Delhi HC Upholds Constitutional Validity Of Anti-Profiteering Provisions Of CGST Act

The Delhi High Court has upheld the constitutional validity of provisions relating to anti-profiteering under the Central Goods & Services Tax Act.

In that context, the Bench of Acting Chief Justice Manmohan and Justice Dinesh Kumar Sharma observed that, "the constitutional validity of Section 171 of Act, 2017 as well as Rules 122, 124, 126, 127, 129, 133 and 134 of the Rules, 2017 is upheld."

The Bench further stressed that, "the anti-profiteering provisions in the Act, 2017 and the Rules, 2017 are in the nature of a beneficial legislation as they promote consumer welfare. The Courts have consistently held that beneficial legislation must receive liberal construction that favors the consumer and promotes the intent and objective of the Act."

Senior Counsel P Chidambaram, along with others, appeared for the petitioner, while Counsel Zoheb Hossain, along with others, appeared for the respondents.

In this case, the Bench was addressing over 100 pleas filed by numerous companies, challenging the constitutional validity of anti-profiteering provisions. These companies were directed to pass on tax rate reductions or Input Tax Credit benefits to consumers with interest. The challenges included contesting the legality of notices proposing penalties issued by NAA and the final orders passed by the Authority.

The High Court had the following reasoning:

Section 171 Falls Within The Law-Making Power Of The Parliament Under Article 246A

It was observed that, "the antiprofiteering mechanism as incorporated in Section 171 of the Act, 2017 is in the exercise of the Parliament’s power to legislate on ancillary and necessary aspects/matters of Goods and Services Tax apart from being a social welfare measure as it amplifies and extends the earlier concept of barring persons to undertake exercise of collecting monies from the consumers by false representation."

In light of the same, it was held that the statute falls within the law-making power of the Parliament under Article 246A of the Constitution dealing with the ancillary and necessary aspects of Goods and Services Tax and is not beyond the legislative competence of the Parliament. 

Section 171 Lays Out a Clear Legislative Policy and Does Not Delegate Any Essential Legislative Function 

It was observed that, "Section 171 of the Act 2017 is a complete code in itself and it does not suffer from any ambiguity or arbitrariness. Section 171 of the Act 2017 sets out the function, duty, responsibility and power of NAA with exactitude. It stipulates that the pre-conditions for applicability of the provision are either the event of reduction in rate of tax or the availability of benefit of input tax credit (resulting in such reduction). Once the said prerequisites/conditions exist, the direct consequence contemplated i.e. reduction of the price must follow. Therefore, if before such reduction of rate of taxes or benefit of Input Tax Credit, the price paid by the recipient inclusive of the applicable tax at the relevant time was a particular amount, then on account of the reduction of the tax rate or the benefit of the Input Tax Credit, there has to be reduction in the subject price. Further, the reduction in the tax rate or the benefit of Input Tax Credit which is mandated to be passed on to the recipient is a matter of right for the recipient and consequentially, the price reduction must be commensurate to such benefit."

In light of the same, it was held that the statute lays out a clear legislative policy and has that the necessary navigational tools, guidelines as well as checks and balances in the provision itself to guide any authority tasked with ensuring its workability.

Impugned Provisions Are Not A Price Fixing Mechanism, They Do Not Violate Either Article 19(1)(g) or Article 300A of the Constitution 

The Court observed that, "Section 171 of the Act, 2017 only relates to the indirect-tax component of the price of goods and services and does not impinge upon the freedom of suppliers to fix their own prices keeping in view relevant commercial and economic factors...Section 171 of the Act, 2017 is solely focused on ensuring that the consequential benefit of reduction of the rate of tax by the Government reaches the recipient."

It was further observed that, "if there is any variation on account of other factors, such as any costs necessitating the setting off of such reduction of price, the same needs to be justified by the supplier. The inherent presumption that these must necessarily be a reduction in prices of the goods and services is a rebuttable presumption. It is clarified that if the supplier is to assert reasons for offsetting the reduction, it must establish the same on cogent basis and must not use it merely as a device to circumvent the statutory obligation of reducing the prices in a commensurate manner contemplated under Section 171 of the Act, 2017."

In light of the same, it was observed that since the provision is not a price fixing mechanism, and they do not violate either Article 19(1)(g) or Article 14 or Article 300A of the Constitution of India.

A Statutory Provision Cannot Be Struck Down on the Ground of Possibility of Abuse 

It was observed that, "Acts and their provisions are not to be declared unconstitutional on the fanciful theory that power would be exercised in an unrealistic fashion or in a vacuum or on the ground that there is an apprehension of misuse of statutory provision or possibility of abuse of power. It must be presumed, unless the contrary is proved, that administration and application of a particular law would be done “not with an evil eye and unequal hand”."

Goods and Services Tax Collected on the Additional Realization Has Rightly Been Included in the Profiteered Amount 

It was observed that, "Both the Central as well as the State Government had no intent of collecting additional Goods and Services Tax on the higher price as they had sacrificed their revenue in favour of the buyer. By compelling the buyers to pay the additional Goods and Services Tax on a higher price, the supplier has not only defeated the intent of the Governments but has also acted against the interest of the consumer and therefore, the Goods and Services Tax collected by him on the additional realization has rightly been included in the profiteered amount."

The matter has been listed on 8th February 2024 for appropriate directions. 

Cause Title: Reckitt Benckiser India Pvt Ltd vs Union of India

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