Delhi High Court upholds validity of National Anti-Profiteering Authority under CGST Act

Delhi High Court upholds validity of National Anti-Profiteering Authority under CGST Act

States that the law and establishment did not violate the provisions of the Constitution of India including Article 19(1)(g)

The Delhi High Court has upheld the constitutional validity of the provisions related to anti-profiteering under the Central Goods and Services Tax (CGST) Act, 2017, and the establishment of the National Anti-Profiteering Authority (NAA).

In the Reckitt Benckiser India Private Limited vs Union of India Through Its Secretary & Ors and Connected Matters case, the division bench of Acting Chief Justice Manmohan and Justice Dinesh Kumar Sharma upheld Section 171 of the CGST 2017 and Rules 122, 124, 126, 127, 129, 133, and 134 of the Central Goods and Services Tax Rules, 2017.

Section 171 of the CGST Act mandates that the reduction in tax rate on any supply of goods or services must be passed on as a commensurate reduction in price to the consumers. It provides for the establishment of the NAA.

However, the Rules upheld by the Court dealt with the constitution of the NAA, the appointment of its chairman and members, and the power to determine the methodology, procedures, and duties.

In the judgment, which comprised more than 140 pages, the bench stated that Section 171 of the CGST Act, which mandated that the reduction in the tax rate on any supply of goods or services has to be passed on as a commensurate reduction in price to the consumers and provides for the establishment of the NAA, came under the law-making power of the Parliament under Article 246A of the Constitution of India.

The bench clarified that Section 171 had laid out a clear legislative policy. It did not delegate any essential legislative function and was not a price-fixing mechanism.

The judges held, “Section 171 of the Act, 2017 does not violate Article 19(1)(g) of the Constitution of India, as it is not a price-fixing mechanism. As rightly pointed out by the counsel for the respondents, Section 171 relates only to the indirect tax component of the price of goods and services. It does not impinge upon the freedom of the suppliers to fix their price keeping in view the relevant commercial and economic factors.”

The Court added, “We agree with the amicus curiae that Section 171 is solely focused on ensuring that the consequential benefit of reduction of the rate of tax by the government reaches the recipient.”

Justice Manmohan and Justice Sharma rejected the petitions filed by over 100 companies running diverse businesses ranging from hospitality, and fast-moving consumer goods (FMCG) to real estate. The companies included Philips, Nestle India, Gillette, Patanjali, Whirlpool, and Emaar MGF.

The bench maintained that though there was a possibility of cases about the arbitrary exercise of power under the anti-profiteering mechanism, the remedy for the same was to set aside such orders on merits.

The Court held, “What will be struck down in such cases will not be the provision itself which invests such power on the concerned authority but the erroneous application of the power.”

The bench thus rejected the petitions and at the same time dealt with the issues raised by the petitioner companies.

The findings and conclusions on the issues were:

• No fixed/uniform method or mathematical formula can be laid down for determining profiteering.

• It is the prerogative of the legislature to decide how the benefit is to be passed on to the consumers.

• The CGST Act does not fix a time frame during which the price reduction has to be offered.

• Section 64A of the Sale of Goods Act, 1930 does not apply to the obligation under Section 171.

• A statutory provision (Section 171 of the CGST Act) cannot be struck down on the grounds of the possibility of abuse.

• Not comparing taxes levied after the introduction of the CGST Act, with a basket of distinct indirect taxes applicable before the operation of the Act, would go against its intent and objective.

• There is no vested right of appeal, and an appeal is a creature of the statute. If the legislature has chosen not to provide for a right to appeal against an order of the NAA, that itself cannot be a ground to declare an enactment unconstitutional. In any case, the decisions of the NAA are subject to judicial review.

• There is no requirement for a judicial member in the NAA.

• Rule 124 of the CGST Rules, which deals with appointments, salaries, and other terms and conditions of service of the chairman and the members of the NAA, aligns with Article 50 (separation of the judiciary from the executive). There is no scope for governmental interference in the functions exercised by the NAA.

• Rule 133, which provides for the levy of interest and penalty, is within the rule-making power of the Central government.

• The Goods and Services Tax collected on the additional realization has rightly been included in the profiteered amount.

• The time limit for furnishing the report by the Director General of Anti-Profiteering (DGAP) is directory and not mandatory.

• The expansion of investigation beyond the scope of the complaint is not ultra vires the statute. Section 171 of the CGST Act is widely worded and does not limit the scope of examination to only goods and services in respect of which a complaint is received.

While appreciating the assistance rendered by all the counsels appearing in the matters, the bench, in particular, lauded amicus curiae Amar Dave and advocates V Lakshmikumaran and Zoheb Hossain. The judges said, “They filed not only the multiple written submissions but also ensured that the hearing in the present batch of matters (exceeding 100 cases), was conducted in an orderly and proper manner.”

Senior Advocates P Chidambaram, S Ganesh, Tarun Gulati, Chinmoy Pradip Sharma and Pritesh Kapoor addressed the arguments for the petitioners. They were supported by Advocates V Lakshmikumaran, Monish Panda, Rohan Shah, Abhishek A Rastogi, Tushar Jarwal, Sparsh Bhargava, Puneet Aggarwal, Sujit Ghosh, KS Suresh, Nikhil Gupta, Shashank Shekhar, and Priyadarshi Manish.

Advocates Zoheb Hossain, Sanjeev Menon, Vivek Gurnani, Kavish Garach, Abhipriya, Vivek Gaurav, Sejal Aneja, and Manisha appeared for the National Anti- Profiteering Authority and the Director General of Anti-Profiteering.