Supreme Court Seeks Union's Response On Plea Against HC Judgment Upholding Anti-Profiteering Provisions Under CGST Act

The Supreme Court on February 12 issued notice in a plea filed against the Delhi High Court order upholding constitutional validity of anti-profiteering provisions under the CGST Act and Rules.

Passing the order, the Bench of CJI DY Chandrachud, Justices JB Pardiwala and Manoj Misra clarified that the issuance of notice shall not be construed as a restraint on the High Court for disposing of the main petition pending before it.

To recap, initially, various companies which were directed to pass on commensurate benefit of reduction in the rate of tax or the Input Tax Credit to its consumers or recipients along with interest, filed pleas before the Delhi High Court. These pleas challenged the constitutional validity of Section 171 of Central Good and Services Tax Act, 2017 as well as Rules 122, 124, 126, 127, 129, 133 and 134 of the 2017 Rules ("anti-profiteering provisions"), the legality of the notices proposing imposition or orders imposing penalty issued by National Anti-Profiteering Authority (NAA) and the final orders passed by the Authority.

The High Court upheld the provisions concerning anti-profiteering measure and establishment of NAA under the Act and its Rules, observing that they are in the nature of a beneficial legislation as they promote consumer welfare. It ruled that the obligation of effecting or making a commensurate reduction in prices is relevant to the underlying objective of the GST regime, which is to ensure that suppliers pass on the benefits of reduction in the rate of tax and Input Tax Credit to the consumers.

The High Court further observed that NAA is primarily a fact-finding body required to investigate whether suppliers have passed on the benefit to their recipients by way of reduced prices as mandated by Section 171 of the Act, and thus, performs functions that are to be discharged by domain experts.

Aggrieved by the same, the petitioner-Excel Rasayan approached the Supreme Court, specifically against upholding of Section 171 and Rule 133. While Section 171 states that any reduction in 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, Rule 133 provides that the Authority may prescribe methodology and procedure to determine whether the same has been passed on by the registered person to the recipient in prices.

The petitioner avers that these provisions do not provide any methodology or objective parameters for computation of profiteering and thus run afoul of doctrine of void for vagueness.

It further challenges the provisions saying that they amount to delegation of essential legislative function (from Parliament to Executive) and sub-delegation of delegated power (from Executive to National Anti-profiteering Authority). It is also the petitioner's case that the 2017 Rules have conferred unguided, uncontrolled, and vague powers upon the Authority, Standing Committee, and DGAP without laying down sufficient guidelines which is arbitrary and unconstitutional.

"The CGST Act and CGST rules do not provide any safeguards in anti-profiteering measures. The Respondents are left with arbitrary powers entirely at their discretion, without any system of checks and balances."

In the petition, it is further asserted that the provisions were beyond the law making power of Parliament under Article 246A of the Constitution. According to the petitioner, Article 246A of the Constitution merely vests the authority to levy and collect taxes. However, the impugned provisions neither seek to levy nor collect taxes, instead, they seek to monitor and regulate prices.

Claiming that the provisions amount to "price regulations/determination", the petition adds that they are violative of Article 19(1)(g) of the Constitution.

To quote the petition, "in the guise of ensuring commensurate benefits are passed on to the consumers, the Respondent has ventured into the determination of base price, which is the exclusive right of the Petitioner enshrined in Article 19(1)(g) of the Constitution of India."

As per the petitioner, the High Court has failed to appreciate that determination of commensurate reduction in price necessarily involves consideration of costing and market related factors and in the absence of the same being addressed in the impugned provisions, NAA is vested with absolute and arbitrary discretion without any guidance or parameters to carry out its functions.

Counsels for petitioner: Advocates Abhishek A Rastogi and Ajay Singh; AOR Shubham Singh

Case Title: M/S EXCEL RASAYAN PRIVATE LIMITED v. UNION OF INDIA & ORS., Special Leave to Appeal (C) No(s). 3112/2024

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