[Yash Karunakaran is a 3rd year B.A., LL.B. (Hons.) student at NALSAR University of Law, Hyderabad.]
While the aim behind the introduction of the Anti-Profiteering Rules, 2017 was to rein in possible price hikes during the introduction of the General Sales Tax (“GST”) regime, the hastily drafted parent act and the vague nature of the rules themselves have called into question the constitutional principles of excessive delegation.
The CGST Act, 2017 and the Anti-Profiteering Rules, 2017 – A Brief Overview
The parent statute in question is the Central Goods and Services Tax Act, 2017 (“CGST Act”), which was introduced with effect from 1 July 2017. The specific provisions that I propose to analyse are those of sections 164 and 171.
Section 164 deals with the power to make rules with respect to any provisions of the Act, and also provides that such rules may be retrospectively applied. Section 171 deals with anti-profiteering measures, and calls for reduction in tax rates or benefits derived from the same to be passed onto the consumer by way of commensurate reduction in price. In order to enforce such compliance, it calls for the setting up of an authority to which complaints can be made. Further, sub-section (3) of section 171 states that such an authority shall exercise such powers and discharge such functions as may be prescribed.
No other provision of the parent statute provides further guidance with respect to passing on tax benefit or with respect to anti-profiteering measures. Thus, the rules in question only draw from sections 164 and 171. of the parent legislation. The Anti-Profiteering Rules, 2017 were announced in November 2016, and came into effect from 18 June 2017. The rules provide certain details as to the anti-profiteering measures to be followed by the authority, which have been mentioned in brief below:
Duties of the Authority:
– To determine whether any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit has been passed on to the recipient by way of commensurate reduction in prices;
– To identify the registered person who has not passed on the benefit of reduction in rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices.
The issue that arises now is whether such a delegation of powers by the legislature to the GST Council for the drafting of the rules is excessive in nature.
The Scope of Delegated Legislation
As with every instance testing the limits of delegated legislation, one must fall back to in Re Delhi Laws Act, 1912, and the plethora of judgements provided therein. While it is difficult to state that any particular principle has been laid down therein, what has been reinforced by various Supreme Court holdings is Justice Kania’s of ‘articulating a policy’ and ‘formulating a rule of conduct’. This has been worded effectively in Gwalior Rayon Silk v. Assistant Commissioner of Sales Tax, wherein Justice Khanna held that the vice of an excessive delegation cannot be ignored or lost sight of on the ground that the legislature extends control over the authority exercising the said power. Justice Khanna goes on to hold that in order to economise its own time, and to take advantage of the skills of the administration, ‘parliament may law down principles and leave out details (to be filled in by) to some minister or public body.’
In Gwalior Rayon Silk, Justice Khanna reinforces what the Court had also previously held in Harishankar Bagla v. State of Madhya Pradesh. In Bagla, a Constitutional Bench (which also had on it some members who ruled on In Re Delhi Laws) held that where the legislature laid down a principle which is clear and offers sufficient guidance, i.e., where the preamble or the body of the sections sufficiently formulate the legislative policy and the character, or where scope of an Act is such where the details can only be worked out by delegating them to a sub-ordinate authority within the framework of the policy, such delegation is valid. The holding in Bagla was followed up by a nine-judge bench in Delhi Municipal Corporation v. Birla Cotton Spinning and Spinning Mills. Herein, the Court held that the legislature must retain in its hand essential legislative functions and ‘what can be delegated is sub-ordinate legislation that is necessary for the implementation of the objectives and purposes of the Act.’ The Court further held that in cases where there was sufficient clarity in the legislative policy, or where a standard was laid down, there should be no judicial interference. Further, what guidance is given and to what extent, or if guidance has been given in particular instances, depends on an analysis of the provisions of the statute and its preamble.
To briefly summarise these decisions, it can be said that the test for excessive delegation would revolve around whether or not the statute in question provides sufficient guidance with respect to legislative policy to the subordinate body. If the legislature can show that the policy was laid out by them, and that it provided sufficient guidance to the authority, then there is no ‘delegation of essential function’.
Applying the Guidance Test to the Anti-Profiteering Provisions
Having discussed the conceptual framework for delegated legislation, I now shift focus to the CGST Act. The preamble of the statute does not provide us with much assistance, as it merely reads: ‘provisions made for the levy and collection of taxes and for matters thereby connected with or incidental thereto’. While anti-profiteering would necessarily fall under ‘matters connected or incidental to’, there is no direct reference to the same. Thus, the preamble fails to provide us with much help in our substantive enquiry. We now come to the two provisions that have been previously discussed in brief – sections 164 and 171 of the Act. Section 164 refers to the power to make rules under the Act, while section 171 broadly outlines the anti-profiteering provisions.
Section 171(1) is quite clear in so far as it mentions that the policy objective of any anti-profiteering measure is to ensure that the benefits gained from the new tax regime are passed on to the final customers by way of a ‘commensurate reduction’ in prices; i.e., put simply, that the policy is to ensure that where tax rates are reduced, or where there are credits provided, the prices should not be raised so as to cover up such drop in taxes. This clearly shows that the policy in question is clear as to what the objectives of the provision are.
Moving to section 171(2), we see that the Act lays down guidance for the Anti-Profiteering Authority by providing that it has a duty to examine the inputs availed by the registered persons, or benefits gained by way of a reduction in tax rate, and to examine if the same has been passed onto the consumers of its product. Thus, prima facie, section 171 seems to provide adequate policy guidelines as to the delegation of powers to the subordinate authority, and that the scenario is similar to that of Bagla and Birla Cotton. However, this is not the case if we move past the first level of enquiry.
The question that now comes up is: what exactly is a ‘commensurate reduction in prices’? While one might logically state that this would mean a proportional fall in prices, the Act is silent on defining or providing guidance as to the meaning of the same. If one is to look at the usage of the term, it is obvious that it forms the crux of the anti-profiteering provisions; and yet, we have no clue as to what it exactly means or entails.
The absence of such guidance need to also be seen in the context of how the anti-profiteering provisions have come about – they are drawn from the Australian and Malaysian GST regimes, both of which had different approaches to the what a commensurate reduction would mean. In the absence of specifically defining what such a reduction is, it can be said that there is a lack of adequate guidance to the authority in question. The Anti-Profiteering Rules too, fail to establish what such a reduction would entail, thus leaving up to the bureaucrats (who will form the screening committees and the Anti-Profiteering Authority) to decide using their own discretion what a commensurate reduction is.
Other questions such as what the parameters for reaching such a conclusion are, what could be mitigating or aggravating factors, and what the appropriate penal provisions are, should have been mentioned in the CGST Act itself. This problem is further exacerbated by the absence of such provisions in the Anti-Profiteering Rules as well.
In conclusion, it is important that Parliament should, by virtue of an amendment to the CGST Act provide for provisions that shall cover this lacuna. As it currently stands, the CGST Act does not provide sufficient guidance to the authority in question, and is liable to be struck down if challenged.
– Yash Karunakaran
