Anti-Profiteering under the CGST Act: Loopholes in the Implementation of GST Rate Reductions

[Harshit is a student at Rajiv Gandhi National University of Law.]

The much-anticipated GST rate cuts have sparked curiosity in the minds of producers, wholesalers, retailers and other stakeholders (herein after referred to as "market intermediaries") in the selling of goods and services. A common practice observed is the upward revision of the price of their products and retaining the previous maximum retail price (MRP) once the rates are deducted. However, the current Central Goods and Service Tax 2017 (CGST Act) prohibits them from maintaining the price and makes it mandatory for them to pass on the benefit of reduced rates to the customer under Section 171 of the CGST Act, terming it as anti-profiteering. Section 171(1) provides that once the rates are reduced, the benefit must eventually be passed on to the customers. The MRP must be commensurately adjusted in response to the change in the tax rate.

However, recently, on 15 August 2025, Prime Minister Narendra Modi announced that the GST rates will be reduced within two to three months, which provided ample opportunity to the market intermediaries to increase the MRP just before the expected change in rates, thereby the final MRP after the rate change is almost equivalent to the pre-GST rate MRP. 

Market Prices and Consumer Behavior

Since the recipient has a psychological impact from continuously paying the same price, recipients do not mind paying the same price again. Consumers are generally habituated to paying same price for the product. Once the psychological benchmark is established, recipients generally do not question the constant price even though there is a structural change in the pricing mechanism. Further, since the recipients are generally not aware of the anti-profiteering mechanism, consumers are often not aware of the increased profit margins by the market intermediaries owing to the rate impact. This creates a systemic gap, where the legislative intent of anti-profiteering was to give relief to the Recipient. Notwithstanding that the market intermediary has reduced the MRP when the GST rates were reduced, the benefit was not passed on to the recipients.

Judicial Interpretations

The GST Appeal Tribunal (GSTAT) and National Anti-Profiteering Authority (NAPA), while dealing with anti-profiteering cases, have tried to evaluate the final MRP by comparing the price during the pre-rate reduction period. In Director General of Anti-Profiteering, Central Board of Indirect Taxes and Customs v. Urban Essence (Urban Essence), the GSTAT considered the pre-rate reduction period of two months from July 2017 to August 2017 and ordered to reduce the price of restaurant services be commensurately reduced. Furthermore, in the Director General of Anti-Profiteering, Central Board of Indirect Taxes and Customs v. M/s. L'Oreal India Private Limited, NAPA, while considering the anti-profiteering issue in L’Oreal Products considered the pre-rate reduction period of one month from 1 September 2017 to 30 September 2017.  Since the respondent changed the price of the product multiple times during the pre-rate reduction period, NAPA considered the weighted average price to be considered as the pre-rate reduction price for consideration in the final MRP.

Both the judgements by GSTAT and NAPA, respectively, highlight two different logical fallacies a) firstly, regarding the discrepancy in identifying the pre-rate reduction period, and b) secondly, regarding the change in prices even during the pre-rate reduction period.

Discrepancy in the identification of the pre-rate reduction period

The pre-rate reduction period is essential for evaluating the commensurate reduction in the MRP after the GST rates cut. However, neither the legislature nor the courts has mentioned the criteria in the identification of the pre-rate reduction period, thereby bringing inconsistency in the whole process. The whole process makes it difficult for the market intermediaries to identify the price that the courts might consider while evaluating the MRP. This further makes the case for increased chances of market intermediaries being sanctioned under Section 171 where they might not know the exact price to be set. The lack of clarity further makes the case for various interpretational disputes, with different interpretations by different courts and inconsistent rulings.

Change in prices even during the pre-rate reduction period

In Urban Essence, the price of the products were changed even during the pre-rate reduction period, and the weighted average price was considered as the pre-rate reduction price. This scenario might cause an increase in cases where the market intermediaries increase the MRP before the GST rate cuts, in order to increase their commission and the MRP before the increase in prices and the MRP after the GST rates cut remain alike, and the benefit of the reduction in prices might not be passed on to the recipients. Although the courts in numerous occasions considered plausible reasons where the intermediaries might be forced to increase their prices that are not in their control, however, since the intermediaries might already know the possibility of a possible reduction in rates, there is a probability that they increase their prices just before the rate cuts and enhance their profit margin. Such practices not only takes the intended benefits away from the consumers but also raises a critical question over the fairness and credibility of the GST system.

Conclusion

Better clarity is required from the government and the courts regarding the anti-profiteering system. Different courts have relied on different tenures in identifying the pre-rate reduction period, sometimes fifteen days, one month, three months and the like. If there exists a possibility of different periods, certain conditions must be laid down analogous to the classification schemes under the customs. It is required that there must be certain uniformity or fixed parameters in evaluating the pre-rate reduction period. This will ensure fairness and equity in the market and ensure that the business does not take unfair advantage. In addition to that, increasing prices during the pre-rate reduction period must be strictly prohibited, in scenarios when the market intermediaries are aware of the possible change in the reduction in the rates. All of these measures would underline the main legislative intent of the parliament in ensuring that the benefits of the reduction in rates must be commensurately given to the recipients.