Companies not passing benefits of GST cut to customers, govt plans to hike penalty

Have the prices of regular use commodities come down after the government and the GST council slashed the tax for hundreds of items? The answer, according to the government, is a definitive no.

The government has substantive feedback that a large number of companies and businesses are not passing on the benefit to the consumers and are pocketing the extra tax charge as profit.

In an effort to curb profiteering, the finance ministry is considering an amendment in the GST law to penalize companies and businesses which have not been passing the rate cuts announced by the GST council to the consumers.

Presently, the penalty for such violations is Rs 10,000 or the amount of tax evaded, whichever is higher.

But, the violators may continue to benefit as government is planning to bring the amendment next year.

The GST council, during the last meeting, discussed th rationale behind bringing the amendment. The amendment proposes the formation of a multi-ministry panel including officials from finance and law.

Sources said that the government has found that companies have not been passing the benefit of the tax cut or the input tax credit to the consumers, thus defeating the very purpose of tax cuts and other provisions.

Since GST was launched on July 1 last year, the GST council has slashed the levy on 384 goods and 68 services. The last phase of cuts included nearly 100 products and services on July 21.


Finance minister Arun Jaitley, in a blog on July 27, had mentioned that the net revenue loss which government has suffered on account of the reduction of tax on goods and services since the launch is approximately Rs 70,000 crore.

The government feels that since the Centre and states have taken a revenue hit, the benefits should go to the consumers instead of being picketed as profits.

Right now, most of the profiteering is going unchecked. It has been found that companies and businesses have some excuse to defend its failure to pass on the benefits of the tax cuts to the consumers. Some companies claimed that they can’t pass on the benefit as manufacturing cost has gone up.

Some companies have not passed on the full benefit and have given consumers partial relief in prices.

There are also allegations that post rate cut, some companies have lowered prices selectively.

There are different tactics being employed by companies to reap profits. Some companies have slashed prices on less popular large packs of a product but there is no reduction on the smaller packs. Others, manufacturing multiple brands of same products have reduced prices on some and not on others products.

A senior revenue department official said, “These are malpractices and they have to be stopped. For that there is a need to create deterrents.”

Some companies have started blaming the price hike to the rising prices of fuels and rupee-dollar instability.

The government is worried as the refusal of the companies to pass on the benefits of the rate cut is leading to an inflationary trend.

Currently, the retail inflation is below 5 per cent; still, inflationary expectations are high because of higher fuel prices and declining rupee.

“Steps need to be taken to see inflation should not go up due to reasons which can be controlled domestically,” the official said.

The GST council had created the National Anti-profiteering Authority (NAA) to ensure that customers are charged the correct tax and assesses under GST do not indulge in rampant profiteering.

The authority is 4 tiered including NAA — the Directorate General of Anti-profiteering in the Central Board of Indirect Taxes and Custom (CBIC), a Standing Committee and Screening Committees in every state.

By this August, 32 screening committees have been set up, 29 in states and 3 in Union Territories (Delhi, Puduchery and Chandigarh).

Based on complaints, the committees have passed order in some cases and are now hearing over 130 cases. But the action is too little in comparison to violations taking place, sources in the government said.