Delhi HC upholds constitutional validity of anti-profiteering provisions under GST

 This Tax Alert summarizes a recent ruling of the Delhi High Court (HC) upholding the constitutional validity of anti-profiteering provision under the Central Goods and Services Tax Act, 2017 (CGST Act).

HC observed that:

• Article 246A of the Constitution empowers the Parliament and Legislature to make laws ‘with respect to’ goods and services tax. The expression “with respect to” is of wide amplitude and thus, the law making power with regard to GST includes all ancillary, incidental and necessary matters.
• Section 171 is not to be looked at as a price control measure but is to be seen to be directly connected with the objectives of the GST regime.
• As per Rule 126, National Anti-profiteering Authority (NAA) ‘may determine’ the methodology and not ‘prescribe’ it. Thus, so long as the methodology determined by NAA is fair and reasonable, objection cannot be raised that the specifics of the methodology adopted are not prescribed.
• Mandate of price reduction cannot be tampered with by the supplier by substituting the benefit with any other form such as increase in volume or weight, supply of additional or free material, or festival discount.
• If Legislature chooses not to provide for a right to appeal against an order of NAA, it cannot be a ground to declare an enactment as unconstitutional.
• Section 164 gives power to the Government to make rules for carrying out provisions of the Act and in particular to provide for penalty.
• Time limit provided for furnishing of report by DGAP is directory in nature.

Accordingly, HC upheld the constitutional validity of the anti-profiteering provisions under CGST Act.

Comments

• While the anti-profiteering provision is held constitutional, the NAA orders are still open to challenge on ground of unreasonableness or for not adopting appropriate methodology for computing profiteering.
• For real estate sector, the Court observed that the methodology adopted by NAA is flawed. Those who are impacted basis the orders passed by NAA may have to wait for the Court to consider and adopt any particular methodology while setting aside such orders for re-computation of price.
• The ruling reiterates several settled principles like non-requirement of judicial member in the performance of quasi-judicial functions, vested right of appeal etc.