Sunsetting Anti-Profiteering: A Shift from Transition to Stability under GST
When GST was introduced in 2017, Section 171 of the CGST Act brought in anti-profiteering provisions as a temporary safeguard to protect consumers during the transition to this new tax regime. The aim was to ensure that any reduction in GST rates or benefit of input tax credit was passed on to the ultimate consumer by way of a commensurate reduction in prices. At a time when businesses were adjusting to an entirely new tax structure, these provisions were seen as essential to protect consumer interest and maintain public trust in the new regime.
What Does Section 171 of the CGST Act Say?
Section 171(1) mandates that: "Any reduction in the rate of tax 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 reduction in prices."
In simple terms, it ensures that:
If GST rates are reduced, or
If a supplier gains additional input tax credit (ITC).
then consumers must get the benefit of that reduction, usually in the form of lower prices.
Simplified Example:
❖ Before Rate Reduction: A product is sold for Rs.100 (inclusive of 18% GST).
➔That means the base price = Rs.84.75, and GST = Rs.15.25.
❖ Now, GST Rate is Reduced from 18% to 12%
The supplier now has to sell the product at a revised price, reflecting the 12% GST, but keeping the same base price:
➔New price = Rs.84.75 + 12% GST = Rs.94.92
❖ If supplier still charges Rs.100, the unpassed Rs.5.08 becomes the profiteered amount. This is considered profiteering under Section 171.
In Summary
Section 171 ensures that tax cuts or increased credits under GST must directly benefit consumers. It prohibits businesses from making extra profits by keeping prices high despite lower tax costs.
Operational Framework: Chapter XV of the CGST Rules
Exit of NAA and the Rise of GST Appellate Tribunal
The anti-profiteering mechanism under GST originally revolved around the National Anti-Profiteering Authority (NAA), backed by Rules 122, 124, 125, 134 & 137 of the CGST Rules.
Effective from 1st December 2022, two key notifications took effect:
➣ Notification No. 23/2022, dated 23.11.2022- Central Tax: empowered the Competition Commission of India (CCI) to handle profiteering cases under Section 171.
➣ Notification No. 24/2022, dated 23.11.2022 - Central Tax: Formal omission of Rules 122, 124, 125, 134 & 137 - signaling NAA’s sunset.
Effective from 1st October 2024, Notification No. 18/2024 - Central Tax, dated 30.09.2024, issued under Section 171(2) read with Sections 109(1) and the second proviso to 109(5) of the CGST Act, vested the power to examine or adjudicate profiteering matters exclusively with the Principal Bench of the GST Appellate Tribunal (hereinafter referred to as “Authority”).
☛ Smooth shift from NAA ➠CCI ➠GST Tribunal
The Flowing Framework: Rules Still in Force (Rules 123 & 126-136)
Despite the omission of certain rules, the core procedural structure for anti-profiteering continues through the remaining rules in Chapter XV of the CGST Rules.
Procedural Flow: From Complaint to Order
The process begins with the filing of a written application by an interested party (supplier/ recipient), the Commissioner, or any other person, alleging that a supplier has not passed on the benefit of tax reduction or ITC. Here’s how the mechanism unfolds:
Step 1:Examination of Application by Standing and Screening Committees - Rule 123 & 128
The Standing Committee checks whether there’s prima facie evidence that the benefit of a tax rate cut or input tax credit (ITC) hasn't been passed on by reducing prices.
Timeline: 2 months from receipt. Can be extended by 1 month with reasons recorded and Authority’s approval.
For local-level cases:
The application first → go to State Screening Committee first.
Same time limits apply: 2 months + 1 month (if reasons recorded + approved).
If contravention found → the case moves to Standing Committee with its recommendation.
☛ Explanation 1 to Section 171(2): “Request for examination” = a written application seeking to verify whether input tax credit or tax rate reduction has actually led to a proportional price drop.
☠ No more applications after 1 April 2025: As per Notification No. 19/2024-CT, dated 30.09.2024, issued under the 1st Proviso to S.171(2), no requests for examination shall be accepted by the Authority from 1 April 2025.
