States for tough steps to prevent profiteering from GST rate cuts

As the Goods and Services Tax Council is set to discuss the sweeping GST 2.0 reforms proposed by the central government, some states have made a case for strict provisions to ensure that the rate-cut benefits are passed on to the consumer and are not lost amid profiteering by businesses.

They have suggested measures including roping in the consumer affairs ministry for strict action against profiteering, a platform for consumer grievance redressal and even bringing in an anti-profiteering law for four- to six-months with a hefty penalty for violations, people aware of the discussions told ET.

A group of ministers mandated to look at rate rationalisation has already endorsed the Centre's proposal for a GST recast. The GST Council, scheduled to meet on September 3-4, will discuss measures to ensure that consumers get the rate-reduction benefits.

"A few states have expressed concerns that the whole exercise will lose purpose if the benefit is not passed on to the end consumers so a strict mechanism should be in place to monitor and enforce this," a person aware of the deliberations said.

The concerns were expressed in respect to sectors including insurance, consumer durables and small cars and two-wheelers.

The GST framework at the time of its rollout had an anti-profiteering framework. It has now been done away with. Some states have favoured bringing such a mechanism for four to six months, the person said.

Such suggestions are a part of the recommendations given by GoM, he said.

Some GST officials believe bringing in an anti-profiteering clause may require a change in law and that there are enough provisions under the existing law to manage the issue, such as Section 74 that deals with wilful tax evasion.

"The department may invoke Section 74 in cases where profiteering involves deliberate evasion of tax and this can be further elaborated without reintroducing a law which was phased out," an official said. However, the council will take the call, he added.

The official said industry has already demanded that a rate rationalisation exercise should take into consideration the cost of repricing existing inventory and services contracts. There are also concerns that in some cases, GST rate cuts may create duty inversion and the prices may not come down.