers.
3. Consult a Professional: It is highly recommended to seek advice from a GST practitioner or legal expert to formulate a strong response. Their expertise can help you understand the legal implications of the notice and guide you in preparing a comprehensive and effective response.
4. Respond Promptly: Submit your response within the stipulated deadline to avoid further legal action.
5. Maintain Records: It is crucial to keep copies of the notice and all related documents for future reference. Accurate and comprehensive records can help you respond to the notice more effectively and avoid potential issues.

Don’ts

1. Ignore the Notice: Ignoring the notice will result in further legal action, including detailed investigations and penalties.
2. Delay Response: Delaying your response can result in adverse outcomes, including higher penalties and interest.
3. Provide Incorrect Information: Ensure that the information provided in response to the notice is accurate and complete to avoid further queries or issues.
4. Disregard Professional Advice: Always consult with a professional if you are unsure about the notice’s content or implications.

Legal Remedy

If a taxpayer believes that the enquiry notice is unjust or if the subsequent orders are unfavourable, they have the following remedies:

1. File an Objection: If you believe that the enquiry notice is unjust or if the subsequent orders are unfavourable, you can respond to the enquiry with valid reasons and request a re-evaluation if necessary. This is your right as a taxpayer and can help you present your case more effectively.
2. Seek Legal Intervention: If the enquiry notice or orders are deemed to have been issued without proper jurisdiction or in violation of legal provisions, approach the appropriate legal forum.
3. Appeal: The taxpayer can file an appeal against the orders of the Directorate of Anti-Profiteering under Section 107 of the CGST Act within three months from the order date.

Conclusion

Section 171 of the CGST Act 2017 provides the framework for anti-profiteering measures to ensure that the benefits of tax rate reductions and input tax credits are passed on to consumers. A Notice of Enquiry by the Directorate of Anti-Profiteering is integral to this process, enabling authorities to scrutinise pricing practices and ensure compliance. Understanding how to respond to such notices, the potential penalties, and the available legal remedies can help businesses navigate the enquiry process smoothly and avoid possible legal issues. Proper preparation and professional guidance are essential to handling anti-profiteering enquiries effectively and ensuring compliance with GST regulations.