Step 2:Investigation by Director General of Anti-profiteering (DGAP)- Rule 129
On referral by the Standing Committee, after finding prima facie evidence of profiteering, DGAP initiates a formal investigation.
Before Starting, DGAP Issues notices to interested parties detailing allegations and timelines.
DGAP can also issue notices to other relevant persons for a fair inquiry.
Collects and shares evidence with all involved parties to ensure transparency.
Completes investigation within 6 months, extendable by 3 months with valid reasons.
A report (findings + records) is then submitted to the Authority.
Step 3: Order by Authority: Rule 133
Within 6 months of receiving DGAP report, the Authority will decide if tax benefit or input credit was passed on by reducing prices fairly.
If requested, the Authority will grant a opportunity for hearing to interested parties.
The Authority can also ask DGAP for clarifications during the decision process.
If the benefit was not passed on, the Authority may order:
➣ Price reduction
➣ Refund to buyers with 18% interest.
➣ Deposit in Funds - If refund isn’t claimed or recipient is unidentifiable:
o 50% of the amount (with interest) goes to the central consumer welfare fund,
o 50% to the state consumer welfare fund.
➣ Penalty: As per Section 171(3A), the profiteer is liable to pay a penalty of 10% of the profiteered amount. No penalty if full amount is deposited within 30 days of the order.
➣ Cancellation of registration
If the Authority suspects other goods/services may also violate Section 171,
➣ Direct DGAP to start a new investigation on those additional goods/services.
➣ Must record reasons in writing and act within the 6-month time limit
➣ This fresh investigation is treated as independent, and
➣ All procedures of Rule 129 apply again (mutatis mutandis)
Step 4: Enforcement: Rule 135
Once an order is passed, Rule 135 requires immediate compliance by the registered person; non-compliance triggers recovery under relevant GST laws.
Miscellaneous Rules
Rule 126: Methodology and Procedure: The Authority has wide discretion to prescribe methodology and procedure to assess profiteering.
Rule 127: Functions of the Authority: The Authority is tasked to:
Determine if benefits of tax reduction or ITC have been passed on,
Identify recipients eligible for return,
To Order: (a) Price reduction; (b) Refund with interest @18%; (c) Imposition of penalty; (d) Cancellation of registration
Furnishes quarterly performance reports to the Council by 10th of the close of each quarter.
Rule 130: Confidentiality of Information
Section 11 of the Right to Information Act, 2005 applies to all confidential submissions.
The DGAP may request a summary of the information that doesn’t reveal sensitive details to ensure fairness and transparency during the investigation.
If the party feels they can’t create a summary without exposing sensitive info, they must explain the reasons to the DGAP.
Rule 132: Power to Summon: This rule gives the Authority or DGAP, or an officer authorized by him in this behalf, powers of a civil court to summon persons, enforce attendance, and demand documents.
Rules 136: Oversight: This rule allows tax authorities to be tasked with monitoring compliance.
Conclusion: A Statutory Sunset with Residual Embers
At the 53rd Meeting of the GST Council held on 22nd June 2024, the proposal to sunset the anti-profiteering provisions under Section 171 of the CGST Act was accepted. This decision was formally notified vide Notification No. 19/2024 - Central Tax, dated 30th September 2024, which fixed 1st April 2025 as the last date for accepting new applications alleging profiteering.
This marks the final phase of the anti-profiteering framework’s evolution. While no new applications for examination of profiteering claims are admissible beyond this cut-off. While the residual jurisdiction over pending cases may transition to the Principal Bench of the GST Appellate Tribunal, the foundational purpose of the anti-profiteering law-as a transitional safeguard-has now run its course.
Despite concerns raised by some Council members, the majority agreed that with GST now well-established, there's no longer a need for a dedicated anti-profiteering mechanism. The expectation is that market forces will naturally correct pricing where tax rates are reduced. Going forward, any pending profiteering cases will be handled by the Principal Bench of the GST Appellate Tribunal. While only time will tell if this move strikes the right balance between deregulation and consumer protection, one thing is certain - the window for filing new anti-profiteering complaints is now officially closed.
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.