CGST Act enacted in public interest, is consumer centric: Delhi HC

Among various other observations, the Bench further said that the anti-profiteering mechanism incorporated in Section 171 is in the exercise of the “Parliament’s power to legislate on ancillary and necessary aspects/matters” of the GST.

While upholding the constitutional validity of the Central Good and Services Tax (CGST) Act, the Delhi High Court Monday observed that the law not only “simplifies and harmonises the indirect tax regime” in the country, but also marks a “paradigm shift” in the manner in which it is enacted.

The verdict came in a batch of over 100 petitions moved by firms running businesses ranging from hospitality, fast-moving consumer goods and real estate, challenging the constitutional validity of certain provisions of the Act, the CGST rules and the legality of the notices proposing imposition or penalty orders by the National Anti-Profiteering Authority (NAA). The NAA had passed final orders directing the petitioners to pass on the commensurate benefit of reduction in the rate of tax or the input tax credit to its consumers along with interest as per Section 171 of the Act.

A division bench of Acting Chief Justice Manmohan and Justice Dinesh Kumar Sharma observed that the Act “primarily intends” to provide a common national market for goods and gervices as reflected in its motto ‘One Nation One Tax’. Terming it a “consumer-centric Act”, the Bench said it eliminates the levy of multiple taxes, streamlines the credit mechanism by removing distortions in the supply chains, and ensures a smooth pass-through and transparent mechanism for levying tax.

“The Act levies a single tax on the supply of goods or services on the value addition at each stage of the supply chain from purchase of raw materials, manufacture of product or import, till the finished good reaches the hands of the consumer…This court is of the view that the amounts foregone from the public exchequer in favour of the consumers cannot be appropriated by the manufacturers, traders, distributors etc. To allow them to do so would amount to unjust enrichment,” the Bench underscored.

The HC said that the obligation of making a “commensurate” reduction in prices mentioned in Section 171 of the Act is relevant to the 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”, especially since the GST is a consumption-based tax (as adopted in India) and the recipient (consumer) practically pays the taxes which are included in the final price. It said that Section 171 cannot be looked at as a “price control measure” has been enacted in “public interest” and it mandates that “whatever is saved in tax must be reduced in price”.

Among various other observations, the Bench further said that the anti-profiteering mechanism incorporated in Section 171 is in the exercise of the “Parliament’s power to legislate on ancillary and necessary aspects/matters” of the GST.

The high court, however, clarified that there may be “cases of arbitrary exercise of power under the anti-profiteering mechanism”. The remedy for these would be to “set aside such orders on merits”.

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The Bench thereafter listed the matter for directions on February 8.

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